Sep 18, 2007

7 Keys To Building Successful Strategic Alliances

Companies across the world are increasingly forming strategic alliances with other companies in order to increase market share or the perceived marketing strength of their products and services.

Chief Executives seek to build relationships by partnering with similar like-minded organizations. Alliances may also enable a foray into previous untapped market segments by giving the customer a one-stop-shop solution for their needs. Alliances are announced in the technology world on a frequent basis.

However, some alliances leave one or both parties disappointed in the end-results. This is often because the alliance is not established properly. Properly established alliances can help leverage business and build stronger relationships with customers. This article is aimed to help you develop, measure, and nurture your alliances to increase your success.

What is a strategic alliance?

Webster's defines "stratagem" as 'a subtle piece of planning designed to "gain an end" and Webster's defines an "alliance" as the uniting of qualities in a perceived relationship.'1 In this context, a strategic alliance is then the "uniting of qualities in a perceived relationship to gain an end-result."

I define a strategic alliance as an agreement to utilize the strengths of both companies (the strategy) to build a bridge for customers to benefit (the end) through mutual partnership (the perceived relationship).

A winning strategic alliance creates a win for Company A, a win for Company B, and a win for the customers of the companies in alliance. An alliance may be a consortium, but for the purposes of this discussion we will examine alliances between two organizations.

Successful alliances are usually comprised of the following features:

1. Clear benefit to both companies.

2. Both companies increase the sale of (defined) products and services.

3. Customers can clearly see who handles what (to eliminate confusion).

4. Both partners increase their visibility and strengthen the name of their company by forming the alliance.

5. The alliance represents a revenue flow to one or both companies that would not otherwise occur.

6. The alliance represents an outsourced cost/revenue structure in order to maximize a relationship, resource, or cost through leveraging a partner's economies of scale and ability to more successfully deliver the relationship, resource, or cost structure.

As a strategic alliance manager for my former company, I focused on technology companies with clearly beneficial reasons to partner with my company: one or some of our strengths matched their weaknesses and one or some of their strengths matched our weaknesses. Also, the economies of scale (financial benefit) of partnering outweighed the cost of keeping a service support structure in-house. An example would be a company who manufactures computer network equipment outsourcing the support of their equipment to my company, and in return, my company agrees to build a solution featuring their switches as a bundled product to the customer. The result is the customer buys from my company, receives support from my company for the products we sell AND support for the warranty from my company for the partner's products.

Every alliance has quirks to work through. For example, two companies with competing products/services will face communication challenges with their customers when they form an alliance. The customer will be confused as to who or where to buy the product. This type of alliance violates my rule number 3 - customer can clearly see who handles what. It is important to have clearly defined processes for implementation as well as account management (from both parties) to create successful alliances.

Another challenge in alliances is to define how much revenue will result and how soon it will occur -- the primary problem with alliances that break down. The break down often occurs because Company A over-promises the amount of work in order to negotiate a lower-cost pricing structure and gain commitments from Company B, the provider of the service. This causes breakdown because one party begins to mistrust the alliance partner either because the revenue flow does not match the promised amount or because service levels are compromised due to broken commitment of revenue flow, which creates a lack of adherence to service level agreements. A few mishandled escalations for support can leave Company B disillusioned with Company A's ability to support their products. This results in fewer referrals to the service alliance.

A good way to resolve this challenge is to establish defined metrics of success, monitor success, and recognize potential trouble spots to take corrective action. It is also highly important to establish pricing based upon a scale of realistically achievable levels of volume. With a pricing structure based upon a scale, both sides are fairly protected.

There is a method to create accountability within each respective company. These alliances involve employees from both companies representing the alliance within each other's organization through cross-pollination of employees. The presence of the employee from Company A on the team of Company B builds synergies and removes the potential for miscommunication. It is also important to have shared office space, regularly scheduled meetings, and maintain clear lines of communication so that surprises are minimized.

It has been said "an optimist and pessimist make the best partnership because one sees the profits while the other sees the risks."

So, the last key to a successful alliance is to make sure representatives from various parts of each company are intricately involved in building the solution. I included the law department, business development, human resources, finance (controller), administration, manufacturing, operations, and sales when building alliances for Data General and DecisionOne. I also made sure my alliance partner had representatives from each area included on their decision teams.

Strategic alliances can be beneficiary to your company's image. The last thing I would want to do is spend 6 months to a year building an alliance only to announce it the week between Christmas and New Year's Day. This is the last, and perhaps most vital, aspect of a successful alliance. Announcing the new alliance to customers at the right time leads to maximum exposure (and success). Announcing at the wrong time may have less than desired effect and draw fewer customers to the table. A good example of the right time to announce the alliance might be during the key day of a trade show. Both companies must be committed to the success of both the promotion and the delivery of the alliance. With a joint commitment to promotion and delivery you ensure the success of the program.

To recap ways to improve your strategic alliance success, make sure to have good answers for these seven questions:

1. Is there clear benefit to both companies (financial, service/product, relationship)?

2. Is the relationship clearly defined for customers to understand?

3. Are your companies networked (3 x 3 minimum to ensure a strong relationship)?

4. How much business did you promise to deliver?

5. Have you developed a thorough SLA (service level agreement) for the scope of work to be delivered? Have you developed a plan for success (with metrics to measure how you will define alliance success?

6. Do you have clear and honest communication between partners? Is the management of implementation and continuous success of the program assigned to strong parties within each organization?

7. Is the image and success of the program being promoted by both partners?

Building successful strategic alliances isn't easy; however, they add to the success and value of your company. Use these seven steps to improve your alliances. We often consult with companies on how to improve alliances and wish you success with your alliance aspirations.

Scott Andrews is CEO and Founder of ARRiiVE Business Solutions(, a leading business productivity and personal development firm based in California. ARRiiVE helps organizations launch new products and services, empower sales teams, and change businesses through innovative business models and techniques to improve success. For more information, contact, or visit http://www.ARRiiVE.

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