Assessing The Performance of Strategic Alliances

European Management Journal Vol. 18, No. 5, pp.
529541, 2000
2000 Elsevier Science Ltd. All rights reserved
Pergamon
Printed in Great Britain
0263-2373/00 $20.00 PII: S0263-2373(00)00042-6
Assessing the
Performance of Strategic
Alliances:
Matching Metrics to
Strategies
KAREN CRAVENS, University of Tulsa, USA
NIGEL PIERCY, University of Cardiff Business School, UK
DAVID CRAVENS, Texas Christian University, USA
For many organizations, the current business
environment compels the use of collaborative
alliances as an important component of strategy.
Consequently, the need to assess the performance
of these alliances becomes a priority as more and
more companies enter into such relationships.
Analysis of alliance success during the last decade
indicates that performance evaluation is a critical
success factor, and the reality is that many compa-
nies do not develop and implement formal per-
formance evaluation processes. It is often difcult
to create a formal evaluation process due to the
unique nature of the alliance structure. We propose
the use of the balanced scorecard as a means to
develop a formal assessment approach that links
performance evaluation to the objective of the
alliance. The result is a generic template that can
be adapted to the specic alliance evaluation
requirements of a particular organization. 2000
Elsevier Science Ltd. All rights reserved
Keywords: Strategic Alliances, Balanced Scorecard,
Performance Evaluation
It is apparent that strategic alliances, supplier and
manufacturer partnering, value chain relationships,
joint ventures, and other forms of collaboration
between previously independent organizations have
escalated in importance during the 1990s. These
organizational initiatives have attracted extensive
attention by scholars and executives in their efforts to
European Management Journal Vol 18 No 5 October 2000 529
analyse and evaluate alliance strategies (Gulati, 1999;
Gulati and Singh, 1998; Sivadas and Dwyer, 2000).
Indeed, estimates from The Economist (1999a) sug-
gest that more than 20,000 inter-organizational
alliances were formed in the period between 1996
and 1998 alone.
Alliances are formed for a variety of reasons (Bleeke
and Ernst, 1991; Khanna et al., 1998; Prahalad and
Hamel, 1990; Powell, 1987), including an increased
focus on the use of an alliance as a strategic device
(Kale et al., 2000). Various forms of partnering have
become important components of strategy for many
companies, reecting the compelling logic of collab-
oration. Similarly, research regarding alliances has
shifted from consideration of conditions favourable
to alliance formation to evaluating the outcome of
alliances and the effects on partners (Dussauge et al.,
2000), and the selection of particular partners (Chung
et al., 2000).
Business Week (1999) reports an estimate by the inu-
ential Andersen Consulting company that it is typical
for an average large corporation to have more than
30 alliances in operation, compared to none a decade
ago. Andersen Consulting predicts that by 2005 glo-
bal alliances will total $(US)25 trillion to $(US)40 tril-
lion in value. The underlying logic of such strategies
is that combining the distinctive capabilities of two
or more companies enables each participant to obtain
greater productivity from its skills and resources,
ASSESSING THE PERFORMANCE OF STRATEGIC ALLIANCES: MATCHING METRICS TO STRATEGIES
while at the same time sharing external risks and
uncertainties with partners. Yet, there is a signicant
element of internal risk involved in agreeing to form
an alliance with a partner or partners. Research is
also beginning to explore the interaction between
potential gains from the alliance as compared to
increased risk of opportunistic behaviour by a part-
ner (Kale et al., 2000).
An illustration of the current alliance environment is
provided by the strategic initiatives for international
partnering pursued by air carriers. The trade source
Airline Business indicates that by the spring of 1998
the total number of alliances in the industry had
reached 500 (The Economist, 1999a), The strategic
logic is that a global alliance, such as OneWorld with
American Airlines and British Airways at its core, can
expand global coverage through the formation of
alliances with other airlines serving different geo-
graphical regions, more effectively than could other-
wise be achieved.
Indeed, many of the innovative business models cre-
ated by new-style competitors rely on effective
alliance building and management. Researchers are
beginning to explore the manner in which rms
develop ways of managing alliances in terms of
learning effects (Anand and Khanna, 2000). Dell
Computers direct business model rests on virtual
integration with suppliers and customers based on
information exchange and learning. Dells model
attempts to turn conventional buyer seller relation-
ships into collaborations. Amazon.coms exploitation
of its unique Internet business model relies on suc-
cess in building a network of associates, whose web
pages carry links to Amazon, and partners whose
products and services Amazon can market in turn to
its customer communities. Furthermore, lean supply
chain programmes, like Efcient Consumer Response,
which has revolutionized the grocery business, are
built on horizontal and vertical alliances and collab-
oration between companies replacing traditional
competitive relationships. The inuence of these new
business models underlines the urgency of recon-
sidering the management approaches most effective
in this new reality.
In recent years considerable attention has been
devoted to determining the advantages and limi-
tations of strategic partnerships, for example in terms
of the selection of suitable partners, and the develop-
ment of collaboration plans. However, it should be
noted that recent estimates suggest that two-thirds
of the inter-organizational strategic alliances formed
between 19921995 were dissolved (The Economist,
1999b) Indeed, the high failure rate of strategic
alliances has placed major emphasis on developing
robust alliance formation guidelines and processes,
as well as attempting to identify what types of rms
form effective alliances and the underlying rationale.
