One strategy companies explore to accelerate their growth curve is to seek out other organizations with product lines or services that complement their own, thus saving the time and money it would require to bring it to market themselves. If the strategic alliance is successful, both companies experience accelerated top-line revenue growth faster than if they tried this on their own. Here is the problem: 80% of strategic alliances fail.
Before I get into the “why” behind failed strategic alliances and how to ensure successful ones, let me give you some background. Back in the ’80s and ‘90s, I was working in the pharmaceutical industry in a variety of sales and marketing leadership roles. In January 1996 I was offered a significant opportunity and promotion to work out of the national headquarters for a Fortune 100 pharma company in a newly created position as their VP of Strategic Alliances. I focused on formalizing relationships with companies that would compliment and bolster our product and service portfolio to be more competitive in the marketplace.
Senior leadership gave me permission to hire an outside consultant who had expertise in strategic alliances so I could learn the ropes from him. I lucked out and the gentleman who came on board to help me was brilliant. As soon as he shared the first slide of his pitch deck with me, I was off and running. His slide was titled The 4 Fundamental Attributes to a Successful Strategic Alliance. I have since added a fifth attribute after garnering some experience in this area.
I remember this consultant telling me that if there was just one missing component of these four important attributes that I was better off ending the discussions and running for the hills. All of these attributes MUST exist in order for success to follow.
The 5 Fundamental Attributes to a Successful Strategic Alliance
Shared Objectives: It’s critical that both organizations agree upon the North Star they are both trying to reach together, as a result of this new relationship. Here’s an analogy: If two people get into a rowboat and one’s objective is to go to the island to the east and the other wants to row to the west, they will literally go in circles. This is what often happens in strategic alliances, if you don’t take the time to make sure you’re all rowing in the same direction towards the same goals you won’t make progress toward outcomes.
Complementary Products and/or Services: Ideally, you are exploring this strategic alliance to add synergies that you currently don’t have and don’t have the time, resources, or expertise to develop yourself. A successful strategic alliance is one where 1+1 = 5 (or more!). Your math should transition from addition to multiplication. An example of this is Starbucks and Target forming a Strategic Alliance to have Starbucks in Target stores. Starbucks then followed the same model with Barnes and Noble and many grocery store chains.
Shared Benefits and Risk: Both parties should be fully aware of the benefits each company will receive and the inherent risks. These benefits and risks should be equal across the board. If the risk/benefit ratio is 60/40 or 70/30 that’s fine too, as long as all parties are aware of these expected outcomes.
A Foundation Built on Trust: This is probably the most important attribute from my experience. There must be a strong foundation of trust that this relationship needs to stand on going forward. This is accomplished by being intentional about spending a considerable amount of time together before you commit. This isn’t too dissimilar from a marriage. You want to date and learn as much as you can about each other before you commit to a long-term marriage or in this case two companies forming a strategic alliance.
A Champion within each Company Dedicated to Execution: This is where I’ve seen my fair share of strategic alliances fall apart. Senior leaders spend months negotiating the terms and conditions around a strategic alliance, and the people who are left to make it happen aren’t involved at all. Whoever the person is on your team who is going to be responsible for executing this alliance needs to be at the table from day one for input and buy-in.
Attention should also be given to the amount of time, people resources, and the priority each organization gives to this strategic alliance. If one company has this as their #1 priority with a dedicated team of people with resources to make this happen, and the other company is slow to the starting gate with only one person on the project who is distracted with many other projects, resentment will set in and things will begin to unravel. Companies that do strategic alliances well each have dedicated champions (Point People), teams, resources, aligned priorities, and funding poured into these projects.
Reasons for Strategic Alliances Failing
If any of the five attributes listed above aren’t in place it will likely fail. Here are some additional factors to consider:
Differences in culture
Lack of executive commitment
Ineffective governance structure
Poor alliance leadership
Overestimated market potential
I don’t want to discourage you or scare you from exploring strategic alliances because when they work, they work extremely well. However, you do want to do your due diligence to ensure alignment is in place.
The most common areas to assess strategic alliance candidates are:
Strategic Fit
Operational Fit
Cultural Fit
Obviously, you will also need to look at skills and capabilities. At the end of the day, will the time and financial investment generate new value together with a strong ROI? You may want to take baby steps together and do a pilot on a smaller scale before you commit to a long-term relationship.
Following this methodology will undoubtedly enhance your chances of success in building important strategic alliances under your leadership. You can speed up the process of learning how to create and manage successful alliances through a favorite book of mine, The 4-Step Guide to Successful Partner Selection.
Additionally, Convene has several consultants that are trusted resources for assistance in developing strategic alliances. You can learn more about our consulting network here.
About the Author
Paul Aubin
Paul is a Convene Chair as well as a marketing and chair development consultant to Convene. His diverse background as a successful corporate executive, business owner, men’s ministry pastor, and published author gives him a well-balanced and robust set of experiences to draw from as he mentors and develops Christian business leaders in his roles at Convene.