Strategic Alliances in Healthcare Management - Assignment Example

Abstract

Strategic alliances are legal agreements that allow for collaborative sharing of resources between two separate organisations pursuing equally important objectives (Ding, Eliashberg, & Stremersch, 2014). Such alliances go beyond typical business dealings, but they have not reached the level of acquisitions or full partnerships (Elmuti & Kathawala, 2001). Strategic alliances are quite common among pharmaceutical and biotechnology firms since alliances have many underlying benefits to all parties involved. For instance, pharmaceutical firms gain access to research-intensive products which biotech firms develop, and biotech firms gain access to capital and marketing proficiencies while the pharmaceutical companies benefit from access to innovations (Burns, Bradley, & Weiner, 2012). However, even with the unquestionable rewards, some disparities exist in biotech-pharmaceutical alliances. In this study, the author outlines some of the possible challenges in biotech-pharmaceutical alliances and ways to approach them. The writer also explains how it may be challenging to maintain existing agreements rather than creating new ones.

Ding, Eliashberg, and Stremersch (2014) define strategic alliances as legal agreements that allow for collaborative sharing of resources between two separate organizations pursuing equally important objectives. The collaboration surpasses typical company to company relationship, but it cannot get referred to as a merger, acquisition or full partnership (Elmuti & Kathawala, 2001). In recent years, such alliances are quite common in the healthcare industry, pharmaceutical and biotechnology firms, being no exception. This trend may ascribe to some of the advantages that ensue from such alliances. For instance, these unions provide pharmaceutical companies with access to research-intensive products which biotech firms develop (Burns, Bradley, & Weiner, 2012). Such alliances also benefit biotech companies with access to capital and marketing proficiencies while the pharmaceutical companies benefit from access to innovations. Another advantage is the increased probability of product success (Burns, Bradley, & Weiner, 2012). Besides, strategic alliances are a cheaper, more flexible, and they present fewer risks compared to acquisitions (Fisher, 1996). However, even with the obvious advantages, some tensions exist in the creation of biotech-pharmaceutical alliances. This paper outlines some of the possible challenges and ways of addressing them. The writer also explicates on the challenges in maintaining existing agreements versus creating new ones.

Possible Tensions that Exist inBiotech-Pharmaceutical Alliances

For any alliance, whether between pharmaceutical companies and biotechnology firms or not, it may be difficult to run the companies for many reasons. For instance, the collaborating companies not only differ in size, but also in their corporate cultures. These companies also have different objectives whose time frames for achievement may also widely contrast.

For a biotechnology firm and a pharmaceutical company to have a successful alliance, the strategic plans for both companies must be truly in line with each other (Fisher, 1996). Where the goals and objectives of the resultant alliance are not clear, the results will be disastrous (Elmuti & Kathawala, 2001). A true collaboration requires both companies to pull their resources towards the achievement of a common objective. Selecting the right company to form an alliance with, may be difficult. A company must first distinguish the competencies they wish to acquire externally from those capabilities that they want to develop internally. However, even after finding the right partner, pharmaceuticals are large in comparison to biotechnology firms and it may difficult to establish the necessary respect for a true collaboration to work (Fisher, 1996). As a result of lack of cooperation, the two companies will not be able to share their risks, and the alliance fails. Also, human nature is mostly inspired by self-interest, such that even when firms have good reasons to form partnerships, it may be challenging to find companies that are willing to benefit their counterparts as much as they are ready to help themselves. One firm may want to benefit more from the relationship than they are willing to give resulting in alliances that are not mutually beneficial to both companies.

Another possible tension ensues from the fact that the executives of pharmaceuticals and biotechnologies operate on different time frames. On one hand, biotech firms are small and research-intensive (Burns, Bradley, & Weiner, 2012); therefore, they will always have a need to raise cash. Pharmaceutical companies, on the other hand, are better endowed finance-wise, and they are more patient since they understand that the drug development process can take a long time before the results are satisfactory. They can, for that reason, afford to work at slower paces (Fisher, 1996). The executives from the smaller biotech companies know that timely financing may be the difference between their collapse and survival. Executives from the pharmaceuticals do not have this problem because their enterprises have a steady flow of cash.