However, it is surprising that far less attention has
been focused on assessing the performance of stra-
tegic relationships. According to Andersen Con-
sulting, a major reason for the high failure rate of
alliances is that only 31 per cent have developed and
implemented formal performance measures, and
only one in ve executives considers the measures
that have been implemented to be reliable indicators
of alliance success (Business Week, 1999). The lack of
reliable performance indicators is probably associa-
ted with the lack of general consensus regarding the
requirements for a successful alliance, and major dis-
agreement on appropriate measures to assess per-
formance. Compounding the problem is that strategic
alliance relationships require organizations to place
more emphasis on relatively unfamiliar subjective
criteria, and measures such as trust, commitment,
and other intangibles. It is this aspect of the assess-
ment process that is perhaps even more crucial in
increasing the likelihood for a positive outcome for
all of the partners in a strategic alliance strategy.
Responding to these important concerns, we present
and illustrate a process for designing an evaluation
plan to assess the performance of strategic alliance.
First, we outline the process of developing an evalu-
ation plan. Next, we examine the design of a manage-
ment control system necessary for the selection of
evaluation criteria. Finally, we describe the use of the
balanced scorecard framework as a promising evalu-
ation method, including guidelines for implementing
the evaluation plan.
Developing an Evaluation Plan
The failure to adopt a formal process to assess
alliance performance is a potential hurdle for many
companies in managing these complex relationships.
Our logic is that it is essential to create a formalized
plan for evaluating the performance of a relationship
with a single partner or multiple partners. Figure 1
outlines the sequence of actions for establishing such
a plan. Developing the evaluation plan begins with
assessing the rationale or strategic objective for the
relationship.
Rationale for the Relationship
A strategic intent by partner companies establishes
the need for a relationship. For example, an alliance
may be sought to ll a crucial gap in skills or to
obtain access to resources, or the relationship may
seek to provide opportunities in the form of sharing
the risk of a new venture. The goal may be entry to
new markets where local barriers exist. A successful
example of overcoming barriers is the long-standing
relationship between Corning, the US glass manufac-
turer, and Samsung, the South Korean electronics
company. This relationship started with a single
plant making television tubes in South Korea and has
Figure 1 Developing an Alliance Evaluation Plan
grown into a wide-ranging agreement covering much
of east Asia. Regardless of the initial motivation for
creating a relationship, it is the strategic intent for the
future that will eventually provide a basis from
which to evaluate the performance of the relation-
ship. For example, the intent of alliances of State-
owned and independent organizations in developing
countries like China is, in part, to gain learning
opportunities, such as partnering with Boeing in air-
craft production. The nature of the objectives will
drive the type of partners sought, the manner in
which the relationship operates, and thus the type of
evaluation metrics selected for evaluation.
However, it is important to remember that the ration-
ale for the relationship may evolve, indicating the
need for similar evolution of performance appraisal.
The benets sought from the relationship may
change in priority during the lifetime of the alliance,
and benets unforeseen at the outset may become
important.
Resource and Risk Relationships
In forming an alliance, rms will seek partners to ll
gaps in skills or resources or to add to their own dis-
tinctive capabilities. Consequently, both of these stra-
tegies create risks depending upon the type of
resources sought. Das and Teng (1998) characterize
the types of resources that the partners bring to the
relationship as nancial, managerial, physical, and
technical. In conjunction with these resources, two
types of risk are possible: relational and performance
risk. Performance risk is possible with any strategy,
while relational risk exists only with collaborative
relationships. Relational risk is the risk of opportun-
istic behaviour of one of the partners having a nega-
tive impact on the other partner(s).
Given an environment of differential resources
among the partners, various types of total risk will
result. Consequently, the relationship must be man-
aged to maximize available resources and to minim-
ize risks. Means of evaluating the relationship must
be tailored to the resources provided in the relation-
ship and the degree of relational and performance
risks assumed. Particular elements will be more criti-
cal to partners with various combinations of
resources and risk and will have implications for the
selection of evaluation mechanisms.
Evaluation Implications of Strategic Intent
Table 1 illustrates the elements that may affect evalu-
ation of the relationship in conjunction with different
types of resources and risks assumed. The rst col-
umn of Table 1 identies the four major forms of
dominant resource contributions that a partner can
make to a relationship. The focus on resources pro-
vides some insight as to the concerns of the partner
relative to the risk relationship with each partner. We
enhance Das and Tengs (1998) framework by trans-
lating the concerns relative to risk to specic
elements that may appear in the control system struc-
ture. For example, partners contributing nancial
resources when they perceive the relational risk to be
high are likely to exhibit a lower level of trust toward
their partner. This lack of trust results in a desire to
achieve control over the decision-making process.
Thus, the partner contributing nancial resources
often seeks an equity interest in the other partner.
From a control system perspective, a hierarchical
approval structure might be implemented.
