However, as companies inevitably learn, building and maintaining successful partnerships requires sophisticated management capabilities and skill sets that most companies have in short supply.

“Alliances are conceptually easy, but operationally very challenging,” Twombly said. “Any alliance has to function as the intersection of two or more companies, where you are looking to bridge boundaries of different cultures, different strategies, different ways of working and processes, and you really have to create a different culture, a 'third way' of working. For many business leaders who are new to strategic partnering, it's a world they don't know, so they don't appreciate that making an alliance requires concentrated effort and processes outside of their normal business operations.”

There are many facets to consider when developing a strategic alliance. Is it just one company that faces the customer? How closely will your back-office systems integrate with your partner's? Who handles billing, and how is revenue shared? Is there competitive overlap (“coopetition” is increasingly commonplace) or do your companies have clearly distinct, noncompeting roles and market positions? And just as important, how is the relationship governed—especially when conflicts arise among the participating partners? To manage these and numerous other challenges of working between and among companies, Chubb, USAA, Nationwide, and other insurers in recent years have developed sophisticated and formalized alliance management organizations dedicated to managing the intricacies of intercompany partnerships.

The Strategic Approach Is Key

To succeed despite their intricacies, alliances and other forms of partnership must be approached strategically. The alliance strategy must align with your business strategy, and each alliance must be managed and measured to ensure that you achieve your business goals. This is true even if your primary goal in partnering is to reduce costs. For example, outsourcing a non–core competency such as IT operations. Many companies make the mistake of taking a purely transactional approach to such partnerships, when in fact their success or failure can have critical implications for the overall business.

“If you approach partnerships from an outsourcing mindset, where it's all about lowering your costs, you'll have problems,” Twombly said, emphasizing the importance of establishing a formal governance structure and maintaining appropriate lines of communications. “Yes, you will have a service-level agreement in place, but that's the baseline,” she added. “It can't be a throw-it-over-the-wall mentality, because you won't know that the silly little things you're doing are in fact preventing your partner from operating and serving you efficiently. Incomplete information, for instance, means they have to come back multiple times to get what they need.”

In their 2007 Harvard Business School book Innovation Through Global Collaboration: A New Source of Competitive Advantage, Alan MacCormack and his coauthors examined more than 40 collaborative projects. They discovered that companies make three critical errors when they apply traditional practices to collaborative endeavors:

• They don't consider the strategic role of collaboration, but see it only as a tactic for reducing costs. As a result their efforts are misaligned with their business strategy.
• They don't organize effectively for collaboration. Instead they treat partners like suppliers of parts or raw materials, and manage them using a procurement function.
• They don't make long-term investments to develop collaborative capabilities. Instead they assume their existing staff and processes can handle the challenge.

In the new collaborative world, established business models and practices are no longer sacrosanct. Alliances and other forms of business collaboration require insurance company leaders to reexamine—and often discard—many traditional business practices, in favor of new approaches that break down business silos and foster teamwork and collaboration across boundaries both within and among organizations.