Webster's defines "stratagem"
as 'a subtle piece of planning designed to "gain an end" and Webster's
defines an "alliance" as the uniting of qualities in a perceived
relationship.'1 In this context, a strategic
alliance is then the "uniting of qualities in a perceived relationship to
gain an end-result."
I define a strategic
alliance as an agreement to utilize the strengths of both
companies (the strategy) to build a bridge for customers to benefit (the end)
through mutual partnership (the perceived relationship).
A winning strategic
alliance creates a win for Company A, a win for Company B, and a win for the customers of the companies in alliance. An alliance may be a consortium,
but for the purposes of this discussion we will examine alliances between two
organizations.
Successful
strategic alliances are
usually comprised of the following features:
1. Clear benefit
to both companies and customer.
2. Both companies
increase the sale of (defined) products and services.
3. Customers can
clearly see who handles what (to eliminate confusion).
4. Both partners
increase their visibility and strengthen the name of their company by forming
the alliance.
5. The alliance
represents a revenue flow to one or both companies that would not otherwise
occur.
6. The alliance
represents an outsourced cost/revenue structure in order to maximize a
relationship, resource, or cost through leveraging a partner's economies of
scale and ability to more successfully deliver the relationship, resource, or
cost structure.
As a strategic alliance
manager for my former company, I focused on technology companies with clearly
beneficial reasons to partner with my company: one or some of our strengths
matched their weaknesses and one or some of their strengths matched our
weaknesses. By partnering, we were giving a stronger option to our unified
client. Also, the economies of scale (financial benefit) of partnering
outweighed the cost of keeping a service support structure in-house. An example would be a company who manufactures computer
network equipment outsourcing the support of their equipment to my company, and
in return, my company agrees to build a solution featuring their switches
as a bundled product to the customer. The result is the customer buys from
my company, receives support from my company for the products we sell AND
support for the warranty from my company for the partner's products.
| The Triangle of Strategic Alliances |
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You will notice in
the two diagrams (above) that there is an intersection of needs, capabilities,
and reach of two companies tapping the customer both in the same way can deepen
the joint service offering. This is one approach to offer to a client called the
MUTUAL OVERLAY ALLIANCE. Together, we have two strong solutions become IRON-CLAD
solutions. That's more powerful and a win to all parties.
You may also have noticed that
there are areas Company A touches the Customer where B presently does not touch,
and vice-versa. This is an example of an EXPANDED REACH ALLIANCE. EXPANDED REACH
alliances enable one firm to touch more customers, find more needs, and
potentially offer more services to that client through the strengths and
capabilities of the other company as strategic alliance partner.
Last, there is an area of
intersect below the Maximum Benefit Triangle that many companies overlook. It is
where you're both offering the same or similar solutions. There may be ways to
broaden this intersection by working together. This can be mutually beneficial
IF it increases the outreach or broadens the circle of influence for both
Company A and Company B. In addition, there are areas that do not intersect and
are untouched opportunities and challenges. Often, by starting with one service
or product offering, a company can discover more ways to deepen these hooks into
customer relationships to build a stronger business relationship.
Every alliance has
quirks to work through. For example, two companies with competing
products/services will face communication challenges with their customers when
they form an alliance. The customer will be confused as to who or
where to buy the product. This type of alliance violates my rule number 3
- customer can clearly see who handles what. It is important to have clearly
defined processes for implementation as well as account management (from both
parties) to create successful alliances.
Another challenge in
alliances is to define how much revenue will result and how soon it will occur
-- the primary problem with alliances that break down. The break down
often occurs because Company A over-promises the amount of work in order to
negotiate a lower-cost pricing structure and gain commitments from Company B,
the provider of the service. This causes breakdown because one party begins to mistrust the alliance partner
either because the revenue flow does not match the promised amount or because
service levels are compromised due to broken commitment of revenue flow, which
creates a lack of adherence to service level agreements. A few mishandled escalations for
support can leave Company B disillusioned with Company A's ability to support
their products. This results in fewer referrals to the service
alliance.
A good way to resolve
this challenge is to establish defined metrics of success, monitor success, and
recognize potential trouble spots to take corrective action. It is also highly
important to establish pricing based upon a scale of realistically achievable
levels of volume. With a pricing structure based upon a scale, both sides are
fairly protected.
There is a method to
create accountability within each respective company. These alliances
involve employees from both companies representing the alliance within each
other's organization through cross-pollination of employees. The presence
of the employee from Company A on the team of Company B builds synergies and
removes the potential for miscommunication. It is also important to
have shared office space, regularly scheduled meetings, and maintain clear lines
of communication so that surprises are minimized.
It has been said
"an optimist and pessimist make the best partnership because one sees the
profits while the other sees the risks."
So, the last key to a
successful alliance is to make sure representatives from various parts of each
company are intricately involved in building the solution. I
included the law department, business development, human resources, finance
(controller), administration, manufacturing, operations, and sales when building alliances
for Data General and DecisionOne. I also made sure my alliance partner had representatives from each area
included on their decision teams.
Strategic alliances can be beneficiary to
your company's image. The last thing I
would want to do is spend 6 months to a year building an alliance only to
announce it the week between Christmas and New Year's Day. This is the
last, and perhaps most vital, aspect of a successful alliance. Announcing the
new alliance to customers at the right time leads to maximum exposure (and
success). Announcing at the wrong time may have less than desired effect and
draw fewer customers to the table. A good example of the right time to announce
the alliance might be during the key day of a trade show. Both companies must be
committed to the success of both the promotion and the delivery of the alliance.
With a joint commitment to promotion and delivery you ensure the success of the
program.
To recap ways to improve
your strategic alliance success, make sure to have good answers for these seven
questions:
1. Is there clear
benefit to both companies (financial, service/product, relationship) in building
a strategic alliance?
2. Is the strategic
alliance relationship
clearly defined for customers to understand?
3. Are your companies
networked peer-to-peer on multiple levels to strengthen the alliance bond?
4. How much strategic
alliance business did
you promise to deliver? How much can you fulfill?
5. Have you developed a
thorough SLA (service level agreement) for the scope of work to be delivered
through the strategic alliance?
Have you developed a plan for success (with metrics to measure how you will
define your strategic alliance success?
6. Do you have clear and
honest communication between all strategic alliance partners? Is the management of implementation and
continuous success of the program assigned to strong parties within each
organization?
7. Is the image and
success of the strategic alliance program being promoted by both partners?
Building successful
strategic alliances isn't easy; however, they add to the success and value of
your company. Use these seven steps to improve your alliances. We often consult
with companies on how to improve alliances and wish you success with your
alliance aspirations.
Written by Scott
Andrews, CEO of ARRiiVE Business Solutions.
