Founded in 1891 as an electric lamp manufacturer, Royal Philips (Philips) has become a global player in the consumer electronics, healthcare and lighting industries. Throughout its successful history, Philips has been known for its innovative capacity to introduce industryand market-changing products. During the late 1990s, Philips engaged increasingly in various partnerships in its attempts to respond to changing global markets. Alliances with companies such as Sara Lee, InBev and Nike enabled Philips to create new product categories that fuelled its growth. Philips also forged multiple alliances with similar partners;

companies like Dell, Nokia and Sony were not only Philips customers but also supplied it with many of their own products and services. To deal with the increasing complexity of its relationships and take a more structured approach to dealing with them, Philips established an Alliance Offce: a dedicated department tasked with developing and implementing a proactive, systematic, company-wide approach to managing alliances.

The Alliance Offce started as a centre of expertise on alliance management and then became a vehicle for developing, spreading and institutionalizing alliance know-how and know-what. To prioritize its work, the Alliance Offce classifed Philips’ alliances into four categories, based on the level of synergy with the alliance partner and the alliance’s potential value. Alliances with low synergy and low potential value represented business alliances, whereas corporate alliances had high value and high synergy. Philips thus focused initially on the management of its most important alliances; for each corporate alliance, it assigned a dedicated alliance manager, created a ‘corporate partner team’ across divisions with executive sponsorship and organized support by the managerial board. This alliance team interacted frequently to exchange information and develop plans for approaching the partner company.

After enjoying some initial successes, the Alliance Offce moved on to tackle strategic alliances, characterized by their high potential value but little apparent synergy with Philips.

Strategic alliances typically implied the development of a new product or service and thus demanded high involvement by operational managers. The Alliance Offce refrained from active alliance management in this case; instead, it offered support for any consideration of new strategic alliances. Operations and Alliance Offce delegates worked together to evaluate systematically the business rationales for each alliance and the extent of partner ft. If the alliance was executed, the Alliance Offce provided support, advice and tools for managing it.

The Alliance Offce also developed multiple alliance tools to enhance alliance management throughout the organization. For example, its partner selection tool tapped the degree of partner ft between Philips and any potential partner. The tool emphasized the importance of cultural ft: even if partners contributed complementary resources and shared the same strategic vision, their alliance could still fail if they simply could not work effectively together due to the huge or insurmountable differences in their cultures. The alliance offce 364 Alliance capabilities created other tools for individual managers; for example, a Health Check tool evaluated the performance of any alliance using both hard and soft metrics. The logic behind all these tools was not to prescribe decisions but rather to generate systematic analyses, debate and dialogue to support the decisions that managers must make at every stage of an alliance.

Questions 1 To what extent has the structured approach Philips adopted to govern its alliances contributed to its competitive position?
2 During the establishment of the Alliance Ofce, Philips’ management structure was decentralized. How might this management structure have impeded and/or reinforced the efectiveness of the Alliance Ofce?