Business Leader: I hear what you’re saying about defusing my risk by recruiting others to help drive initiatives. And, the derived benefit of shifting activities that aren’t key so we’re able to focus on what we do best would be great. I do have something that’s been percolating in the back of my mind, but one question first. What’s the difference between a strategic alliance and partnership?
Me: First off we need to keep in mind that there is no single profile for a successful strategic alliance. The realm of joining forces, if plotted out, resembles more of a continuum than a singular point and alliances fall about 2/3 of the way through. Since that is about as helpful as me telling you to go sell more profitable services lets take the time to better understand the concept’s characteristics.
At both the core of alliances and partnerships is a relationship between two or more entities. In fact, as you can see in this sketch business relationships run the spectrum from basic transactional agreements, for example to promote a concert, to a business acquisition (think Amazon’s acquisition of their former affiliate partner Zappos).
Of the three sections of the diagram it is quite apparent that my charge is to quantify where in this vast midrange of the continuum one transitions from a partnership to a strategic alliance.
The sketch gives us three metrics (risk & control, duration, and legal structure) that will be helpful in understanding the positioning of each when associated with an alliance. Both alliances and partnerships have shared risk, a meaningful duration, and don’t require the formation of a new legal entity. The difference tough is that for an alliance the combination of resources can create significant and sustainable value for everyone involved. The exact point at which any alliance fall in the continuum is situational, but here’s a checklist of five distinctive characteristics:
- Significant business impact (beyond the capability of an individual participant to derive) that generates value for all participants over a multi-year period
- Deep integration of contributed (invested) assets (knowledge, money, and people)
- Participants remain independent entities who share the benefits as well as control
- Arrangement undertakes several specified initiatives that cut across the value chains of the participating entities
- Despite different cultures the entities have been able to establish an environment of trust
Business Leader: I got it but that’s very ivy tower. What’s a good example?
Me: Well what do you think the US Postal Service and FedEx have in common?
Business Leader: Both are fighting to service those that need packages delivered overnight. FedEx’s slogan “When it absolutely positively has to be there overnight” is still stuck in my head.
Me: There’s no doubt that outward appearances would lead anyone to that conclusion. But for more than ten years they’ve had a successful alliance. The core of the alliance focuses on leveraging each other’s distribution network strengths. FexEx is using its far-reaching air network to deliver some US Postal Express Mail (next day) shipments, while USPS delivers some less time sensitive FexEx ground parcels. It’s worked out so well for each that the agreement has been renewed two times.
Great… but can alliances work for me?
Business Leader: Is there a sizable payoff for me?
Me: Absolutely, think about this. Difficult financial environments like we’ve had for the last several years spawn market volatility due to things like migrating customer problems and shrinking household income/wealth which kicks-in hyper competition. All of which forces small and medium sized enterprises (SMEs) to reinvent their business at a pace never seen before. Researchers have learned that those SMEs in both high and low-tech industries that have the ability to manage a network of partners are predominately the ones that seize the new opportunities. Why is this. Because by focusing their investment on core knowledge and plug-&-playing supporting functions they don’t have to spend time and money retooling their workers. The result is the ability to meet new demands by pivoting faster, avoidance of employee stress, and the reduction of risk by spreading it amongst several entities.
Now that we know what Strategic Alliances are we really need to have a conversation about how to best set one upon.
Let’ talk about the next time we meet.