The 80% rule of business partnerships

 

The research on alliance failure rates shows a wide range of figures. Ranging on the best side of only a 20% failure rate to the worst side of an 80% failure rate. It is this high failure rate of 80% that has some unbelief to it. Would companies seriously invest in something they know will have a 4 out of 5 chance of failure? In 2011 at the ASAP Pharma Council in Basel, Marc de Garidel, Chairman, and CEO of Ipsen indicated in his keynote that alliances are important for Ipsen. Over 40% of the Ipsen revenue is based on the alliances Ipsen has established. It would be an impossible task for Ipsen to manage that if the failure rate was indeed 80%.

The 2012 ASAP State of Alliance Management study dives into the topic of alliance performance. The study is the fourth in line were earlier studies were held in 2002, 2007 and 2009. The latest report shows an average alliance success rate of 53%, which seems a pretty consistent number over the period of the four studies.

The findings show that companies that follow a structured alliance management process consistently report a better success rate with their alliances than the average success rate: up to 80% success. The companies that approach alliances in an ad hoc fashion report only a success rate of 20%.

That is the 80% rule: 80% of ad hoc unstructured business partnerships and strategic alliances fail, while on the other hand, 80% of the companies that follow a structured approach create successful business partnerships and strategic alliances.

Earlier research indicates that alliances fail for a variety of reasons:

  • Differences in culture
  • Incompatible objectives
  • Lack of executive commitment
  • Ineffective governance structure
  • Poor alliance leadership
  • Overestimated market potential

Proper preparation, alliance management & communication can prevent most of these reasons. The ASAP report hints to the fact that ASAP members have a better success rate than non-members do. These companies have made investments in building up the skills and competencies before approaching alliances. Subsequently, they create and manage alliances in a structured way, often based on an alliance life cycle based methodology.

Also, the report shows that companies new to alliances, and hence less experienced, potentially have a higher failure rate than organizations with an established, experienced alliance management capability.

It will take time and you will need to learn your lessons before you and your company reach that maturity level of alliance creation that the more experienced companies have. You can speed up the process of learning how to create and manage successful alliances with help of an alliance mentor and by educating the people involved in alliances in your organization. Contact me to learn more. 

 


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