Strategic Alliance – A Key Business Strategy

The last decade has been a decade of change in how companies manage their resources, obtain funding, and do business. This change has been fueled by: the Internet, innovation, competition, available human resources, market conditions and the capital required to build a business. Strategic alliances have become the vehicle of choice for supporting this change.

Today’s businesses are wholeheartedly embracing strategic alliances. Indeed, 80% of businesses surveyed viewed alliances as a means to:

• Rapidly gain new strategic capabilities and advantages in the marketplace.
• Reduce the investment cash and ongoing operating expenses normally required to increase revenue and profits.
• Create less dilution and debt, thus more owner value.

Larger corporations are adding alliance specialists to their staff as a key organizational function. An Internet business grows it’s revenue faster when joint ventures are formed. These two trends give credibility to the strategic alliance as a superior business strategy.

What is a Strategic Alliance?

An alliance is a relationship between two or more firms, or individuals, involving the sharing of complementary disciplines, technology, products, services, organizational structures, marketing and/or financial resources.

Types of Alliances

There are five fundamental types of alliances:

• Funding
• Joint Venture
• Merger/Acquisition
• Product/Services
• Cooperative

Each type of alliance is usually subdivided into several special categories to fit specific business needs. Each strategic alliance uses varying types of agreements, from hand shakes and letters right up to tightly-defined legal documents. The needs of the parties involved, the depth of the involvement and the duration of the alliance all play a role in the type of agreement needed.

Every alliance has its own unique blend of economic, strategic and cultural circumstances. Each relationship is unique and should be executed according to its own set of guidelines and the core values of the alliance partner. In order to determine what type of alliance is needed to support your business’ goals you must first assess your business’ strengths and weaknesses, your competitive position, emerging opportunities and the resources needed to achieve your goals.

Alliance Ownership

The ownership in the alliance can take many forms depending on the type, contribution, tax and legal ramifications and the goals of the alliance partners.

Alliance Strategy

After you have defined the type of strategic business alliance needed a strategy and busines plan can be put into place. The strategy and business plan should define the following:

• Alliance needs
• Core competency
• Alliance goals and objectives
• Criteria for success
• Partners’ roles and relationships
• Characteristics of good and bad partners
• Potential candidates
• Operational details Deal structure with exit plan.

With your business plan and an alliance strategy plan in place a proactive search for an alliance partner can be implemented.

By establishing your own business alliance strategy then working with potential partners to jointly develop the alliance operating plan you lay the foundation for a mutually beneficial relationship.

Qualifying Potential Alliance Partners

Once potential alliance partners have been identified, the next step is to qualify them for:

• Complimentary strengths and available resources
• Cultural and values compatibility
• Organizational planning
• Management structure and commitment to plans
• Flexibility and willingness to truly establish a win/win situation.

Reasons Alliances Fail

Alliances fail because of:

• Cultural incompatibility (largest reason)
• Inflexibility in adapting to changing needs
• Not understanding the time commitment required to establish and maintain an alliance
• Lack of a written plan
• Poor day to day management of the relationship.

Reasons Alliances Succeed

Alliances succeed because of:

• Good planning (begin with the end in mind)
• Proactivity An early start (it takes longer than you think)
• Relationship building
• Synergistic thinking
• An early “win-win” or “no deal” decision
• Proper staffing
• Timing and follow through (these are key).

The end result of any alliance should be that “the sum has greater value to all participants than the parts”.