Other sources of tension in an alliance are intellectual property and royalty disagreements (Segil, 2002). If the two alliancing firms do not define their positions clearly beforehand, then conflict is bound to arise. The biotechnology and pharmaceuticals need to understand each other’s takes on what intellectual property rights they are willing to share or retain and also the new intellectual property that should get created jointly. The firms should also agree beforehand whether they want one company to maintain supply exclusivity or purchase obligations or whether to share these responsibilities.

It is also possible to have disputes in organizational cultures of the two collaborating firms (Elmuti & Kathawala, 2001). Factors such as languages, national traits and attitudes in the two companies may be largely disparate. For example, if a Japanese biotechnology company forms an alliance with a Western pharmaceutical, language is bound to be an issue. If the executives from both companies cannot communicate properly, the partnership may be doomed at a very early stage. Assuming that language is not a problem, there may arise conflicts from the different operational practices of both organizations. The western company, for instance, may evaluate their performance by market share, profit and so forth; the Japanese firm, on the other hand, may assess their performance based on how well they have been able to improve their skills. When the operating procedures of the two companies collide, one company may fall behind schedule or produce bad quality products.

Lack of correspondence may also arise where there is a lack of trust between the two cooperating organizations (Elmuti & Kathawala, 2001). Lack of confidence and, consequently, failure to mutually depend on each other may result in blame shifting in case of failure which does not solve any issues but rather works towards destroying the alliance. Lack of responsibility, equality and reliability among people in the collaborating companies will result in problems going unsolved, misunderstandings and despondency throughout the organization.

There may also arise tension if management teams between the biotech firms and the pharmaceuticals fail to work in tandem (Elmuti & Kathawala, 2001). Strategic alliances require the alliancing corporations to work together without competing amongst themselves. Cooperation between the companies avoids poor communication and ensures commitment towards meeting the union’s objectives. Where management teams fail to work together, their subordinates’ actions will be disruptive to the organization as a whole.

Ways of Addressing Tensions in Biotechnology-Pharmaceutical Alliances

However, successful alliances always have ways of resolving these conflicts. Most important of all, to avoid or reduce the risk of tensions arising in the partnership in future, firms should form alliances with counterparts whose strategic and operational goals match their own (Elmuti & Kathawala, 2001; Segil, 2002). Where the vital plans conflict, both companies forming the alliance should focus on each other’s strengths and acknowledge the importance of each company’s contribution to the partnership. The biotechnology firms should view pharmaceuticals as more than sources of money, and pharmaceutical companies should see their counterparts as geneticists with little commercial potential (Fisher, 1996). As a result, none of the two companies view their counterpart as more or less sophisticated. Consequently, the managers and experts from both companies share all the necessary information, research and threats (Fisher, 1996).

When choosing businesses to alliance with, biotech and pharmaceuticals should focus on those companies whose strategies, ideas and philosophies are similar to their own (Elmuti & Kathalawa, 2001). Otherwise, the resulting alliance should formulate agreements that do not favours one side of the association but rather, find a common ground such that the differences in philosophies get adequately addressed and resolved.

Where the two firms’ executives operate on different time frames, the bigger pharmaceuticals should do their best to nurture the relationships and align their strategies to those of the smaller biotechnologies. Pharmaceuticals will almost always enter into alliances with the aim of eventually acquiring the biotech companies. The drug companies, having aligned their time frames with those of the smaller firms during the engagement, there is ease of transition when the two companies eventually become one.

