Michael W. Magdycz share some of the lessons he's learned directing alliances spanning a range of countries and products.
Michael W. Magdycz
Companies form international alliances to align their expertise and leverage the strengths of each partner company to enable better product and service offerings. Well-directed international alliances enable both partners to grow their global business faster than they might be able to on their own.
In my 24 years in the pharmaceutical industry, I have focused mainly on international markets, with the past decade spent directing alliances that span a range of countries and products. In this article, I would like to share some of the lessons I’ve learned, with the aim of helping you maximize the value of alliances you might be called upon to direct.
Anyone who has directed an alliance knows that after the partnership agreement is signed, thoughts shift quickly from setting deal terms to extracting value. This is where the alliance director comes in-to manage the human risk, business risk, and legal uncertainties that would otherwise threaten value creation in the partnership . An international alliance is, of course, only as good as the sum of its parts, with those parts being the countries in which the alliance operates. It is the countries-more specifically, the country’s general manager (GM), chief financial officer (CFO), and business unit leader (BUL)-that are tasked with maximizing the value of the alliance in their country.
Whether your alliance spans two countries or the entire globe, a lot can go right. Of course a lot can go wrong, too, with many missteps influenced by the alliance director’s expectations and methods. To help you avoid these pitfalls, I’ve put together a list of my own mistakes and how you can avoid them.
Initially, I did not pay enough attention to the three main decision makers in an alliance: the country’s GM, CFO, and BUL. This led to variable influence and inconsistencies in alliance implementation. Things went much more smoothly once I recognized that the GM, CFO, and BUL control the resources, are responsible and accountable for the alliance profit and loss statements at a country level, and negotiate resources with the partner.
Similarly, it took time for me to appreciate the inherent value of the alliance director role. The approach that we took out of the gate was new to the partnership and offered an excellent chance to add value. As an alliance director, I was provided with information and insight regarding the contract, the partner, and the parent company’s business. Over time, this has become a "trifecta of value” for senior leadership and country leadership in both my company and the alliance. For example, I routinely discuss negotiation tactics, contractual rights and obligations, and alliance fit within the rest of company with our business leaders. This helps the country-level GM, CFO, and BUL improve performance; manage local human, legal, and business risks; save time; and reduce alliance headaches.
As an alliance director, I have an in-depth knowledge of the company business, the contract, and the partner. Therefore, it was easy for me to take on negotiations on behalf of country leadership, especially when negotiations became difficult.
I learned rather quickly that it is much more effective and efficient to educate the GM, CFO, and BUL on the contract, the partner, and the business. It is equally important to understand the needs of country leadership and to talk through negotiation options with them. Then, after you have armed the right people with the right information to negotiate effectively, it is best to get out of the way and let the country-level GM, CFO, BUL do their jobs.
Initially, I was much too focused on the alliance’s profit and loss (P&L) statement and overly concerned about the time would it take for the alliance to become profitable.
Over time, I came to realize that the alliance P&L statement was only part of the story. The alliance P&L can differ greatly from the company-specific P&L statement for alliance activities. For example, the alliance contract cost for a sales representative headcount may differ greatly from the internal company cost for the same sales representative headcount. Understanding the differences allowed me to advise country-level and corporate leadership more effectively to ensure the alliance business plan fit into the intracompany business plan.
Additionally, when I was new in my role, I had a hard time figuring out why country leadership acted the way it did. I struggled to understand the reasons behind certain decisions. Eventually I learned that alliances are no different than any other aspect of business; that is, people act in a manner consistent with their incentives. To complicate matters, there are alliance incentives, and then there are internal company incentives. I sought to understand the country leadership’s incentives-was it gross sales, profit, or market share gain? I also investigated how sales were booked in each country. Did the owner of the asset book the sales? Or was it the partner and owner? In addition, it was important to know where the alliance fit into broader intracompany organizational goals.
Recognizing the value of different P&L statements as well as each entity’s incentives gave me tremendous insight into the country-level behaviors that exist within international alliances. It also helped explain differences in points of view between the alliance partners. This knowledge allowed me to develop effective strategies to gain local agreement and maximize country-level success.
In the early days of an international alliance, the things you “need to do” and those you “want to do” are fairly similar. As time goes on, however, the international alliance has the potential to compete with other company priorities. This could be due to changes in company leadership, the lifecycle of the alliance, the state of the business outside of the alliance, or other factors. Therefore, as the alliance matures, the GM, CFO, and BUL must know what they need to ring fence in terms of resources before any negotiation begins with the partner. Are there any contractual fallback minimum levels of investment required, in case of disagreement? Country leadership needs to know these conditions in advance of any negotiations. If there is mutual agreement on resources above or below the contract minimum, even better!
At the outset, managing an international alliance presented a range of challenges. There was no real roadmap to direct the management of an international alliance with country leadership. Even with my experience in other international positions and varied commercial responsibilities throughout my career, I had significant anxiety and concerns about conflict during my first couple of years directing an international alliance.
I have come to embrace the idea that successful international alliances are formed by taking the best from each partner company and expecting that the combination will provide even greater benefits to customers and to the business. If this is the case, what sense does it make to be anxious when conflicts arise? Different points of view and different skill sets are what brought the alliance together in the first place. So why fight the conflict? Constructive conflict is healthy and can lead to better alliance performance . When conflict arises, the first thing I try to do now is “seek to understand.” A simple question-“Why do you feel that way?”-can allow for a better understanding of the issue and a constructive path forward to finding a solution that is in the best interest of the alliance. I have freed myself from the anxiety of conflict. Now I expect and even embrace conflict, as long as it is constructive and has the best interest of the alliance at heart.
While directing an international alliance is not easy, it offers an unparalleled opportunity to create value through the mitigation of human and business risk as well as legal uncertainties. Success takes hard work, thorough knowledge of the contract, partner, and business, consistent communication with country leadership, and ongoing consultation with your alliance director teammates. I hope the insights in this article are helpful as you seek to maximize the potential of your international alliances.
1. "High Risk to High Reward: Using the Skills and Tools of Servant Leadership to Manage Risk", Thompson, David S. and Twait, Steven, Special Editorial Supplement to Strategic Alliance Magazine Q 4, 2011.
2. "The Right Kind of Conflict Leads to Better Products", Thompson, David S. et al., Harvard Business Review, December 23, 2016.
Michael W. Magdycz, R.Ph., CA-AM, is director of alliance management at Eli Lilly and Company, where he directs international alliances and oversees country-level alignment of international alliance commercial resources.