Be My Wife? – Strategic Alliances
“An alliance may be seen as the ‘joining of forces and resources, for a specified or indefinite period, to achieve a common objective”
The reasons behind forming a strategic alliance includes:
v access to new markets and distribution networks
v increased capacity
v sharing of risks and costs with a partner
v access to greater resources, including specialised staff, technology and finance
Types of Strategic Alliance
How you set up a business alliance depends on what you are trying to achieve. A simple affiliation will need less managerial resources than a partnership or a joint venture.
Affiliation – might be construed as a lead generated agreement with commission based referrals perhaps.
Partnering – businesses chose a preferred supplier or distributor for products or services. For example a builder might always use one roofing contractor to provide tiles and fitting.
Collaboration – all business might work together to bring a specific project to the table and see it through to conclusion. For example, a small business with an exciting new product might want to sell it through a larger company’s distribution network. The two partners could agree a contract setting out the terms and conditions of how this would work.
Joint venturing – creating a separate entity to handle a particular contract or project. The partners each own shares in the company and agree how it should be managed.
To help you decide what form of strategic alliance is best for you, you should consider whether you want to be involved in managing it. You should also think about what might happen if the venture goes wrong and how much risk you are prepared to accept.
The way you set up your strategic alliance affects how you run it and how any profits are shared and taxed. It also affects your liability if the venture goes wrong.
Setting up a strategic alliance could represent a major change to your business. However beneficial it may be to your potential for growth, it needs to fit with your overall business strategy. There may better ways to achieve your business aims. Do a SWOT analysis on your own and possible allied businesses to examine the potential.
It is important to understand a partner’s motives for joining an alliance and address any resource capability gaps that may exist between you. Partner assessment will also involve analyzing a potential partner’s strengths and weaknesses, creating strategies for accommodating all partners’ management styles and personal values.
The working relationship needs to develop so that each party feels that there is parity of return on resources invested. Doubts need to be purged whilst trust and confidence need to be built.
Useful source: The Partnership Charter by David Gage
The Prenuptial Agreement
When you decide to create a strategic alliance, you should set out the terms and conditions in a written agreement. This will help prevent any misunderstandings once the alliance is up and running.
A written agreement should cover:
v the structure of the strategic alliance, eg whether it will be a separate business in its own right
v the objectives of the strategic alliance
v the financial contributions you will each make
v whether you will transfer any assets or employees to the strategic alliance
v ownership of intellectual property created by the strategic alliance
v management and control, eg respective responsibilities and processes to be followed
v how liabilities, profits and losses are shared
v how any disputes between the partners will be resolved and
v an exit strategy.
You may also need other agreements, such as a confidentiality agreement to protect any commercial secrets you disclose. It is advisable to get independent expert advice before any final decisions are taken.
Making the Marriage Work
Communication is essential to maintain a loving relationship. Sharing information openly, particularly on financial matters, also helps avoid partners becoming suspicious of each other. The more trust there is, the better the chances that your relationship will work.
It’s essential that everyone knows what you are trying to achieve and works towards the same goals. Establishing clear performance indicators lets you measure performance and can give you early warning of potential problems. At the same time, you should aim for a flexible relationship. Regularly review how you could improve the way things work and whether you should change your objectives.
Even in the best relationship, you’ll almost certainly have problems. Approach any disagreement positively, looking for “win-win” solutions rather than trying to score points off each other. Marriage guidance or mediation is often over looked.
Until Death or Divorce do us Part.
Your business, your partner’s business and your markets all change over time. Sooner or later most strategic alliances come to an end. This is not necessarily bitter or wrong or bad. The original agreement should also set out what will happen when a strategic alliance comes to an end. For example and if appropriate:
v how shared intellectual property will be unbundled
v how confidential information will continue to be protected
v who will be entitled to any future income arising from the joint venture’s activities
v who will be responsible for any continuing liabilities, eg debts and guarantees given to customers
And the morale of this analogy is that they all live happily ever after!