As stock becomes a less valuable deal-making commodity and merger and acquisition activity declines, joint ventures (JVs) are becoming increasingly popular as a means for companies to form strategic alliances. In a joint venture, two or more organizations (the "parents") agree to share capital, technology, and human resources to create a new entity under shared control.

Joint ventures are attractive for a number of reasons:

• They provide companies with the opportunity to obtain new capacity and expertise.
  
  
• They allow companies to enter into related businesses or new geographic markets or obtain new technological knowledge.
  
  
• They have a relatively short life span (5-7 years) and therefore do not represent a long-term commitment.

In this era of divestiture and consolidation, joint ventures also offer a creative way for companies to exit from noncore businesses. Companies can gradually separate a business from the rest of the organization while allowing a buyer to assess the true value of intangible assets such as brands, distribution networks, people, and systems, as well as learn how the business operates. This is borne out by the fact that approximately 80% of all JVs end in a sale by one parent to the other.

And Now for the Bad News

While there are many advantages to forming a joint venture, alliances of this type are often more challenging to develop and maintain than mergers or acquisitions. When asked to characterize the success of their joint ventures, only 44% of CEOs in a Conference Board survey responded, "Very successful." In fact, the majority of large joint ventures run into serious financial or managerial problems within the first two years. The good news is that most overcome these difficulties by employing some key strategies.

Cause for Concern

Here are some of the more common reasons for JV difficulties:

• The philosophy governing expectations and objectives of the joint venture is unclear.
  
  
• There's an imbalance in the level of investment and expertise brought to the joint venture by the two parent organizations.
  
  
• The senior leadership and management teams for the joint venture receive inadequate identification, support, and compensation.
  
  
• The JV partners possess disparate, and often conflicting, corporate cultures and operational styles.
  
  
• The JV's size is modest compared to the two parent organizations.

Among the most common causes of failure cited by CEOs in the Conference Board study were poor or unclear leadership (49%), different cultures (49%), and a poor integration process (46%).

Not for the Faint of Heart

If you're willing to brave the risks, JVs are a good idea, but don't go in blind. Based on substantial consulting expertise in this area, Hewitt suggests the following HR action steps to prepare for a successful joint venture:

• Business strategy.
  A successful joint venture must begin with a sound, well-articulated business strategy. Before moving forward, companies must be able to determine and explain why they wish to enter into a joint venture, why they have chosen their partner or partners, and what they hope to achieve. Decisions need to be made on what the organizations' involvement will be (managerial, capital, etc.) and how long the JV will last. In addition, it's critical that strategies be put in place to define governance, accountability, decision-making processes, and conflict- and issue-resolution procedures. Parent companies also have to ensure buy-in and participation at the highest levels. Finally, and ironically, smart companies consider outcomes even before they begin: What would cause them to terminate the joint venture, and what is the preferred exit strategy?
  
  
• HR strategy.
  Once the objectives have been determined, HR should develop strategies that align with and support the goals of the joint venture. These include developing a distinct identity and culture for the new organization, communicating aggressively to employees, and establishing distinct career paths, management, and a means of return for employees transferring to the joint venture. HR must also create compensation, incentive, and retention programs tied to the success of the joint venture, as well as maintain open communication between the HR departments at the parents and the joint venture.
  
  
• Leadership.
  Because leaders play a critical role in shaping and defining the new organization, their behaviors and actions can make or break the venture. The first steps here are to define a process for leadership selection that's seen as fair and credible and--because employees and the marketplace want and need to know who's driving the organization--to name top-tier leadership as soon as possible. When selecting leaders, companies must choose wisely, looking for key indicators of leadership potential such as behavior, past experience, and measurable outputs.
  
  
• Communication.
  HR's challenge here is not only to quell fears and set direction, but also to engage and motivate employees. Communication should be frequent and used to create a common vision, establish a connection with leadership, explain the new rules, support the individual transition process, aid in retention, and ultimately, define the new organization in terms of "We" instead of an "It" or "They." The cardinal rules here are to share as much information as you can and to never sugar-coat or make false promises.
  
  
• Talent.
  Because joint ventures present a particularly significant engagement challenge, the identification, retention, and motivation of key talent should be a top priority. Parents should recognize that times of uncertainty can and will lead to defections unless strong counter-measures are taken. Paying close attention to the specific skills, knowledge, and behaviors that will be required to achieve the new organization's business objectives, parents must identify the key players in both companies who will be needed during the transition to a joint venture organization and beyond. It's important to be aware of which employees are most at risk for recruitment by other organizations and to collect data on the causes and costs of turnover that might influence which employees to target and which retention practices to implement. Conducting employee research is particularly effective in helping the new organization determine what matters to employees and can serve as the foundation for all programs and incentives.

Hail the Conquering Hero

Joint ventures are a great way for companies to minimize risk by "dipping their toes in the water" without committing to a long-term relationship. However, the lack of long-term commitment and sometimes unclear relationships can cause a whole host of other challenges. People issues can become incredibly complex and difficult to manage in these transactions and can ultimately doom the venture. However, with a careful game plan and a clear understanding of business strategy, JVs present a unique opportunity for HR to step up and make a strategic and bottom-line impact on the organization.