Four Steps to Making Strategic Alliances Work
All too often businesses form alliances offer great promise in the beginning yet fail to deliver the results both parties anticipated. Instead, they become mired in “strategic gridlock”: persistent problems that grind progress to a halt. Consider the following scenario:
The owner of a technology consultancy (TC) with three employees dedicated to serving small businesses decided to form an alliance with a solo practitioner (SP) who had highly specialized expertise in enterprise resource planning. The objective of the alliance was to focus on expanding their market to include large corporations. Both business owners considered the potential for success extremely high, since they had known each other for several years, and each had a strong client base. The owners agreed upon objectives, secured contracts from each other, and everything seemed in place—until the kickoff meeting.
While the alliance objectives were clear, no one could agree on how they were going to work together. Employees of the TC, used to quickly changing directions to meet the fluid needs of their small business clients were resistant to suggestions from the SP, who was accustomed to the needs of large corporations for detailed project management templates, and measurements for success.
The SP approach “won;” however, the established steps, timeframes, and measurements soon became irrelevant. Milestones were repeatedly missed and goals were dropped. Within six months, changing priorities for both the TC and the SP made it difficult for anyone to devote the necessary time and resources to developing business in the new market. The alliance succumbed to strategic gridlock, with each party accusing the other of being a poor fit.
If you think the above scenario is rare, think again. Such cases are commonplace as businesses of all sizes continue to form strategic alliances in record number as a way to quickly advance their business objectives. This is especially true for small businesses that are short on resources and infrastructure. At their best, alliances are an effective and efficient way to launch new services and products, improve technology, and expand market reach. These relationships enable your business to access critical capabilities, increase production capacity, reduce costs, and accelerate growth without the financing requirements and commitments that come with buying new equipment and hiring additional employees.
However, despite the apparent logic of an alliance, many times problems come as a surprise to business owners once the companies start working together. While it’s true that some failed alliances may be the result of unexpected events, more often than not gridlock can be traced to assumptions about issues that were unaddressed or left unresolved at the earliest stages of developing the relationship.
The fact is that creating a productive strategic alliance requires more than identifying a clear objective, conducting due diligence, securing a contract, and establishing an operating process. It’s vital to recognize and address the special strategic and organizational challenges that come at four distinct stages of the alliance building process. By doing so, you’ll develop productive relationships that can significantly increase each company’s profitability. The following steps can prevent problems from occurring in many types of alliances, whether they are structured loosely or are developed as highly committed joint ventures.
Step 1: Know Thyself: Develop your own alliance objectives and strategy before finding partners
Because alliances are relatively simple to enter and exit, many business owners seize an alliance opportunity before determining if it’s really a strategic fit or whether their business is ready to support the alliance. Sometimes alliances “just happen” when a relationship evolves from convenience or familiarity rather than purposeful consideration. Other times, executives base their alliance decision on the apparent logic of joining forces; the two companies should be a good fit based on their complementary strengths. For instance, a company whose strengths are in developing state of the art technology might find it natural to form an alliance with a company whose strengths are in marketing to their target customer. However, when you leave out the foundational step of defining your business’s own alliance strategy, it’s easy to lose focus and shift priorities to other more pressing matters outside of the relationship as business conditions change. The resulting conflicts and misunderstandings within and between the two businesses leads to wasted time and resources, lost productivity, and missed opportunities.
To avoid these problems, look at your business’s reality before selecting alliance partners. Develop your alliance strategy to support your business’s vision, mission, and objectives. Gaining a thorough understanding of your objectives, competitive position, strengths, limitations, competencies, and capabilities helps you determine whether an alliance makes more sense than increasing your infrastructure or outsourcing. In addition, this is the time to understand how such an arrangement might impact various stakeholder groups who will be affected by the alliance (such as employees, suppliers, and customers) so you can negotiate their buy-in to the initiative.
Equally important to strategic issues is locating aspects of your business culture that will support or hinder an alliance. Remember, even “gangs of one” have a formal culture (values, beliefs, and practices). This is reflected in everything stated in your business’s official documents and speeches. However, in many cases, these are not supported by what happens in your informal culture (what really happens). For example, if a company’s formal culture promotes empowering employees to make decisions but the informal culture reinforces the need for multiple levels of management approval to change procedures, employees may have a difficult time getting things done in the alliance. Keep in mind that as more companies form global strategic alliances, they need to also understand their organization’s level of global awareness so they are prepared to bridge differences in national styles and languages.
By identifying these challenges in advance, as well as charting out the strategic objectives of the alliance, executives can more accurately determine their organization’s starting point for building alliances. They can then put together appropriate action steps, communication plans, and checkpoints that will close gaps in readiness and increase the likelihood of choosing an appropriate partner.
