Before we can discuss the alliance lifecycle, we need to have an understanding of what alliances are, of why to partner, of what is within the alliance spectrum and of that alliances can fail. Especially after the last article, the question may arise on how to partner with the best chances for success. Establishing an alliance management function with supporting umbrella process and tools will help increase alliance success.
The alliance lifecycle is a process, or structured approach, for alliances. It is the roadmap that your organization can follow to create successful alliances. Most alliance life cycles are similar. But often they are not the same since they adjust to the organization that’s using the lifecycle.
Alliance lifecycle framework
In their recently published “Handbook of Alliance Management” the Association of Strategic Alliance Professionals (ASAP) describes a seven-step alliance lifecycle framework. This framework is the result of the combined best practices for alliance success from the members of the association.
Seven steps for alliance succes
The framework identifies the following seven steps for alliance success:
- Set the alliance specific strategy
- Partner analysis & selection
- Building trust & value creating negotiation
- Operational planning
- Alliance structuring & governance
- Launching & management
- Transform, Innovate or Exit
Several companies use their own model that fits the company’s way of working. A large electronics company in Europe uses, for instance, a slightly different 6-step model. Here steps 4 and 5 combine into one step. Also, Cisco’s model, as described in Steven Steinhilber’s book “Strategic Alliances: Three Ways to Make Them Work”, is a 6-step lifecycle, but again slightly different.
Different sizes and approaches
These large companies have the bandwidth to create a separate alliance management department. They can assign separate alliance managers to manage their alliances. They also need an extensive framework process. This way you can ensure that you involve all stakeholders in the organization. The size and structure of the company demand a solid process. A smaller company may not be able to apply a process in such an extensive way. They probably also don’t have the need to apply an extensive process. However, the trap for smaller companies is that they will jump in too opportunistically and create ad hoc partnerships. As we have read before, these ad hoc partnerships are on the wrong side of the 80% rule. Hence, also smaller companies better follow a framework process to ensure success.
An alliance lifecycle framework is a toolbox
An alliance lifecycle framework can best be viewed as a toolbox. 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.
The Alliance Specific Strategy phase
For instance, in the first phase, Alliance Specific Strategy, you will set the business context, align with strategies, think about the value proposition, and make the fundamental decision of whether you should do it yourself, acquire another company, or establish a strategic alliance for the opportunity you have in mind. The option to acquire another company may not be available at all for a smaller company. Perhaps here the only choice is to partner, or not pursue the opportunity at all. As such the decision tree will be shorter for a smaller than for a larger company.
Still, you need to look at the Strategic Rationale as the first phase defines the why of an alliance, the strategic context and the reason for being in a partnership. This is a fundamental step in the framework that may determine the success of your alliance. When alliances are created for the wrong reason, it is much harder to keep them healthy and successful.
The Analysis and Selection phase
The Analysis and Selection phase is about Partner Selection. For a larger organization, this may include a process of creating a long list that filters down to a shortlist of potential partners. Smaller organizations will often only have a shortlist or maybe even a single partner to deal with. Partners with business ideas often approach companies. In these cases, it still makes sense to go back to phase one and determine if the opportunity fits with your strategy.
Partner selection also needs to be applied, maybe not in the sense of finding other partners to add to your list, but certainly in the sense of assessing if this is indeed the right partner with the right fit for your challenges.
The organizing an alliance phases
The next three phases of the alliance lifecycle are all about organizing an alliance. They will be distinct phases for large companies but might blend together in one phase for smaller organizations. Building trust and value creating negotiation is about the formation of the alliance. 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. This phase often results in a “letter of intent” or a “memorandum of understanding” and is the result of a high-level negotiation before the actual contract is created.
The Operational planning phase
In the Operational planning phase, the two partners will jointly create an operational plan that will lead the day to day operation of the alliance. The Alliance Structuring and Governance phase has its focus on creating the governance structure and the organizational and legal frameworks. This phase will normally be concluded with a contract that is based upon the work done in the previous phases.
Launching and Managing phase
Where the previous phases may have taken weeks to months to complete, the next phase in the lifecycle is the Launching and Managing phase and may take several years for successful strategic alliances. This is all about alliance operation, the just established business partnership is in execution.
The Transform, Innovate or Exit gracefully phase
The next phase Transform, Innovate or Exit gracefully is in the ASAP alliance lifecycle displayed as a distinct phase. It is however often quite difficult to express the moment you are moving with your alliance from an operational phase to a transition phase. The tasks defined in the final stage should be part of the ongoing alliance management of an alliance. The measurement of progress and the check on continued alignment with the partners strategic intent, it all needs to be done on an ongoing basis while the alliance is in operation. Only then can an alliance transform into a healthy new form or shape, or can be exited gracefully.
Transition of an alliance
Transition of an alliance is not necessarily termination. Alliances can redefine themselves or transform with new strategic intent. Sooner or later every alliance will reach a transition point. The alliance may have served its purpose. Conditions may change for a partner, markets may chance. With any of these situations, an alliance reaches a transition point. Transition, in this case, is often more than just a termination. After the transition, an alliance can continue in an adjusted format.
The Senseo alliance
In the Senseo alliance, Philips and Sara Lee appear to have reached a transition point when the Sara Lee organization decided to split the organization into two separate publicly traded companies by early 2012. One of the companies would be concentrating on the foodservice business of Sara Lee while the other would focus on becoming a coffee and tea company with brands such as Senseo, Douwe Egberts, and Pickwick. With this change in the business for Sara Lee, the Senseo alliance with Philips became of a different importance for the coffee business of Sara Lee. It was no longer one of many brands, but within the narrowed company focus it became one of the few major brands.
On Jan 26, 2012, Philips and Sara Lee announced to have renegotiated the Senseo alliance and signed a new contract that will run through 2020. In the new contract, Philips will transfer its 50% ownership in the Senseo brand to Sara Lee. The press coverage around the announcement Sara Lee Executive Chairman Jan Bennink quoted that the future of the coffee business would be concentrated on a strategy focussing on the Senseo coffee pad machine. This alliance appears to have reached a transition point.
We may assume that during the renegotiation and transition of the Senseo alliance, the partnership continued based on the earlier agreements. Both the coffee machines and coffee continued to be available in store within the old context. The customer only noticed the new alliance after the announcement had been made. The alliance management phase continues while the transition is in operation.
The alliance lifecycle as a sequential process
Even though the alliance lifecycle is pictured as a sequential process, it is not always operated this way. When your alliance reaches a transition point where you feel that there is still future for the alliance, but not under the current conditions, you may move from an operational phase to a formation phase to negotiate and set a new agreement. In general, however, it is good to follow the steps in order. Otherwise you might find that eventually, you will have to go back to the earlier steps that you have skipped. For example, it often happens that other companies with a partnering proposal approach your company, or you meet someone at a networking event and feel that your two companies should partner. In fact, you are already in partner selection, while the crucial decision points of the strategic rationale have not been evaluated.
If you in such a situation omit evaluating the decision points from the earlier steps, you may end up with an alliance that looks promising at the moment of signing the contract. But, it may fail during execution for reasons that could have been prevented.
An umbrella for creating alliances
The alliance lifecycle-based process is an umbrella for creating alliances. Every alliance is different, every partner will be different, and every value proposition will be different. It is imperative to look for yourself at the steps in the alliance lifecycle and apply them pragmatically. If you are establishing a new alliance with a partner where you already have an existing partnership in place, it may be redundant to check if the partner company fits with your company. It still makes sense though to evaluate if the partner company is the best partner for the new opportunity.