Strategic Alliance: a joint effort by two or more companies linked together in the supply chain to reduce the total cost of acquisition, possession, R&D, and disposal of goods and services for the benefits of all parties. New business environments are forcing companies to greatly change the way business is done. The competitiveness of markets, exigency of high speed growth, and stakeholders’ expectations, are all the driving forces behind this change. Forging strategic alliances is one of the most innovative ways to deal with these requirements, as well as through collaborating with other companies, sometimes competitors, and in some of the value creation activities of the company. Examples include joint R&D, distribution alliances, and shared manufacturing. In some cases strategic alliances take the forms of joint ventures, which involves capital investment and the creation of a new corporate entity commonly owned. In other cases, it could be an informal agreement through a large purchase contract. Technology companies (small start-ups to the biggest corporations) utilize strategic alliances for research and development and for international expansion. In R&D partnerships, limited partners are able to deduct their investment and utilize the tax advantage of losses in their personal tax return.

    The purpose for any business to form an alliance is normally to improve its profits. If for any reason costs increase or revenue decreases, most likely the alliance will come to an end. However, in order to judge the success of the alliance it is required to look beyond the profit and loss. It is necessary to look at the overall impact of the project, because many benefits could be unknown.

The three basic stages that almost all alliances go throw are the following:

• Discovery: this stage deals with understanding which area of the business is able to form an alliance (product or service, product development, distribution, R&D, etc.). Then it is required to determine the synergy’s to be created, the cost drivers to be affected, the risks and performance measures to be utilized, and the type of relationship desired, which are going to be the criteria utilized to evaluate the possible partners. The final step in the discovery stage is to select the alliance partner, through a close consideration of the cost benefits and improved profitability along with minimizing the risk of the relationship. The evaluation of credential of the potential partner must be very careful and a "due diligence" must be performed. This scrutiny could avoid painful and costly mistakes.

• Implementation: this is the stage where the alliance begins. After choosing a company (or a group of companies), it is required to develop an agreement and the criteria of evaluation of the alliance. Furthermore, it must be specified the level of commitment of both parties and the organizational structure that will allow them to work together effectively. In order for the alliance to succeed, both parties must be in a winning situation. Today’s failure rate of alliances is approximately 50%, but this failure is mainly due to a one way positive experience. Lastly, during this stage it is important to manage the change of the relationship, particularly of those directly affected/involved in order to knock down potential roadblocks. This will create a supportive environment for the alliance.

• Maintenance: this stage focuses on the continual improvement of the relationship, and is a continuation of the work initiated in the implementation stage. However, in many cases the criteria established in the implementation stage intended to guide the alliance will eventually change due to changes in the industry or other considerations. This will require a revision of the objectives of the alliance to meet the new partners’ needs and to take it into a competitive level. The best performing alliances are normally those that have well defined evaluation methods, expectations, and incentives. In many cases this criteria is developed in the maintenance step. It is in this stage that the partners build trust and learn how to communicate better.

      Strategic alliances are an excellent opportunity to expand a business without having to take all the risk and allows both partners to capitalize in the skills and strength of the counterpart. In other cases, forming an alliance with an established company represents an excellent source of capital for growing companies. This offers the possibility of a cheaper source capital rather than a venture capitalist as well as a boost in credibility for the growing company. There are many companies specialized in helping to find the right partner that fits with the desired strategy expressed by the interested company.

The following internet addresses provide interesting information on strategic alliances and how to start in the search for an alliance partner.

http://www.fminet.com/SERVICES/sad.shtml

This website provides an attractive approach on how to get into the construction business through alliances. There is a step by step flow chart on how to forge successful strategic alliances.

http://barney.sbe.csuhayward.edu/~skamath/powerpoint/mgmt6710_sl4/index.htm

Presentation on the issue of international strategic alliances, title "Managing Across Boundaries 7/18/97"

http://www.amiltd.com/

Alliance Management International, Ltd. (AMI) offers a wide range of corporate consulting services designed to help companies build and maintain profitable relationships. This site also provides information concerning alliance building and the different steps to follow in order to forge alliances.

http://www.allianceanalyst.com/

This website introduces the magazine "The Alliance Analyst" and presents articles and general information about alliance strategy and management.

http://www.ltcteam.com/team.html

This website is a link to a company (Lee Technology Consulting) that provides consulting services in the development of strategic alliances, M & A, and general management/human resources.
 
 
 

By Roberto Massiff