Strategic Alliances and How to Make Them Work

It is impossible and would be foolish to ignore the legal and financial aspects of a strategic alliance if it is to be successful. And yet, an over emphasis on either of these essential aspects may doom the relationship before it yields its first fruits. Peter Drucker addressed this matter in” Management Challenges for the 21st Century” with his statement – “The practice of management will have to base itself on the new assumption that its scope is not legal but the entire economic chain.”

A scope that sees the entire economic chain is focused on the value that the client receives from its investment with the provider especially when the realization of this value is dependent on matters for which the provider has no legal or financial responsibility. For example – a couple dining at an expensive restaurant to celebrate an anniversary may have a poor experience if the baby-sitter arrives late or if the parking attendant loses their keys or if they forgot to bring an umbrella and there is a sudden downpour as they retrieve their own car. Certainly the restaurant owner has no responsibility for any of these disruptions and yet each instance presents a risk to their client’s experience. Would a strategic alliance with an appropriate provider enable the restaurant owner to provide a differentiated service that would enhance the client experience?

When placing the dinner reservation could a baby-sitter be offered as well (including transportation?)…could a limousine service be offered? Could umbrellas be offered to patrons on a rainy evening? Would it make a difference to you if the restaurant offered any of these options?

What about your business? What do your clients need to do in order to experience the value for which your product/service is an important component but not the actual “end” in and of itself?

As a business executive you have three important considerations to balance:

1. What do we offer as a business (How do we differentiate our product?)

2. How do we go to market (How do we get access to qualified buyers?)

3. How well do we execute? (How do we assure that our clients experience the value that motivated their interest in our capabilities?)

How do we differentiate our product?

There are six components to differentiation of your product in the mind of the buyer:

1. Capabilities

2. Convenience

3. Terms and Conditions

4. Risk

5. Intangibles

6. Cost

To be able to compete effectively you must compare more favorably than your competitors in at least half of these – especially if the competitor is already doing business with your prospect. A strategic alliance may be developed to add value to your existing offering with any of these components.

How do we get access to qualified buyers?

There are three primary ways of gaining profitable access to qualified buyers of your offerings.

1. Directly manage the sales effort of your employees (Direct sales)

2. Align with other companies who will manage the sales effort of their employees to include your offerings (Indirect sales)

3. Acquire an entity that already has access to the buyers that you wish to reach (M&A)

How do we assure that our clients experience the value that motivated their interest in our capabilities?

It is challenging to understand the buyer’s motivation and expected value. It is frequently stated that buyers buy when they feel “understood” as opposed to when they understand. Some buyers value only the best price while others demand customized service. The challenge of meeting this range of expectations can be done more effectively by leveraging the potential of an effective strategic alliance based on factors such as:

1. Industry specialization (e.g. automotive or financial)

2. Functional specialization (e.g. sales or service)

3. Localization (e.g. country or state)

But ….Strategic Alliances never work

A strategic alliance is like any new venture – it has potential to fail. The particular challenge however is that a strategic alliance is more “visible” than an internal new project. It is common to discuss potential alliances with several companies and then issue a press release as a marketing tool. The potential for success can be maximized by an effective application of the following tools and methods supported by the work of iFive Alliances, LLC.

1. The Sixteen Types of Alliances and When to Use Them

2. The Eight Factors to Assure the Success of an Alliance

3. The Six Methods of Finding the Best Alliance Partners for Your Business

It is important to understand the following as well:

1. Trust is the most important element of a successful alliance. The alliance members must trust each other and the clients must trust the alliance.

2. The marketplace is full of buyers expecting to be served as an individual while demanding commoditization of pricing and capabilities – all this squeezes your margins. Strategic alliances provide can be designed to be the solution to this dilemma.

3. Strategic Alliances can take a long time to build and then you follow that with your sales cycle - which may be long itself.

4. Strategic alliances are not guaranteed to succeed. There is risk of time, money and brand.

And finally, here are some useful ideas for building more effective strategic alliances:

1. Focus on one-way streets(alliances need to have a mutual benefit but do not require both partners to do business development.)

2. Establish an early focus on revenue goals and accountability (the primary reason for an alliance is profit for both partners – make sure that you are on the same page as far as the economics and timeframe.) The qualitative nature of the alliance (strategy) is primary but the quantitative aspect will be the sustainer.

3. Deal with the difficult issues up front (e.g. account ownership when the alliance ends.) This results in either “killing the alliance” or strengthening it. If it dies early it was probably going to die later and at least you minimize the risk to time, money and brand.