Four steps to making strategic alliances work

by Pamela Harper

All too often companies form alliances that offer great promise but fail to deliver results both parties anticipated. Instead, companies become mired in strategic gridlock: persistent organizational problems that grind progress to a halt. Consider the following scenario:

A distribution company (DC) created a strategic alliance with a manufacturing company (MC) to develop a new service offering. Both partners considered the potential for success extremely high, since each was considered a market leader in its respective industry. The management teams of both organizations conducted the necessary due diligence and secured contracts from each other. Everything was in place — until the kickoff meeting.

While the alliance objectives seemed clear, the participants couldn’t agree on how they would work together. MC representatives, working under highly structured project management guidelines, immediately assembled detailed steps, a timeline and measurements for success. DC representatives, accustomed to frequently changing directions, resisted MC’s approach to managing workflow and insisted on using a more fluid scheduling system.

The MC approach won; but the established steps, timeframes and measurements soon became irrelevant. DC and MC repeatedly missed milestones and dropped goals. Within six months, changing priorities at both DC and MC made it difficult for alliance team representatives to devote the necessary time and resources to project development efforts. The alliance succumbed to strategic gridlock, with each partner accusing the other of being a poor fit.

Though such cases are common, executives still form strategic alliances to advance business strategies and meet shareholder expectations. Businesses use alliances to launch new products and services, improve technology and expand market reach. These relationships provide access to critical knowledge and capabilities, increase production capacity, reduce costs and accelerate growth without the financing requirements and managerial overlap created by mergers and acquisitions.

However, creating a productive strategic alliance requires more than identifying a clear objective, conducting due diligence, securing a contract and establishing an operating process. Executives must recognize and address strategic and organizational challenges that come at four distinct stages of the alliance-building process. The following steps can prevent problems from occurring in many types of alliances, whether structured loosely or as highly committed joint ventures.

Develop your company’s alliance strategy as a foundation
The ease of entering and exiting alliances increases the risk of seizing an opportunity before knowing if it’s right for the company. Sometimes alliances occur when a relationship evolves from convenience or familiarity rather than strategic purpose. When executives do not define an alliance strategy, the resulting conflicts and misunderstandings waste time and resources, diminish productivity and negate opportunities.

Look inward at your organization before selecting alliance partners. Base your alliance strategy upon the organization’s larger vision, mission and strategy. Look at your own company’s unique circumstances, competencies and capabilities to determine whether an alliance makes more sense than increasing your infrastructure, merging or outsourcing. This is the time to understand how such an arrangement might impact stakeholder groups such as employees, suppliers and customers. Then, negotiate their buy-in to the initiative.

Locating a business culture’s supporting strengths and debilitating weaknesses is also important. Values, beliefs and practices stated in a company’s official documents and speeches are often not reflected in actual behavior. For example, if a company’s formal culture promotes empowering employees to make decisions, but the informal culture reinforces the need for multiple levels of management approval to change procedures, employees may find it difficult getting things done in an alliance. Keep in mind that as more companies form global strategic alliances, they need to understand their organization’s level of global awareness so they are prepared to bridge cultural differences.

By identifying challenges in advance, and charting strategic objectives, executives can more accurately determine a starting point for building alliances. They can create steps, communication plans and checkpoints that will close gaps in readiness and increase the likelihood of choosing an appropriate partner.

Create an alliance strategy before finalizing agreements
Alliance partners are equal in power, yet each company is an independent entity with objectives and guidelines. To be successful, partners must consider “what’s in it for them?” as well as “what’s in it for me?” The larger the commitment, the more important it is for executives of each company to evaluate the alliance strategy of its intended partner as well as its own. This includes understanding the other company’s vision, mission and strategy, as well as its overall strengths, weaknesses and corporate culture.

When building a joint alliance strategy, avoid “my-way-or-the-highway” thinking. This occurs when each partner views the alliance from its own perspective, generating conflict as the alliance progresses. The DC/MC alliance suffered from this pitfall, as each company tried to push its own management style on the other. Though one company won, both lost when DC passively resisted the arrangement.

To prevent strategic gridlock, executives from both companies must work together up front to clarify expectations, company roles and responsibilities, and coordinate measurements for success before signing an agreement. The joint strategic thinking session mirrors the individual strategic thinking process. Questions for the joint strategic think session include:

• What are our goals — both individually and jointly?

• Why is this alliance important to us?

• How will we make decisions?

• How will we handle conflict?

• How will we know whether or not the alliance is a success?

When you know the other party’s mindset, you can develop a positive give-and-take relationship that fosters a productive alliance.

Co-develop opportunities according to the alliance's needs
Managers and employees in alliance teams must develop new skills and work differently from how they do when focusing within their own organizations. Rather than managing projects “my way” or “your way,” alliances must do it “our way.”

Since every alliance is a unique blend of economic, strategic and cultural circumstances, each relationship needs to proceed with plans according to its own set of guidelines. Just because a set of alliance procedures worked well with one partner does not mean they’ll work in a different relationship. Executives who clone policies and practices to make them fit in every instance set themselves up for disaster.

For instance, a company that routinely used e-mail to communicate important information to all of its alliance partners neglected to realize that one of its partners used e-mail only as a back-up to in-person and telephone communication. As a result, that alliance missed an important deadline. A successful relationship takes into account past best practices and integrates them with each current company situation.

Executives pave the way to high-performance alliances by altering policies and systems to make the alliance work smoothly. In addition to allocating sufficient human and capital resources, executives must ensure that managers and employees dedicated to the alliance have the necessary knowledge and competencies to form and develop effective work teams.

Evaluate and adjust the alliance to serve both companies
As alliances progress, they run the risk of taking on a life of their own, evolving away from original objectives. That’s why executives must establish frequent checkpoints or milestones to evaluate efforts and rethink the alliance’s purpose. At these times, executives from both companies should review the results-to-date and compare them to the success criteria they established during strategic thinking and planning. Keep focused on the purpose of the alliance, but be prepared to modify agreements and processes.

The results from this evaluation may impact each company’s strategic plan. One manufacturing company found its plans to acquire a competitor conflicted with an agreement it had in place with a key alliance partner that was marketing its products. The acquisition was subsequently halted.

Here are some questions to ask.

• What went well and why?

• What would we do differently and why?

• What did we learn about the opportunity for alliance?

• What strategic and organizational changes took place in each company that could impact this alliance?

• What knowledge and skills do we need to develop and advance our objectives?

• How do we need to adapt policies and systems to resolve any problems?

As executives fine-tune the alliance agreement, they must continue to evaluate results. The more checkpoints in the plan, the less likely problems will spiral out of control.

Each of the four steps supports the critical basis of successful strategic alliances: recognizing and addressing strategic and organizational issues occurring at each stage of the strategic alliance process. This happens individually and collectively with the partner you’ve selected.

By establishing your own alliance strategy and working with your partners to jointly develop the alliance strategy and operating plan, you lay the foundation for a mutually beneficial relationship. Partners can develop approaches for working together and co-developing opportunities that extend their mutual reach while serving individual interests. The result is a flexible and collaborative relationship that accomplishes more than what any company could achieve alone.

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