AIPMM: Product Management Articles for Product Management

Successful Strategic Alliances -What Makes Them Work?
By Leonard Hook, Kairos Group

As the pace of global business accelerates, and customers continually become more demanding and sophisticated, companies are finding the competitive landscape dramatically changing. Markets are moving so quickly that is very difficult for one company to stay current on all technologies, resources, competencies, and information needed to attack, and be successful in those markets. Strategic alliances offer a means for companies to access new markets, expand geographic reach, obtain cutting-edge technology, and complement skills and core competencies relatively fast. Given a good framework is followed, this can usually be done far less expensively than if the company tried to develop that capability internally. That is why executives consider strategic alliances a value driver and make them integral with their growth plans

However, there are severe negative aspects of alliances when not properly managed. Many studies have indicated only one in three companies characterize their strategic alliances as highly successful. What causes the others to fall short of expectations or fail altogether?

This brief article explains some characteristics that successful alliances have that increase success.

A Corporate Process for Partnering

For alliances to be successful there needs to be an organized approach and corporate discipline. Companies need to put in place a process to identify and prioritize opportunities as to strategic fit, identify the best potential partners, and to construct the partnerships. Top executives must take an active role to ensure the ventures reflect the goals and priorities of the organization and meet the performance standards. Good processes, metrics, and corporate oversight are essential to make alliances successful.

As part of the strategic process, a portfolio approach for alliances enhances a business’s ability to manage its overall value creation process. By managing the alliance portfolio as part of the corporate strategy, the following needs to be understood:

What are the focus areas for alliances to gain the most leverage
Are resources being optimally allocated
What are the opportunities/hazards in the portfolio; what are the significant exposures
What metrics are in place and how are they evaluated
Can the value of the alliance portfolio be communicated to the stakeholders

A Framework for Success

Once targeted areas are prioritized and the potential partners see value in the strategic relationship, what are the characteristics that drive the alliance to success? Kairos Group studies have indicated the following to be significant:

Mutual Commitment of Partners to Success

Financialsuccess
Company strategies that are consistent to the partnership
Company goals that are communicated and agreed upon
Alliance provides needed contributions/expectations

Organizational Compatibility of the Partners

Compatible goals/vision
A mutual need
Shared values and corporate culture; trust is paramount
Excellent Communication
History of successful partnering with organizational learning
Good executive level relationships
Business health of both partners is good

Development/Agreement of Mutual Objectives

Common objectives and expected results
Agreement on what constitutes success and keeping score on specific benchmarks
Quantifiable and measurable results
Principles for sharing results as well as risks

Managing Structure

Strategic framework agreed upon by the principal executives: philosophy,Strategic goals, and standards
Purpose of alliance: opportunities/needs, distinctive contributions, a focuson renewal (long range strategic value)
Mode of operation: role of steering committee: prioritize opportunities,rewards, boundaries
Managing organization: roles
Exclusivity, confidentiality, lead times, patents
Principles/Standards for mutually terminating the alliance

In summary, strategic alliances can provide a powerful competitive advantage in new markets, cost, speed, knowledge, and technology access. To achieve success, there must be ownership and commitment of top executives to the process and it must be managed with discipline. Following the above framework will provide an approach to developing successful strategic alliances.