Tension can also be alleviated or altogether eliminated if the management teams from both companies put aside their fear of loss and control and commit fully to the formulation, implementation, management and overall monitoring of the two companies’ strategic goals (Elmuti & Kathawala, 2001). The commitment of the senior management ensures that capital, labor and production resources are available as they are needed. Besides, subordinates will be largely influenced by their superiors’ attitudes. If the management shows commitment to the alliance, employees also follow suit. Poor management may result in the demise of the union and to prevent failures, the management teams should be vigorous and efficient. Successful management of the organizations requires the trust to be maintained.

The performance of the alliance should be assessed from time to time (Elmuti & Kathawala, 2001) so the two companies know when the right time comes to either redefine the terms of the alliance or when to terminate the engagement. Assessment is done to establish; whether the agreement is mutually beneficial to both companies; whether the value of the partnership is evident to the clients; whether the coalition offers a competitive advantage to the involved companies; whether there is trust, commitment and support, among other issues. The assessment also reviews the communication channels, roles of the parties and their objectives, to mention but a few. Periodic evaluations help the alliances to maintain a mutually beneficial relationship which in turn helps in eliminating tension in the alliance.

The tension in the partnership gets alleviated through proper communication between the involved parties, which ensures trust and confidence. Choosing the right partner is also pertinent since it guarantees alignment of both companies’ strategic goals. The interested parties should also understand their roles in the alliance to avoid shifting the blame when processes fail. Both companies should understand the purposes of the agreement clearly, failure to which, there will be the dissolution of the alliance. Frequent assessments of the association’s performance also help to know whether the union is working as intended. The management also plays a significant role in ensuring the success of the alliance. If these factors get addressed, then tensions within the partnerships in the healthcare sector will be alleviated or altogether eliminated.

Challenges for Maintaining/ Strengthening Ongoing Alliances versus Creating New Ones

At times, assessment of an ongoing collaboration brings up the question of whether to maintain the alignment or begin a new one. Various challenges exist in the maintenance of the relationship in comparison to creating a new partnership. The success of an agreement depends on how well matters get handled in the initial stages of the alliance (Kelly, Schaan, & Joncas, 2002). When the two companies forming an alliance come together for the first time, it is easier to begin the relationship on a clean slate. If a relationship is driven by from the mutual trust at an early stage, then the alliance is likely to become a success. In the initial stages of the agreement, both parties are enthusiastic about the partnership, and they will be committed and less opportunistic than in the later stages of the alliance. In succeeding stages of the agreement, it is likely that the alliancing parties have become less committed to achieving the association’s goals. They may be in the partnership to pursue their self-interests rather than for the good of the alliance. In new alliances, it is less likely for allies to have hidden agendas. Such behaviours are found in partners who have stayed in an agreement longer.

In a new alliance where there is a clear definition of goals, the parties will be aware of their roles towards meeting the objectives. They will, therefore, be working determinedly to achieve their intentions. In an existing collaboration particularly when executives have a mindset that the alliance has already made the targets for which it got established, there is likely to be laxity both by the managers and subordinates in both organizations. Maintaining the enthusiasm many years into the partnership will be more difficult compared to beginning a new alliance.

In a strategic partnership, the involved companies may still want to remain independent in some areas of operation. In the earlier stages of the engagement, it may be easier to maintain autonomy since the companies are still holding on to some operational practices and organizational cultures. When the alliances continue for long, the companies may lose this independence and adopt a new culture or operational practice that favours the new alliance rather than the interests of the individual companies involved.

In conclusion, strategic partnerships are very common in healthcare and particular between pharmaceutical and biotechnology companies. They have many benefits some of them including access to better resources and gaining competitive advantages over other firms in the market. However, alliances are not always smooth sailing. Sometimes, tension arises due to different reasons. For instance, lack of proper communication channels and conflicting organizational cultures. Successful alliances, however, always come up with ways of addressing these disparities. Though staying in alliances longer helps the parties familiarize with one another’s practices and work together better, there are times when it is more challenging to maintain existing relationships than creating new ones. With proper planning, nevertheless, alliances are bound to be successful.