In the same resource situation coupled with higher
Table 1 Evaluation Implications of Strategic Intent in Relationship Formation*
Dominant resource Type of risk perceived Evaluation implications Control system components
contribution of partner as high
Financial Relational Lack of trust by investing partner Hierarchical approval structure
creates preference for control over
decision-making which often manifests
in equity ownership
Performance Protability concerns creates a desire Short-term evaluation metrics
for explicit exit provisions in the Financially-oriented metrics
contract
Managerial Relational Lack of trust between partners The dominant partner seeks to
compels tighter control mechanisms; place its managers in key positions
hierarchical structure of authority of authority
Performance Higher levels of trust between Co-ordination among partners is
partners; focus on improving critical
managerial efciency Top managers selected by all
partners for extended periods to
encourage co-ordination and
interaction
Physical Relational Stability is the goal of the relationship Tight controls to limit opportunistic
among partners; Incentive to link behaviour
partners to the alliance in a long-term Formalized networks for transfers
manner; Propensity for shared equity
ownership
Performance Much lower incidence of this type of Short-term evaluation metrics
risk; overall goal is resource exibility
and recurrent contracts
Technological Relational Preference for controls over Lack of free ow of information and
information from proprietary processes communication; formal
communication mechanisms
Performance Preference for licensing technology to Short-term evaluation metrics
multiple partners Financially-oriented metrics
*Based on Das and Teng (1998)
performance risk, the partner contributing the nan-
cial resources may desire explicit exit provisions to
escape more easily from the relationship if it is not
protable. This could create a preference for short-
term evaluation metrics and metrics that are nanci-
ally oriented in general to provide information about
the protability of the relationship. Examples of met-
rics include market share, expense-to-budget ratio,
and prot contribution.
The three additional types of dominant resources
depicted in Table 1, managerial, physical, and tech-
nological, create various implications for evaluation
according to the perception of the degree of relational
versus performance risk. Control system components
will differ according to the desires of the partner in
terms of minimizing the dominant type of risk. For
example, relational risk concerning technological
resources is particularly relevant in the case of the
General Electric/Pratt & Whitney alliance. This
alliance was formed in response to the tremendous
development costs and market risks in developing a
new engine for the Airbus super-jumbo commercial
jet. In other ventures General Electric Engines and
Pratt & Whitney are direct competitors. Controls over
information from proprietary processes are thus high
priority issues for both partners.
Form of the Relationship
Articulating the rationale for the relationship pro-
vides necessary guidelines for determining the form
of the relationship. The form is particularly critical as
various components in the governance structure will
assume different priorities. The three primary forms
of relationships are contractual alliances, joint ven-
tures, and some level of minority equity ownership.
The form of the relationship thus inuences the types
of hierarchical controls enacted. Gulati and Singh
(1998) detail the elements of hierarchical control in
the governance of strategic alliance relationships as:
(1) a command structure, including authoritarian
communications; (2) incentive systems with corre-
sponding rewards and punishments; (3) standard
operating procedures to facilitate decision-making;
(4) procedures to resolve disputes; and (5) non-mar-
ket pricing systems. The relative importance of these
elements will vary in an alliance according to the
anticipated co-ordination costs and interdependence
of the alliance. All of these elements are imbedded
in the nature of the management control system of
the relationship.
Strategic relationships may be domestic or inter-
national in scope, include partners in the same indus-
try or other industries, and may involve collaboration
on technology, product development, manufactur-
ing, marketing, or nance. The management control
system for the relationship requires a clear denition
of the scope of the project and how the partners are
linked together. For example, an alliance to co-brand
a line of breakfast cereals between two organizations
such as Healthy Choice and Kellogg may only
require agreeing to place the Healthy Choice name
on certain types of cereal produced by Kellogg,
assigning the marketing responsibilities of each part-
ner, and determining how expenses and prots will
be shared. In contrast, a global airline alliance like
OneWorld requires a complex network of marketing,
nance, and operations functions.
Table 2 provides several illustrative implications for
evaluation when considering the form of the relation-
ship in conjunction with the dominant resource con-
tributed. Evaluation implications differ across the
four types of resource contributions and three forms
of relationships. For example, nancial contributions
can be more clearly dened compared to technologi-
cal resources. Safeguarding resources becomes very
important when technological resources are
involved. Several other illustrative implications are
noted.
Calyx and Corolla (C&C) functions as a centralized
orist with a network of contractual relationships
with ower growers in the US. This entrepreneur
markets fresh owers by mail order, delivering them
by Federal Express to the customers home or ofce.
C&C designs the ower arrangements that appear in
its catalogue and website and provides attractive
Table 2 Implications of Relationship Form
Resource contribution Form of the relationship Illustrative evaluation implications
or rationale
Financial Contractual alliances Need for accountability, particularly with informal relationships.
Joint ventures Easier to base incentive system on nancial measures, since
the venture becomes a separate organization.