Step 2: Create a joint alliance strategy before finalizing agreements
Unlike outsourcing arrangements, which are client-centered, or mergers, where one company tends to dominate, alliance partners are equal in power. Each company is an independent entity with its own objectives and guidelines. To be successful, the partners have to consider “what’s in it for them” as well as “what’s in it for me.” The larger the commitment, the more important it is for both business owners to evaluate the alliance strategy of their intended partner as well as their own. This includes understanding the other company’s vision, mission, and strategy, as well as their overall strengths, weaknesses, and corporate culture.
When building a joint alliance strategy, it’s vital to avoid “my way or the highway” thinking. This occurs when each partner views the alliance from their own perspective, generating conflict as the alliance progresses. The HTC – MC alliance suffered from this pitfall, as each company tried to push their own management style upon the other. While one company “won,” both lost out when the HTC passively resisted the arrangement.
To prevent these types of breakdowns from causing strategic gridlock down the road, executives from both companies need to work together up front to conduct a joint strategic thinking session prior to forming the alliance. At this point, they can clarify expectations, company roles, and responsibilities, as well as to coordinate their measurements for success before signing an agreement. The joint strategic thinking session mirrors the same process as developing your own company’s strategy, with additional questions such as, “What are our goals—both individually and jointly?” “Why is this alliance important to us?” “How will we make decisions?” “How will we handle conflict?” and “How will we know whether or not the alliance is a success?” When you know the other party’s mindset, you can develop a positive “give-and-take” relationship that fosters a productive alliance.
Step 3: Co-develop opportunities by building a bridge to “our way”
As the owner of the TC and the SP at the beginning of this article learned, learned after they joined forces, participating in an alliance often means having to develop new skills and work differently than you do when working within your own business. Rather than managing projects “my way” or “your way,” alliances must build a bridge to “our way.”
Since every alliance has its own unique blend of economic, strategic, and cultural circumstances, each relationship needs to be individualized and executed according to its own set of guidelines. Just because a set of alliance procedures worked well with one partner does not mean they’ll work the same in another relationship. Trying to clone policies and practices and make them fit in every instance is setting yourself up for disaster. For instance, a company that routinely used e-mail to communicate important information to all ten of its alliance partners neglected to realize that one of its partners used e-mail only as a back-up to in-person and telephone communication. As a result, that alliance missed an important deadline. A successful relationship will take into account the best practices that have worked in the past and integrate them with the current situation facing each company.
To pave the way to high performance alliances, it is likely that you’ll need to alter policies and systems as necessary to make it easy for the alliance to work. In addition to allocating sufficient human and capital resources to the alliance, it’s your role to ensure that employees who are dedicated to the alliance have the necessary knowledge and competencies to form and develop effective work teams.
Step 4: Evaluate and adjust the alliance to serve both businesses
As the alliance progresses, it runs the risk of taking on a life of its own and evolving away from its original objectives. That’s why it’s essential to establish frequent checkpoints or milestones to evaluate your efforts and to rethink the alliance’s purpose. At these times, both business owners need to review the results to date and compare them to the success criteria they established during strategic thinking and planning. Keep focused on the intent of the alliance, but be prepared to modify your agreement and processes if necessary.
The results from this evaluation can also impact each company’s own strategic plan. One high company, for example, found that their plans to acquire a competitor conflicted with an agreement they had in place with a key alliance partner who was marketing their services. The acquisition subsequently had to be called off.
Some revealing questions to ask would be: “What went well and why?” “What would we do differently and why?” “What did we learn about each other?” “What did we learn about the opportunity for alliance?” “What strategic and organizational changes have taken place in each company that could impact this alliance?” “What knowledge and skills do we need to develop to advance our objectives?” and “How do we need to adapt policies and systems to resolve any problems?” As the alliance agreement gets fine-tuned, continue to evaluate the results. The more checkpoints you allow for in the plan, the more productive the alliance relationship will be and the less likely it is that problems will spiral out of control.
Each of these four steps supports the critical basis of successful strategic alliances: recognizing and addressing both strategic and organizational issues that occur at each stage of the strategic alliance process. This happens individually and collectively with the partner you’ve selected.
By establishing your own alliance strategy and working with your partners to jointly develop the alliance strategy and operating plan, you lay the foundation for a mutually beneficial relationship. Partners can develop approaches for working together and co-developing opportunities that extend their mutual reach while serving their individual interests. The result will be a flexible and collaborative relationship that accomplishes more than what any one company could achieve alone.
Pamela S. Harper is president of Business Advancement Inc. and author of Preventing Strategic Gridlock®
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