Strategic Alliances: Making Them Work

By Amy Radishofski, Features Editor, Manufacturing.netPartnerships are tricky -- some work, some don’t. How do you know if you’re making the right choices?

Question: Why should you form a strategic alliance? Answer: Because you fit into one of the four categories below--

  • You don’t have all the capabilities (i.e. capital, government relationships, technology, etc.) to do it on your own.
  • You want to cut down on the amount of risk and investment involved.
  • You don’t have the market knowledge (i.e. knowledge of different tax structures).
  • You have all the capabilities but you can’t do it fast enough on your own and risk missing the market window.

And once you’ve decided that forming a strategic alliance is your best option, how do you pick the best partner?

“You need to look for something that provides sustainable value over time,” said Steve Steinhilber, author of STRATEGIC ALLIANCES: Three Ways to Make Them Work and Vice President of Strategic Alliances at Cisco Systems. “Instead of just looking for the biggest slice you can get for yourself, can you grow the pie for both companies?”

Steinhilber says that companies in the right partnership can see opportunities for multiple initiatives if the partnership is expanded beyond the initial framework.

“The level of investment and commitment from both companies can also be good indicators of a successful partnership,” Steinhilber said. “But areas of overlap can be a concern.”

To evaluate if your partnership is successful or not, Steinhilber offers some suggestions:

  • Satisfied customers -- You’re on the right track if there is a strong positive reaction from your customer base.
  • Meeting goals -- Both companies’ goals should be met in a balanced way. It doesn’t have to be 50-50, based on the framework established during the formation of the partnership.
  • Trust -- Trust will develop as part of a successful partnership. That trust often leads to new initiatives and areas of opportunities.

However, not all partnerships will be smooth sailing. A large portion of partnerships will fail for various reasons.

As with all relationships, from time to time problems may occur within the partnership.

“Companies need to address problems with a sense of urgency,” Steinhilber advises. “Partners are not only looking for a solution to a problem, but they are also looking at the speed at which it is solved.”

Steinhilber says companies need to listen carefully to their partners and understand any underlying issues. They then need to clearly communicate the reason and nature of the problem to their team and plan a course of action.  

“In the early stages, partnerships fail due to lack of planning and goal clarity,” Steinhilber said. “Partnerships that last at least 18 months typically fail because the market changed and upset the assumptions that the partnership was based on.”

Another big reason partnerships fail is lack of trust. Trust between partners can be eroded by events like acquisitions or other partnerships in similar areas.

Trust is also key in collaborative-competitive partnerships, or alliances in a particular market between competitors in other markets.

“Industries are converging today,” Steinhilber noted. “Companies competing in certain spaces may see value in collaborating in others. However, those companies need to be sure they spell out what they will partner on and what areas will be kept separate. They need to establish an appropriate framework with rules regarding access to information.”

The concept of rights and intellectual property can be a factor in the success or failure of any partnership -- competitive or not.

“Be clear upfront,” Steinhilber advised. “Identify intellectual property and ownership. Both companies could have equal rights to it, or you could restrict disclosures.”

People are an important part of any partnership. When building your team for a strategic alliance, Steinhilber suggests looking for individuals that enjoy variety. You’ll need individuals with a broad background that can work across the entire value chain.

“Communication skills are also important,” he said. “They may need to talk to people ranging from the janitor to the CEO. They may also have to work with different cultures on a global scale.”

You should also look for individuals that have a collaborative style.

“These people may be dealing with an extended team of 50 to 100 people, with only a handful of direct reports,” Steinhilber noted. “They have to be able to lead the whole team and create structure in an unstructured environment.”

From people to intellectual property, several factors go into to creating a successful partnership. That being said, the process may seem daunting for first timers. However, despite those nerves, companies should give the idea of a strategic alliance some serious thought.

“As the world continues to flatten, time to market is going to be critical. Companies should think about adding alliances to their core competencies and skills,” Steinhilber said. “Strategic alliances will be come a competitive advantage for those who can form successful partnerships and a disadvantage for those who can’t.”

Steve Steinhilber is Vice President of Strategic Alliances at Cisco Systems and author of STRATEGIC ALLIANCES: Three Ways to Make Them Work.  He holds a BA from Duke University and an MBA from Harvard Business School. For more information, visit http://www.cisco.com/

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