Minority equity ownership Financial measures monitored more closely
Managerial Contractual alliances Establish responsibility for performance evaluation due to
difculty in integration and co-ordination
Joint ventures Incentives can relate to qualitative measures; easier to
monitor due to separate entity
Minority equity ownership More difcult to build consensus; encourage more ow of
information
Physical Contractual alliances Important to clearly dene partners physical resource
contributions and how they are combined
Joint ventures Less concern over safeguarding assets and contributions to
the partnership
Minority equity ownership Contribution should be easily identied
Technological Contractual alliances Safeguarding resources is a priority; difcult to monitor
contributions of partners
Joint ventures Must align incentives to deal with inequality between
managers of the partners and with managers of the parent
rms
Minority equity ownership May be used as an incentive to encourage majority partner
packaging materials with the C&C logo to the ower
growers who assemble the ower arrangements. In
this contractual alliance, the growers are contributing
physical resources, and issues such as safeguarding
technology or creating trust among partners are not
relevant. In terms of evaluation implications, Table 2
notes that it is most important to clearly dene the
physical resource contributions of the growers and
how these resources are combined with other
elements of the process. Thus, evaluation metrics
would focus on the ability of the growers to assemble
and ship the owers on a timely basis and in the
manner ordered. Since C&C has a very small core
staff, it can adapt very rapidly to changing market
and customer requirements but is highly dependent
upon the actions of the growers who interact directly
with the customers. The evaluation system would
need to monitor the extent to which the growers can
respond to customer orders once they receive the
request from C&C and if the orders are provided for
shipment correctly and quickly. C&C also relies on
standardization of the product since the customer is
ordering based upon expectations from looking at the
catalogue or website. Metrics might include this fac-
tor as well. Core managerial resources and nancial
responsibility are provided by C&C and are not rel-
evant to the relationship with the growers.
It is also important to recognize that networks of
alliance relationships evolving over time can make
the relationship form complex and provide the chal-
lenge of evaluating multiple alliances for a single
company organized under different management
structures. Johnson Matthey (JM) is a global specialist
in precious metals, catalysts, and electronic materials.
JMs alliance with a circuit board manufacturer,
Details Inc. in California, is built largely on the infor-
mal personal relationship between the presidents of
the companies. More formal is JMs relationship with
Japans ceramic chip producer Kyocera, which is
handled by an executive management committee. At
still a higher level of formality is the alliance with
Mitsubishi, where a full infrastructure has been cre-
ated for the venture with the CEO from JM and the
workforce seconded from Mitsubishi. In addition,
some JM alliances, such as that with the Canadian
Ballard Power Systems fuel cell producer, serve a
specic technological purpose and are then re-
thought or dissolved to reect new circumstances
(Lester, 1998, p. 25).
Strategic Objectives
The strategic objectives of the relationship are con-
sidered as the next step of the evaluation process,
because they provide a critical part of the foundation
on which the management control system for the
relationship is built. The underlying logic is that the
strategy of the relationship yields strategic objectives,
while the management control system provides the
mechanism for implementing the strategy of the
relationship. The elements of the control system pro-
vide management with the means to assess the per-
formance of the relationship in terms of achieving the
strategic objectives. The primary benet of recogniz-
ing the control system structure in this way is that it
is relevant for implementing the strategy. This
approach also underlines the fact that if the strategy
or strategic intent of the relationship changes, then
the control system must be adapted and redeveloped
to respond to this change.
Our logic is that the evaluation criteria for assessing
the performance of the entire relationship should be
developed according to the relative importance of the
various strategic objectives established by managers.
However, it follows that as strategic objectives are
modied during the lifetime of the alliance, to remain
effective the evaluation criteria must be adapted as
well. The importance of this process of evolution and
adaptation of evaluation criteria in line with chang-
ing strategic objectives is highlighted by the fact that
the control system also includes such elements as the
performance evaluation and reward system for the
individual managers involved in implementing the
strategy. The dangers inherent in appraising and
rewarding managers on the basis of outdated criteria
is clear.
Design of the Management Control
System
Managements rationale for the strategic relationship,
decisions concerning the form of relationship, and
the strategic objectives set key guidelines for design-
ing the management control system (see Figure 1).
The control system is the process by which managers
inuence other members of the organization to
implement the organizations strategies (Anthony
and Govindarajan, 1998, p. 6). It is ultimately the
elements of the control system that determine the
execution and success of a corporations strategy. For
example, the strategy may be formulated to achieve
competitive advantage, but if the execution of the
strategy is awed, this objective may not be achieved.
Emphasis on the control system structure allows the
partners to assess what controls are necessary rela-
tive to the strategy for the relationship, independent
from their own separate control systems. The
relationship partners must determine the nature of
controls in terms of exibility and structure. Will the
controls be formal or informal, and will the organiza-
tion function in a exible or hierarchical manner?
These controls then form the basis of the evaluation
system and the type of metrics that are collected.
The management control system for any type of
inter-organizational relationship can be characterized
as somewhat of a hybrid. Each of the partners in a
relationship will have an existing management con-
trol system in place to implement its own inde-
pendent strategies. A unique management control
system is created for the relationship that exists
among the partners. This hybrid system will function
in tandem with the partners separate control sys-
tems, but will be oriented exclusively towards
implementing the strategy for the relationship. Thus,
this new system may be biased by the elements of
the partners separate control systems. The challenge
arises in dening specic elements of the alliance
control system that truly are tailored to the relation-
ship and are not merely repetitive of existing con-
trol systems.
For example, consider the alliance between Hewlett-
Packard and Matsushita Electronics for the develop-
ment of H-Ps fax machine. Matsushita contributed
the fax technology, while H-P incorporated Inkjet
printer technology. Both of these technologies existed
before the introduction of the new fax machine. How-
ever, it was the combination of these two partners
that resulted in the creation of the new product.
