Strategic alliances should are mutually beneficial relationships designed to help both parties reach growth objectives. For many companies growth is key to success. Strategic alliances can provide the means to create additional leverage in the market.

Achieving growth on your own can be a Herculean task. There are a number of alternatives to going solo to achieve growth. Mergers and acquisitions are one route. An alternative option is to collaborate through a strategic alliance to grow. United States chief executives believe that the new years will be more critical for their industries than the past 50. These executive are pursuing growth strategies that call for increased partnerships and alliances.  The challenge however is the high failure rate for strategic alliances, which can 40% or more. It’s important to be very deliberate in exploring strategic alliances.

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Strategic Alliances: An Alternative Path to Growth

Strategic alliances are not necessarily the same as a channel or partner relationship where a company contracts another firm to bring its products/services to market. A strategic alliance is a cooperative agreement between business firms for mutual benefit.  

A good strategic alliance is generally between two or more parties of equal position that provide complementary expertise to each other. Most strategic alliances are formed to increase access to a market or technology, to improve economies of scale, to bring a new product/service to market faster, and to spread the risk.  Strategic alliances often take the form of licensing agreements, joint ventures, R&D agreements, etc.

When a company wants to stay involved in a business but needs to gain scale to compete, a strategic alliance may be a better move than a merger or acquisition. Alliances are also a useful way to reduce exposure from or investment in non-core or commoditizing parts of the value chain. In some cases, these alliances will take the form of outsourcing and offshoring arrangements. Others will create new customer-supplier relationships by helping customers to shed non-core assets and suppliers to increase scale. As companies outsource their more complex activities, they will resort to more complex kinds of financing, to joint ventures with buyout options, and to other creative partnership structures that mitigate risk.

Forming alliances with complementary businesses can expand your company’s scope and capabilities. In some cases, the alliances your form last the lifetime of the respective companies. Other times, you may establish an alliances for a short term outcome. Before jumping into a merger acquisition scenario, consider a strategic alliance as a path to growth.

Considerations, Questions and Tips for Establishing Successful Strategic Alliances

The right partner increases your chances of success. Be sure to identify the strategic and cultural similarities, review your prospective alliance partners financial fitness, systems and processes, and its research and development track record as a part of your due diligence.

To key considerations for any alliance:

1. What will each party derive from the relationship
2. What does each part bring to the table, both in terms of strengths and weaknesses

These four questions are a good starting point for your internal discussion:

1. What does your company need that a partnership might fulfill?
2. Is a partnership the only way or the best way to meet these needs and if so why?
3. How will this “alliance” bring value to the customer and help you differentiate yourself in the marketplace?
4. What incremental business will each party derives as a result of the alliance?

Employ these 6 tips for successful strategic alliances:

1. Establish clear ground rules and lines of communication
2. Create a common mission statement
3. Bring complimentary skills to the table
4. Develop a system for disseminating information
5. Clarify roles regarding customer interaction and contact
6. Define common metrics for success

Move Your Alliance from Concept to Reality

Where do you begin to look for a potential partner? One of the first sources for identifying a potential alliance partner is your ecosystem.  You’re ready to form a strategic alliance and you have a partner identified.

First stop. Do Your Due Diligence. Start with identifying the potential partner’s strategic behaviors and objectives.

• Are they compatible with your company’s?
• Why have they succeeded and failed in other relationships?
• What are their objectives, motivations, capabilities, level of commitment to partners?
• Talk to your potential partner’s current partners and customers.

Your prospective partner passes muster.

Next stop. Make the alliance explicit. Put it in writing and try whenever possible to develop terms and conditions that anticipate change. Define and document what each partner is expected to contribute. Establish at the start how the partnership will end. Consider the exit strategies at the onset and establish a variety of options. Treat the exit as a normal business process.

One stop further. Establish a measurement process. Determine quantifiable criteria for success and how this criteria will be measured. We suggest that you set specific measurable goals for both the short term and long term. Be sure to establish a review process so plans can be revised as needed and the early warning indicators that something is amiss.

Keep talking. Jointly define communication, marketing and promotional process. Decide in advance how joint marketing and communication efforts will be measured and funded. Define processes to disseminate best-practice knowledge and experience internally.  Develop a plan to communicate the alliances both internally and externally at the beginning and along the way, especially as key milestones are achieved.

For a strategic alliance to success it needs to be a part of your company culture. Implement partnership training that is relevant to your particular situation/company.

Mapping your ecosystem is a crucial part of identifying potential alliance partners. Learn how, contact us

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