Alliances as a Growth Strategy

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“If you think you can go it alone in today’s global economy, you are highly mistaken.” – Jack Welch

Strategic alliances can provide growth quickly at a fraction of the cost of tackling the market alone or buying growth via acquisition. In the past it was more cost-effective to own all aspects of the value chain – vertical integration was the business model of choice.

However, in today’s marketplace, focus is critical. Owning the value chain may actually put an organization at a competitive disadvantage due to the lack of flexibility and financial commitment true vertical integration represents. Selecting the right partners and nurturing these relationships can help your company focus on what creates the most value for customers and do what you do best.

Alliances also offer versatility. They create new, viable market options and allow companies to address more effectively the uncertainties and complexities of today’s highly competitive global marketplace.

Recently software maker MicroStrategy’s stock jumped 41% after announcing a strategic alliance with IBM’s consulting arm. This announcement increased MicroStrategy’s market value by $684.1 million. Strategic alliances can have a significant impact on the future growth potential of an organization. Obviously, value exists in alliances. In our work with start-ups we find a robust alliance program is a high priority to score early credibility points in the marketplace. Alliances serve to increase business value and fill corporate and strategic-business unit strategy and capability gaps.

A well structured, well-managed approach to alliance formation that shares risk and investment can support other goals, such as efficiency and productivity.

Some benefits. Alliances can:

  • Leverage resources
  • Jump-start technology
  • Facilitate market development
  • Extend the market reach of both partners
  • Facilitate knowledge enhancement quickly
  • Speed globalization

Selection of strategic partners begins with a clear alliance strategy and objectives, which link to the overall strategic objectives of the individual organizations. The next steps in the selection process include some basic criteria coupled with very specific industry, market, and individualized criteria. Some of the basic partner selection criteria include; experience with alliances, value creation capabilities, and the willingness of the potential partner to ally. Alignment of culture is also significant when analyzing the potential success of any relationship.

It’s easy to agree that the cultural fit between alliance partners is important to the success of any alliance. However, even if a less than perfect cultural fit is identified, it is still difficult to reject the alliance for that reason alone. As with mergers, good projected financials have a tendency to delude management into thinking that somehow the culture problems will work themselves out. It would be easy to recommend that an alliance should not be formed if the cultures aren’t compatible, but that isn’t real life.

What do you do if other benefits force you into an alliance that may be questionable on the culture side?

  • Opposites attract – The heads of alliances for two organizations with different styles can be selected with the idea of moving toward the middle. Let’s say company A’s style is very autocratic and company B is very individualistic. The alliance manager selected for company A could be the renegade free spirit from company A (opposite their colleagues). Company B’s alliance manager perhaps could be one who comes from a command and control history who has adapted somewhat to company B’s free spirit philosophy. This approach allows each side to really appreciate the perspective of the other.
  • A life of its own – When cultures are diametrically opposed it may be wise to insulate both firms from the joint venture. Staff exchanges between the two firms can be limited. Identify the right mix for the alliance and let them do their thing with little structural interaction with the corporate parents.
  • Small steps – Doing little things can have a big impact. For example, when encountering differences in communication techniques between partners (such as email vs. phone and face-to-face) it can pay big dividends to simply make an effort to balance the methods used and possibly intersperse some alternative solutions like video conferencing into the mix.

Although requiring a discipline and structure of their own, strategic alliances should be considered a viable part of your overall growth strategy.

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On June 9, 2008
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