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Strategic Alliances

27Jun, 2011
Strategic Alliances

Strategic Alliances

It’s a cliché in business but it’s none the less describes the role of a strategic alliance: it allows a smaller company to “punch above their weight.” By joining with another entity, the (usually) smaller company has the potential to have much greater outcome than they would otherwise have in the absence of a strategic alliance.

A strategic alliance means that the two partnering organisations are involved in something that is of deep importance to both. It’s an ongoing relationship. Often the initiator of an alliance is the smaller partner. Indeed many start-ups have pursued a strategy by focusing on core activities while doing the rest by partnering with others.

A common myth around alliances is that because a potential alliance partner operates in the same or related industry they are potential competitors. In most situations alliances are forged around the notion that the alliance partners are interested in the same target market but have complimentary rather than competing interests.

An alliance should never be assumed to be straightforward. Alliances are all about relationships because their very foundation is built on trust and mutual interests. They require the respect and interaction of people in each organization. Strategic alliances, like good personal relationships, require effort to build, and once they’re in place, you can count on them.

All relationships are based on a degree of give and take.” It is no different for strategic alliances. Each party has to give something and get something in return. If you are the instigator, it’s important to be clear about what you have to offer the potential partner.

Skin. Each party needs to have some skin on the table. This does not necessarily have to be money but each needs to be prepared to dedicate resources to the alliance. Someone needs to be recognised in each partner business as having responsibility over the strategic alliance.

Time. Alliances take time to build and also to maintain. The optimal path is to work together on a small project or at least establish a beach head that can be named as a strategic alliance – some activity that can be readily translated and scaled later after some “chemistry” is established and parameters defined.

Communications. Good communications are always more about listening than telling. Be all ears. Listen to your potential partners. What they tell you will not only give you clues to their needs but may influence your thinking in ways you’ve never even imagined.

While alliance building does have many immediate benefits, it can be ruinous if not approached in a strategic manner. A noted earlier, when it comes to intent alliances are all about “punching above our weight”. The risk is more about not taking the appropriate intent:

  • Thinking too small. Too often, a business owner risks the potential partner for an endorsement in return for putting the partner’s logo on the company’s Web site. That’s not strategic.
  • Thinking only of what the potential partner can do for your company. Strategic alliances have to create a situation where both parties gain something; otherwise, they’re not partnerships.

Business owners, particularly if they have a sales background have some skills in negotiating. Experienced negotiators are generally comfortable working out the terms of a strategic alliance: They bargain for the best price, haggle over share or revenues, profits, and iron out detailed exit clauses. But they should also not neglect compatibility issues between the partners and the spirit of the deal. So while the parties agree to the same terms on paper, they may actually have very different expectations about how the agreement will work in practice. Without their arriving at a true meeting of the minds, the deal they’ve signed or verbally agreed on may sour.

Risk factors

The most common causes of problems with alliances are a lack of clearly defining expectations. The parties involved inevitably form expectations about how the deal will be carried out, whether they discuss them or not. Even if initially compatible, those expectations can silently shift in response to actions taken, even though no overt negotiation takes place. It’s clearly in the parties’ best interests to make their expectations explicit and negotiable.

Some Tips:

  • Discuss expectations before signing off on a deal can greatly increase the odds of its success.
  • Discuss how fully, formally, and frequently do you expect to consult with the other side? Who will be involved in decision making? And how will disputes be resolved?
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