Existing control systems for each partner may have
relied on different metrics than would be relevant for
the new product creation. Activities involving the
responsibility for developing the new product con-
cept testing are relevant to the control system of the
alliance and may not have been in place separately
for the partners. For example, the alliance control
process must take into account the shared product
design and manufacturing responsibilities.
Selection of Evaluation Criteria
One of the key features in alliance success is the pres-
ence of constant evaluation and monitoring of the
alliance (Segil, 1998). Without a specic set of evalu-
ation criteria tailored to the objectives of the relation-
ship, it is not possible to provide information regard-
ing the success of the relationship. This information
is crucial so as to adjust strategy and the operational
mechanisms of the relationship. If a management
control system for the relationship is in effect, then
the evaluation criteria should be a product of these
controls. Thus, a separate control system must be cre-
ated for the alliance to determine evaluation criteria
that may be independent of the partners existing
control systems.
The Balanced Scorecard Framework
One way to formalize this process is to employ the
balanced scorecard developed by Kaplan and Norton
(1996). The balanced scorecard system illustrates how
the strategy of a rm can be translated into perform-
ance measures based upon four perspectives: nan-
cial, customer, internal business process, and learn-
ing and growth. These four perspectives provide the
balance necessary for a company to focus on issues
that are indicative of longer-term success, rather than
concentrating on short-term nancial measures. This
framework is particularly relevant in our present
context, since the strategy selected for the alliance
drives the development of the balanced scorecard.
Similarly, since nancial measures may not be suf-
cient to reect the true performance of the relation-
ship in either the short- or long-term, the balanced
scorecard framework forces managers to consider
other measures of performance. However, it is worth
noting that the effectiveness of balanced scorecard
approaches relies on the existence of ultimate
accountability a manager or group exercising lead-
ership in the alliance since effective performance
appraisal metrics must be linked to internal struc-
tures and processes, as well as alliance objectives.
Kaplan and Norton (1996, pp. 1735) describe how
the balanced scorecard can be applied to the joint
venture form of an alliance between several oil-eld
services companies. They assert that the balanced
scorecard can help integrate the goals of these inde-
pendent organizations. The joint venture developed
strategic measures that were based on the goal of
improving productivity in terms of reducing the
entire life cycle cost for a barrel of oil. Operationally
the measures dened how the separate entities
would work together to achieve this goal. In addition
to traditional nancial measures such as return-on-
capital, cash ow and revenue growth, the joint ven-
ture included a new measure percentage of total
business that involved multiple operating companies
within the joint venture. The customer measure was
reduction in cost per barrel of the oil at the wellhead.
Internal business process measures followed from the
customer perspective and were focused on entities
working together: cost reductions identied by work-
ing together in cross-business teams, and sales vol-
ume from new service capabilities from working
together. Finally, the learning and growth measures
considered the extent of teamwork relationships,
enhancing cross-functional skills, and aligning incen-
tives that related to integration.
Using the control structure described in earlier sec-
tions, Table 3 identies control elements which sug-
gest specic evaluation criteria that may be dominant
in a variety of situations. The balanced scorecard
allows us to propose an initial generic evaluation
framework without knowledge of the specic stra-
tegic objectives of the relationship. However, while
this framework provides a valuable template, the
need for customization is paramount. Without this
customization the balanced scorecard is unlikely to
be effective as an alliance evaluation mechanism.
Ultimately, the strategic objectives will determine the
evaluation criteria. Similarly, the resources provided
by the partners and the form of the relationship will
also inuence the specic evaluation criteria.
We provide Table 3 as a means to evaluate alliance
relationships in terms of the balanced scorecard
framework. A focus on this perspective in conjunc-
tion with the various management control system
activities is one way to insure that all relevant areas
are considered in evaluating the effectiveness of a
relationship in terms of the strategy of the relation-
ship. This format is applicable regardless of the
rationale for collaboration, the nature of the relation-
ship structure, the stage of the relationship, and the
specic strategic objectives.
The Need for Customization
Kaplan and Norton (1996) emphasize that the bal-
anced scorecard is only a template and must be cus-
tomized for the specic elements of an organization.
Similar customization is necessary in using the bal-
anced scorecard in an alliance relationship. For
example, in considering the impact of relational qual-
ity in an alliance, measures would likely relate to
elements such as interpersonal trust, commitment,
co-operation, integration, internal information shar-
ing, social interactions, and the quality and quantity
of inter-organizational communications. Using these
elements in the balanced scorecard framework results
in a criterion for planning including perceived com-
mitment to the relationship. This criterion would be
applicable to all four balanced scorecard dimensions.
