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In my earlier blog, I wrote about the elements needed for building a successful strategic alliance. In this first part in a series of blog, I shall share insights into the alliance life cycle framework, through various stages.
Stage 1 – Alliance Strategy
Strategic Alliances always starts with strategy. An organization should be absolutely clear with its objectives, before it embarks on the alliance route. It should have considered the other probable options of build and buy before it chooses to partner. Alliances must be aligned with corporate and business strategies. Start formulating the alliance strategy with the 4 C’s – company, customers, competitors and collaborators. You may start by asking, why does my company need an alliance and how will it change the company’s position in the market; how and which customers I can serve better through this alliance; how I may have an edge over my competition through this alliance and how they will react; and finally, which are the collaborators available in the market for me to form an alliance?
A well-defined alliance strategy will help in getting the buy-in from the business leaders, guide the alliance manager to translate the value of the alliance to other stakeholders and help him stick to the purpose of the alliance. It is imperative for an organization to define how its alliance strategy will support its business strategy, because in its absence, the alliance team will never get the much-needed support from the business teams.
While formulating the alliance strategy, one must set the goals, define the critical success factors and spell out the expected outcomes.
In stage 1, the following questions need to be asked and answered.
- How will this alliance help my customers? What problems will we solve better and how?
- Will my customers see additional value in what I am trying to do with my alliance partner? Will that value give us a competitive advantage?
- Have we analyzed our and our partner’s strength and weaknesses?
- Are we aware of our competitor’s present and future strategies?
- What are the market trends and where will this market be in the next 3-5 years?
- What happens if we do nothing or build our own competency?
At this stage, one should also look at the “strategic drivers”. These could be customer drivers, competitive drivers, capability and capacity drivers, core competency drivers and finally the strategic alignment drivers. Organizations will not inherently stay together for long, unless there are compelling driving forces to keep them together.
Stage 2 – Selection criteria
After the alliance strategy is formulated and the goals are defined, the next step is to find the partner(s), with whom you can achieve those alliance goals. This process should never be hastily done. Some of the key factors to be considered while selecting a partner are captured below.
- First step ideally is always to complete the due diligence with regards to financial strength, industry reputation and organizational stability.
- Second step most often is to look at the technical prowess, integration capabilities, market ranking and future potential.
- What is unique in their service offering or product line?
- Which partner provides the best market access and potential for quick wins?
- Do we have business model synergies with a prospective partner?
- Does the partner have alliance expertise? Do they have alliance managers to manage their existing alliances?
- Do the prospective partners have similar goals, style of decision making and method of operations?
- Agility, company philosophy, work ethics, culture, compatibility, innovative.
- Committed senior management from both the partners and their relationships.
- Geographic coverage.
The prioritization of the criteria changes depending upon the strategic objective of the alliance. Are the two partners coming together to innovate jointly for developing new technologies, or provide an integrated solution to strengthen their market positions. Is the objective to enter new markets or penetrate deeper into existing market? Is it a sales alliance led by the marketing team or a product alliance led by the R&D team? At the end, the top five aspects which decides the selection of partner are organizational effectiveness, innovative capacity, competitive advantage, the market impact which it will create and finally the financial return which it will deliver.
Stage 3 – Co-creation
Once you’ve selected your partner(s), you need to then start the process of co-creation. Amongst many things, it includes creating the key value proposition of the alliance, agreement on common goals with a win-win proposition, develop the business case, define the operating principles and jointly create the engagement model.
While you are co-creating, remember that it’s a collaboration and not a negotiation. Negotiation is a psychological war game where the other side is always the enemy or the opponent. Collaboration is all about cooperation where we always look for fairness, alignment and a reasonable solution. It is better that at this stage itself, we should agree upon how should success look like. To figure this out, choose the right metrics to measure the success of your alliance. Also, get the resources committed from both partners who will drive the alliance. Even better, have an alliance champion from both the partners. The champion provides leadership, vision, is highly influential and a key stakeholder of the alliance. The champion also has direct access to the CEO or executive sponsor.
The team which works at this stage should have excellent communication and business skills, as well as expertise in the business segments for which they are developing the alliance.
In the second part of this blog, I will talk about the rest of the stages in the alliance life cycle framework.
