Creating Value: Strategic Alliances in Practice

How to Run a Strategic Alliance

A strategic alliance allows two or more companies to pursue growth without one having to acquire the other.  In a risky and imperfect world, alliances are often the cheapest and fastest way to expand into new territories and markets.

A strategic alliance is an agreement between two or more parties to pursue common objectives whilst remaining independent companies.   In this sense, it is different to a single company engaging in normal competition with other companies.

  • Normal competition is usually distributive – each company competes for a bigger piece of a finite pie.
  • Competition through a strategic alliance, however, is also integrative – each alliance partner has to co-operate with the other alliance partners to create value for each other.  They then have to combine forces and go to market together to engage in normal competition.

This is the interesting thing about alliances: they call on different skill sets within the alliance partners.  Whereas organic growth is all about competing effectively against other organisations, alliances are about collaborating with another independent organisation first and then competing together against other organisations. This means normal competitive skills are needed, but collaborative skills are also needed.  The result is that you need to put collaborative and socially competent people in charge.

Before Commencing a Strategic Alliance 

The first step is to define the customer proposition.  This involves preliminary research into the target market, the development of your USP and your point of difference.

The next step is to develop the product architecture and determine which parts of it you need another party to deliver. It is here that you identify the strategic partner and develop the business case.  In identifying the strategic partner, take into account the following:

  • Due diligence: The selection of a strategic partner is just as scientific a process as all the marketing processes that went into stage one.  The difference is that you need to be aware that at this early stage, people are often wearing rose coloured glasses.  There is a often a cognitive bias in selecting prospective alliance partners that allows inferences and conclusions to be drawn on illogical grounds.  One of the most prevalent faults is going into business with a company simply because you have known it for a long time and therefore you think no due diligence is necessary.  The British Secret Service selected Philby, Burgess and Maclean on the basis that they were from Cambridge University and from good families and therefore no further due diligence was necessary.  They turned out to be the worst double agents in Britain’s history.
  • Gravitate to strength: Once the product architecture is settled and the value proposition is refined, you need to whittle away the offering until you are putting forward only your strengths.  In this way, you can demand that the other strategic partners provide their strengths as well.  From the possible partners, pick the one that is the strongest.  There is no value in an offering that has weak links in the chain.
  • Seek out alignment in values:  The day-to-day mechanics of an alliance can be adjusted or changed, but the long term vision of the parties must be aligned from the start. There must be a foundation of mutual trust built on similar values so that any issues in the future can be resolved internally before they start affecting customers.  Make sure that they have a good reputation in the market and have the type of customers that you would also like to have.
  • Disaggregate and realign: Look at the products or services you want to deliver and then disaggregate them.  Identify which components you do better or more cheaply, then identify another party to make or deliver the other components.  Put the product or service back together with the parts from each prospective member of the alliance in a way that delivers the most value to the customer and makes the biggest contribution to the fixed costs of each member of the alliance.
  • Consider the details: Before you approach potential partners, be clear in your own mind how IP will be owned, licenced and shared; how the customer database will be assembled and what happens to it after the alliance is dissolved; how revenues and expenses will be shared and how technology and infrastructure will be shared and clients will be shared (including non-competes and non-circumvents).

During the Strategic Alliance

Once the alliance is up and running, you need to be proactive in keeping the relationship alive:

  • Make your commitment clear: Make it clear to the other partners that you are committed not only to each project, but to growing the relationship over time.  This can be formalised in an “alliance development meeting” once a week for 45 minutes where parties are given a chance to give feedback and air any grievances before they become major issues.
  • Nurture all the players in the alliance partners: It is not sufficient that the respective CEOs and COOs have a good relationship.  Each alliance partner must make a conscious effort to have its employees engage with all the employees of the other alliance partners.  Stakeholder management plans are an excellent way to plan this out in advance.
  • Don’t be pedantic: Your contracts govern the alliance, but they can’t predict all the twists and turns that will come the way of the alliance.  Be willing to engage in some give and take and prepare for different interpretations.  When you need to renegotiate an aspect of the alliance, prepare for negotiations well in advance.
  • Keep communicating: Most disagreements are avoided by the CEOs and COOs of each party staying in contact.  On a practical level, this should be done by a dedicated person from each organisation whose job it is to oversee the alliance.
  • Make friends: Make sure that not only are the CEOs and COOs in communication, but each person involved in the alliance has a relationship with their opposite number in the other company.  Formalise these relationships and also keep them alive with informal gatherings. Spreading the web of connectedness helps bind the alliance together. Friends take longer to fall out.
  • Bite your tongue: The reason you got involved with the other party is that they had something of value that you did needed.  This means that the people delivering that value will probably be culturally or behaviourally different to your staff.  Respect those differences when you interact.
  • Keep the end result in mind: Whenever differences arise, step back and remind yourself of the overall end result you wanted to achieve in the first place.  Then consider whether taking issue with the current problem is worth risking the whole relationship.  On the other hand, when other side makes a big contribution to the alliance, go out of your way to celebrate and acknowledge that contribution.
  • Avoid company-centric thinking: Western corporate practice has always been company-centric.  The effect of this is that the first reaction is to develop all capabilities in-house and to be the best at them.  Many companies find out-sourcing difficult and co-operation within an alliance positively alarming.  This kind of thinking is the antithesis of a strategic alliance.

Conclusion

Often a new opportunity won’t wait for your organic growth.  An alliance is a quicker way to engage with the opportunity and a less risky way than an acquisition.  An alliance is often a good solution to offsetting all parties’ fixed costs by selling more product or services.

Ben Killerby B.Juris., LL.B., LL.M., M.A.I.C.D.

Ben is the manager of the Saxon Klein Corporate Advisory section. He has 21 years of experience in law and in private enterprise. As a lawyer, he worked in mergers and acquisitions at major law firms Mallesons Stephen Jaques in Australia and Simmons & Simmons in the City of London. In private enterprise, he has been involved in major property and corporate deals, including the establishment of the original Packer Murdoch Telstra pay television network in Australia (Foxtel).

Ben has three law degrees, including and Masters of Law from the University of Melbourne. He is also a legal practitioner admitted to the Supreme Court of Victoria, the Supreme Court of Western Australia, the Federal Court of Australia, the High Court of Australia and the Supreme Court of England and Wales.

He was the Team Attache for the Australian Olympic Winter Team at the Vancouver Olympic Games.

Contact: potential@saxonklein.com.au
Telephone: 1300 898 898
Twitter: @benkillerby