Co-ordination may include assessment of satisfaction
with process integration, which relates most to
internal business processes. Developing criteria
related to relational quality in the alliance is challeng-
ing but essential in customizing the balanced score-
Table 3 Selection of Evaluation Criteria Related to Management Control Activities
Management control Balanced scorecard dimensions*
activity
Financial Customer focus Internal business Learning and growth
process
Planning Assessment of partner Targeting of key Process denition and New ideas generated for
assets and utilization customer groups measurable outputs extensions of the
identication of collaborative relationship
segments
Co-ordinating Contribution from co- Integration of efforts Contribution to co- Team-based measures
ordination of joint regarding alliance image ordination objectives of success focusing on
research and in terms of product or detailed by participants collaborative efforts
development or service attributes
implementation efforts
Communicating Regular issuance of Contacts with partners Number of contacts with Measures of employee
nancial reports to gain information partners to discuss satisfaction with
regarding customer process improvements relationship
needs communication functions
Evaluating Depending upon life Comparisons of success Process cost and quality Employee productivity in
cycle, revenue or growth (retention and measurements terms of revenue or
by segment or cost acquisition) relative to output; number of new
reduction by segment customer protability and suggestions for
partner contact improvement in alliance
functions
Deciding Estimated potential Market share Process time Availability of strategic
revenues versus cost of assessments by expectations versus alliance information
continuance in total customer group and results relative to employee
partner contributions needs
Implementing Measures of utilization Measures of customer Measures of Measures of staff
of alliance features satisfaction relative to improvement of process turnover and value-
compared to target alliance co-ordination since inception and added per employee
quality and yield
measurements
*Based on Kaplan and Norton (1996)
card and evaluating how well the partners are work-
ing together. Such subjective measures regarding
relational quality aid in identifying possible prob-
lems that may have an eventual impact on quantitat-
ive metrics.
Structuring selection of the evaluation criteria accord-
ing to the six management control activities helps
provide a focus on the different activities necessary
to accomplish strategic objectives. The nature of the
activities varies during the process, and the measure-
ments used to assess the effectiveness of the relation-
ship should vary as well. At different phases, meas-
ures are more relevant when tailored to the specic
dimensions. Again, use of the different measures
helps to integrate both a short- and long-term per-
spective. These types of measures are also parti-
cularly useful when the ultimate outcome of the
relationship is less tangible and thus difcult to mea-
sure.
Underestimating the importance of customizing the
balanced scorecard template is not merely ineffective
but possibly dangerous. Attempts to use the generic
template are likely to bias management decisions on
the basis of the data in front of them, and short-cir-
cuit the critical development of more important per-
formance measures. Indeed, much of the benet of
the balanced scorecard comes from the process which
surrounds its application.
Emphasizing Specic Metrics
Another benet of the balanced scorecard approach
is the potential to tailor the system to meet the needs
of a given relationship. Interestingly, Slater et al.
(1997) suggest an unbalanced scorecard to give
additional weight to metrics that are most relevant
given the strategy of the rm. For example, they pro-
pose more customer-oriented measures for a rm
that seeks to be a brand champion. The selection
of evaluation criteria can thus be altered for specic
relationship forms to emphasize the most relevant
metrics. This modication does not remove the orig-
inal benet intended from the balanced scorecard
approach; the metrics are still balanced and include
all four categories. The only difference is that the key
dimension might receive additional metrics.
Level of Evaluation
Most frequently, the success or failure of the alliance
is considered at the corporate level. Although this
should also be the primary unit of analysis for
assessing alliance effectiveness, it is important to con-
sider the role that managers and other groups play
in the process. Two kinds of assessments are needed:
(1) the performance of the relationship project, and
(2) the impact of the project on organizational per-
formance (both long- and short-term). Specic infor-
mation may be much more relevant and easier to act
upon when analysed at lower levels in the organiza-
tion. Evaluation from the perspective of the alliance
manager is important such personal relationships
are critical in the co-ordination and integration neces-
sary for the alliance to operate.
Obtaining Information and Selectivity
A nal caveat regarding the choice of evaluation cri-
teria involves a consideration of actually capturing
the specic metrics that are selected. The complexity
of the alliance, geographical difculties, and systems
incompatibility can make it impossible to obtain
information for the evaluation criteria in a timely
manner. We know that information gathering is often
difcult within one organization, and gathering what
could be fairly sensitive performance information
across two or more organizations may be problem-
atic. Similarly, partners must take care to collect only
the information most relevant in the evaluation pro-
cess. Collecting and processing information incurs a
cost for all partners involved. As noted earlier, the
minimum number of evaluation metrics should be
required not only to focus the attention of those per-
forming the evaluation, but also to avoid costs in
gathering less useful information.
Integrated Application of the Evaluation
Approach
We apply the balanced scorecard framework to a glo-
bal alliance between two airlines as shown in Table
4. We assume that the rationale for the alliance from
the dominant partners perspective is to provide cus-
tomers with seamless access to a particular set of des-
tinations at all levels of service. Thus, the dominant
resource contribution of the partner is physical. Per-
formance risk rather than relational risk is the type
of risk perceived to be highest by both partners. Con-
sulting Table 1, this type of relationship implies that
the overall goal of the relationship is resource exi-
bility and recurrent contracts. Facilitating these objec-
tives are the most important issues in determining
the evaluation plan. This type of relationship,
coupled with the most relevant type of risk, also sug-
gests that from a control system perspective, short-
term evaluation metrics will be important.
