Are strategic alliances just for the big guys?
Article posted on 6th September 2007
- or should you consider them too?
So what is a strategic alliance?
A strategic alliance is simply two or more organisations working together to their mutual benefit. That can be anything from, say, working together to address a specific market all the way through to a formal joint-venture or indeed a full legal merger.
So who do we know who have done it successfully?
Singapore Airlines and Virgin Atlantic Airways have a simple "code sharing" agreement that seems to work well for both of them. The formation of Cereal Partners joint venture by Nestle and General Mills has been tremendously successful - bringing together Nestle's extensive nutrition experience and General Mills' knowledge of the cereals market.
On the other hand we read that the total cost to Daimler-Benz of their abortive merger with Chrysler is estimated to have been of the order of the $50 billion!
Strategic alliances are not just for the big guys however - I know of many small companies for whom they work extremely well. For example a wedding caterer, a wedding photographer and a specialist travel agent all working together to give a perceived single entity "one-stop shop" for couples planning their big day. I know of the group of self-employed consultants who promote themselves under one brand name to demonstrate critical mass and access to a mixture of skills and specialisms. This helps them to secure work they would almost certainly not otherwise get.
Let's think about why you might consider a strategic alliance as part of your strategy for the future. What reasons might there be for considering this route?
The first and most obvious is perhaps around the whole area of marketing and market access. Smaller businesses may be highly experienced and have a significant market share in one particular market but not in another. This may be a particular industry sector or maybe a geography. An obvious solution is to partner with a like-minded organisation seeking to bring, let's say, a complementary product into your market sector and for you to do similar in theirs.
When looking at doing business overseas you may have concerns on relying on local agents or distributors who you may feel have no real commitment to you or passion for your products in the same way as you do. On the other hand they have the local knowledge and the contacts. So, maybe, you can change the basis of the venture and the commitment to it by a token share swap. The Japanese regularly take this approach.
Another reason to consider strategic alliances is in the area of products and technology. Universities around the world have in recent years come to recognise their lack of business and market skills and it is quite normal for some form of strategic alliance to be formed between them and an appropriate commercial business organisation to fully to fully exploit the technology the University has developed.
Alternatively the alliance might be on the operations side of the business - where one party may have the product development and the marketing skills whilst the other has the skills of operational excellence including component sourcing and manufacture.
Finally the driver might be simply to get access to quality management on the one hand and to retain that quality management on the other by widening their scope and responsibilities.
Doubtless there are many other drivers for forming a strategic alliance than the ones I have listed but these are the most common reasons we see.
What is very clear is that strategic alliances do not always work.
What is also very clear are some of the reasons why they do not always work.
The absolute key to improving the chances of success of a strategic alliance is the amount of planning and research done by both parties, on their own and jointly, ahead of the event. Both parties need to be crystal clear as to why they are entering the process and what they expect to get out of it - and those reasons need to be transparent to both sides. This entire process needs to be looked upon and handled in exactly the same way as a due diligence process one carries out ahead of an acquisition. That process must look not only at the financial implications, consequences and forecasts but must also look at each function of the business that maybe affected and the implications.
The most frequently quoted reason for a strategic alliance failing - whether it be the big guys all the small - is a clash of cultures. This was certainly one of the reasons for the Daimler-Benz/Chrysler failure.
Both parties need to "get in the helicopter" and view objectively and dispassionately just how different the cultures of the two businesses are and whether, genuinely, they can live together.
I cannot emphasise this strongly enough.
We must also not ignore the question of size.
A strategic alliance between businesses of similar size is statistically more likely to be successful than one where one party is significantly larger than the other. It seems simply that the ability for one party to be able to bully the other often cannot be resisted - with fatal consequences.
So there we are, whether you are a small business or a large some form of strategic alliance could be the key to your future. You must, however, go into it with your eyes wide open, having done a good deal of research and with good faith on both sides. Finally you must both write down and agree exactly what is that you are agreeing to and what the outcomes are that you seek.
Good luck!
© 2007 Roger Harrop
