I will publish my ebook “25 tips for successful Partnerships and Alliances” in parts here on my website. Every other week a tip from the book will be shared, in the weeks in between I will publish my regular column. If you prefer to read the tips in the ebook faster rather than wait a full year then click here to purchase your own copy of the book.
Introduction to Successful Partnerships & Alliances
Many of the innovations that changed the way we live today are the result of successful business partnerships. The partnership of Steve Jobs and Steve Wozniak, for example, gave us the Mac, the iPod and the iPhone. The partnership of Bill Gates and Paul Allen resulted in Microsoft. Popular American ice cream brand Ben and Jerry’s came out of the partnership between Ben Cohen and Jerry Greenfield. Technology giant and the biggest search engine on the Internet, Google, is the product of the partnership between Larry Page and Sergey Brin. Business partnerships have become the strongest pillars and the undeniable catalysts of change in our society today.
Many business experts, however, compare business partnerships to marriages. Some work while some don’t. The question is this: What is it that makes some companies so highly successful in all the partnerships and alliances they create, while some never flourish at all?
On the outside, they may seem simply lucky – they seem to have something that others don’t have. The reality is that successful companies just do things differently: They follow a structured approach and stick to it consistently.
What is it that successful companies do differently which guarantee that whatever partnerships they enter into thrive and meet their set goals? They tend to apply 25 elements as part of their structured approach to creating and managing their alliances and partnerships. I shall be elaborating these 25 elements as we go along, but for now, let’s get a few things about strategic alliances clear.
In the first place, what does the phrase “strategic alliance” even mean? For the sake of clarity, here’s the definition we are going to use:
A strategic alliance is a strategic cooperation between two or more organizations, with the aim to achieve a result one of the parties cannot (easily) achieve alone.
As per that definition, a strategic alliance is focused on long-term goals. Partners contribute some of their resources to attain success. In exchange, they will receive a portion of the control and benefits from the alliance. Alliances are created with an eye towards growth, with both parties working towards that growth.
From that definition, we can also conclude that pure sales transactions do not make an alliance. In pure sales transactions, one gets to sell something in exchange for revenue in whatever form. However, that relationship is purely transactional; it happens for that moment alone and not for the long haul. The seller and the buyer have not entered a collaboration that will result in something of value that cannot be achieved by the seller or the buyer alone.
Reasons to enter into alliances
So, organizations form alliances and partnerships so they can achieve something they cannot easily achieve alone. How is that possible? There are three main reasons that can explain the power behind partnerships, and these three reasons are:
- Knowledge transfer. One reason why companies enter into partnerships with other companies is so they can gain knowledge or intellectual property they need that the partner company has. This mutual exchange of knowledge can lead to the creation of something new. For example, Philips is a leading manufacturer of household appliances. Sara Lee/DouweEgberts is a coffee company. Together in the Senseo alliance, they were able to create a balanced coffeemaker with dedicated coffee supplies.
- Market development. Another reason why companies form alliances is to develop new markets or extend their own markets for their products. Alone, one company will find it difficult to enter their target market without the knowledge and assets of their partner. A good illustration of this is the partnership of Starbucks and Pepsi formed in 1994; together they created the market for bottled cold coffee drinks.
- Efficiency. More often than not, it’s better to partner with an organization that already has the systems and resources you need to improve your product than to expend capital in developing these systems and resources on your own. This is what Rolls Royce did in 2003, when they established an alliance with several logistic partners; this alliance led to an increase in Rolls Royce’s on-time delivery time and greatly reduced costs without making a dent on profits.
Your alliance will be able to attain the knowledge transfer, market development and efficiency you desire if you follow a structured approach to forming your alliance right from the start. There is a principle called the 80% rule:
The companies that follow a structured alliance management process consistently report a better success rate with their alliances than the average – 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.
The alliance lifecycle
The alliance lifecycle framework as described by the Association of Strategic Alliance Professionals (ASAP) contains such a structured approach. The framework identifies the following seven steps for alliance success:
- Alliance specific strategy: in this phase you will set the business context, align with strategies, think about the value proposition, and make the fundamental decision whether you should do it yourself, acquire another company, or establish a strategic alliance for the opportunity you have in mind.
- Partner analysis & selection: is the phase where you will due your partner selection and due diligence. You will assess which organization will be the best partner for you and your opportunity.
- Building trust & value creating negotiation: is about the formation of the alliance. You will work to build trust with your partner and form an alliance where the values of both partners are respected and each strategic vision is represented.
- Operational planning: is the phase where the two partners will jointly create an operational plan that will lead the day to day operation of the alliance
- Alliance structuring & governance: this phase has its focus on creating the governance structure and the organizational and legal frameworks. This phase will normally be concluded with a contract
- Launching & management: is all about alliance operation; the newly established business partnership is in execution.
- Transform, Innovate or Exit: is about innovating the alliance and transforming it to a new form or shape or exit when needed.
An alliance lifecycle framework can best be viewed as a toolbox where every step in the lifecycle will have its sub-steps supported by tools based on best practices. Smaller companies with a demand for a more lightweight and agile framework can as such use the same framework as the large organizations do, however apply a different selection of tools better suited to their situation.
In the next publication I will provide a summary overview of my 25 tips, before elaborating on each single one of them.