Our earlier discussion of Table 3 details evaluation
implications that may be relevant given the specic
form of the relationship. For this example, we assume
that the strategic alliance is formed as a contractual
alliance. Thus, specic details of physical resource
contributions and collaborative efforts should be
established. In the case of an airline alliance,
responsibilities regarding stafng of reservations and
problem resolution, in-ight services, maintenance
and ground services, and record-keeping should all
receive individual attention. It is important to avoid
duplication of effort while ensuring that customers
of both partners are receiving their customary level
of service. Some evidence does exist that airline
alliances are not taking full advantage of the benets
available from shared resources, and the balanced
scorecard framework might compel the partners to
consider these benets. The alliances typically focus
on joint marketing efforts, and The Economist (1999b)
estimates that only 15 per cent of alliances attempt
to cut costs by sharing catering, training, or mainte-
nance functions.
Table 4 incorporates these evaluation implications to
create a set of criteria for the global airline alliance. It
is important to remember that both entities function
separately, and we are concentrating only on the
activities where there is an interface between the two
airlines. We are not primarily concerned with evalu-
ation metrics that apply to the entire airline. Instead,
we focus on situations where customers of one airline
take advantage of the other airlines services. The rst
difculty in the evaluation process is created by the
need to segregate performance metrics relative to this
group. In some cases, the measures are unique to the
collaboration. In others, there are comparisons to
total performance of the airline.
Consider, for example, the balanced scorecard
dimensions related to planning activities shown in
Table 4. From a nancial perspective, protability by
route and route coverage of destinations in the
alliance network are relevant criteria. Similarly, cus-
tomer focus, internal business process, and learning
and growth evaluation criteria are indicated.
Examples of criteria for the other management con-
trol activities are provided for each scorecard dimen-
sion.
Implementing the Evaluation Plan
The nal step in the evaluation process is to
implement the evaluation plan. Formalized, regular
assessment is essential for those involved in the
alliance to attach credibility to the process and to
learn from the results. The frequency of the formal-
ised assessment should be determined to give the
participants an awareness of the process and allow
for them to plan for information collection. Measures
must be put in place to assure that the results of the
Table 4 Selection of Evaluation Criteria For a Global Airline Alliance
Management control Balanced Scorecard Dimensions
activity
Financial Customer focus Internal business Learning and growth
process
Planning Protability by route and Identication of potential Identication of Number of new ideas
coverage of destinations alliance customer groups responsibility by partner generated for extensions
in network not served by existing for shared services of the collaboration by
single airline routes employees
Co-ordinating Estimated potential Usage of airline lounges Savings from shared Percentage increase in
operating income from by collaborative partner services by activity: market share of
joined route network by customers ticketing, maintenance, collaborative routes
specic destination catering, baggage, etc.
Communicating Creation of detailed Estimates of potential Number of process Survey employee
nancial reports by increase in load factors improvements initiated satisfaction regarding
segment for passengers due to customers from by partners relative to information generated in
utilizing alliance network partner the collaboration and in utilization of the alliance
general
Evaluating Revenue per seat mile Repeat and new Provision of comparable Employee productivity
from collaboration (and passenger miles by service/attributes on per function (by seat
by customer type) customer type and by both airlines for mile) for collaborative
relative to total potential airline route segment customers on routes compared to
revenue per seat mile collaborative routes total, and by general
for the airline by compared to total service activity
customer type customers (reservations, ticketing,
etc.)
Deciding Operating prot per seat Total market share on On-time performance of Availability of information
mile from collaboration collaborative routes for collaborative routes on demand by specic
relative to total actual both partners relative to compared to industry type and segment for
operating prot per seat all competitors and baseline targets collaborative routes and
mile in total for each partner
Implementing Percentage contribution Customer complaints Improvement in on-time Staff turnover related to
of collaboration load from collaborative routes performance and alliance arrangement
factor relative to total relative to total reduction of complaints compared to total
available complaints for collaborative routes turnover
evaluation are communicated and that relevant feed-
back is generated. The evaluation process will also
need to be rened throughout the life cycle of the
alliance to assure that timely information is being col-
lected. The nal link in the evaluation process is to
consider how the output of the evaluation will be
used to determine individual and team performance
and rewards.
Kaplan and Norton (1996) advocate that the
implementation of the balanced scorecard become a
critical component of feedback in the strategic learn-
ing process. There is an interlinked process of four
steps facilitated by the balanced scorecard (Kaplan
and Norton, 1996, p. 253): (1) clarifying and translat-
ing the vision and strategy; (2) communicating and
linking; (3) planning and target setting; and (4) stra-
tegic feedback and learning. These four steps act as
a continuous loop to facilitate learning. These four
steps are embedded in the following implemen-
tation issues.
Frequency of Assessment
While the feedback from the performance indicators
may be regular, e.g. on a monthly basis, the life cycle
of an alliance has become increasingly important in
managing customer and product relationships and
can be even more critical for evaluating alliance
relationships. Thus, assessment frequency should
consider the evaluation metrics, as well as the
environment in general. Not only does the alliance
network undergo signicant change from inception
to completion or abandonment, but also the length
of this process can be extremely long. It is important
to understand that relationships with competitors,
customers, and suppliers change throughout the life
cycle. Thus, from an evaluation perspective, assess-
ment must be scheduled to help facilitate a relevant
consideration of opportunities and threats through-
out the life cycle.
Communication and Feedback
Communicating results and providing constructive
feedback are vital elements in the management con-
trol process. This is the means by which the manage-
ment control system not only implements strategy,
but uses the process to actually rene and develop
future strategy. This step must be formally incorpor-
ated into the evaluation process for the alliance. Since
lines of communication will comprise a hybrid net-
work for the alliance relationship, it is even more
important to assure that results of the evaluation are
communicated to all partners at all relevant levels in
the organization. This may be particularly difcult
for sensitive or negative information regarding per-
formance.
Renement
If the evaluation process remains static, then its
potential to affect a positive outcome for the alliance
is limited. Environmental, personnel, and strategic
changes will often lead to dramatic changes in the
type of information that is collected to evaluate
alliance effectiveness. Learning over time will enable
managers to rene the process. Priorities among the
various evaluation criteria may change as well. In
addition to communicating the results of the evalu-
ation process, it is essential to assess on a regular
basis whether the items used in the evaluation are
appropriate.
Link to Evaluation and Compensation
The type of information that upper management
monitors provides a signal to subordinates as to what
actions are important. To emphasize this relationship,
managers are often evaluated based upon measures
linked to these actions. However, it may be difcult
to select measures of performance that directly relate
to actions important in achieving corporate objec-
tives. This can be even more problematic in alliance
relationships where the outcome is less tangible and
takes longer to achieve. The evaluation plan can pro-
vide a basis from which to select performance meas-
ures. Not only are the evaluation criteria readily
apparent, but these measures are more likely to relate
to objectives of the alliance. However, Kaplan and
Norton (1996) caution linking elements in the bal-
anced scorecard to specic performance evaluation
measures for managers until an organization
becomes more experienced in using the balanced sco-
recard. This caution is perhaps even more critical
when using the balanced scorecard to evaluate the
performance of alliances.
Implications and Conclusion
Our objective is to develop a process to evaluate the
performance of strategic relationships among organi-
zations. The evaluation process, including applicable
metrics, is critical in the assessment of performance.
We provide a set of evaluation criteria incorporating
the management control system framework in which
the strategic relationship operates. The specic cri-
teria are tailored to the balanced scorecard approach
including measures over four dimensions: nancial,
customer, internal business processes, and learning
and growth. The evaluation criteria can also be
adjusted according to unique elements particular to
strategic relationships, the form of the relationship
and the rationale for the relationship.
We have designed a generic template to serve as a
basis for preparing a customized means of assessing
performance. For the evaluation measures to be suc-
cessful, they must be tailored to the individual
characteristics of the strategic relationship and the
partners. To aid in this customization, we emphasize
the management control system process, which
focuses on the implementation of a strategy. This
process involves elements common to all types of
relationships.
As with any set of measures, nancial or non-nan-
cial, a degree of caution must be exercised. Once spe-
cic measures are implemented for evaluation, per-
formance expectations are now established for the
individual strategic relationship participants. Meas-
ures must be selected to generate the appropriate
behaviours from the participants. Fortunately, one of
the key benets of the balanced scorecard framework
is that the measures are balanced and related, and
there is less likelihood of dysfunctional behaviour
designed to meet singular objectives.
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KAREN S. CRAVENS, NIGEL PIERCY, Cardiff
School of Accounting, 600 University Business School,
S. College Avenue, Univer- Colum Drive, Cardiff CF10
sity of Tulsa, Tulsa, OK 3EU, UK. E-mail: piercy@-
74104-3189, USA. E-mail: cardiff.ac.uk
karen-cravens@tulsa.edu
Nigel Piercy is the Sir Julian
Karen Cravens is the Arthur Hodge Chair in Marketing
Andersen Faculty Fellow and Strategy at Cardiff
and Associate Professor of Business School, part of
Accounting at the Univer- Cardiff University. He has
sity of Tulsa. She holds a worked in business planning
Ph.D. from Texas A&M University, and her main in industry and is an active consultant with many
research focus is on management control systems and organizations in the elds of market strategy planning
control system elements in an international setting. and implementation. He has contributed more than 200
Recent publications include Journal of International articles to the management literature and nine books.
Business Studies, Business Horizons, Journal of His most recent book is: Tales From the Marketplace:
Strategic Marketing, and Advances in Manage- Stories of Revolution, Reinvention and Renewal
ment Accounting. She previously worked as a licensed (Oxford: Butterworth-Heinemann).
Certied Public Accountant for Deloitte Haskins &
Sells (now Deloitte Touche).
DAVID CRAVENS, M.J.
Neeley School of Business,
Texas Christian University,
TCU Box 298530, Fort
Worth, TX 76129, USA. E-
mail: d.cravens@tcu.edu
David Cravens holds the
Eunice and James L. West
Chair of American
Enterprise Studies at Texas
Christian University. Pre-
viously, he was the Alcoa Foundation Professor at the
University of Tennessee, where he chaired the Depart-
ment of Marketing and Transportation and the Man-
agement Science Program. Dave is internationally
recognized for his research on marketing strategy and
sales management; he has contributed over 100 articles,
monographs, books, and proceedings papers. His most
recent textbook is, Strategic Marketing
(Irwin/McGraw Hill, 2000).

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