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What Is a Strategic Alliance?

  • How It Works
  • Creating Value

How to Find a Strategic Alliance

  • Pros and Cons
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The Bottom Line

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Strategic Alliances: How They Work in Business, With Examples

business plans strategic alliances

Ariel Courage is an experienced editor, researcher, and former fact-checker. She has performed editing and fact-checking work for several leading finance publications, including The Motley Fool and Passport to Wall Street.

business plans strategic alliances

A strategic alliance is an arrangement between two companies to undertake a mutually beneficial project while each retains its independence. The agreement is less complex and less binding than a joint venture , in which two businesses pool resources to create a separate business entity.

A company may enter into a strategic alliance to expand into a new market, improve its product line, or develop an edge over a competitor. The arrangement allows two businesses to work toward a common goal that will benefit both. The relationship may be short-term or long-term.

Key Takeaways

  • A strategic alliance is an arrangement between two companies that have decided to share resources to undertake a specific, mutually beneficial project.
  • A strategic alliance agreement could help a company develop a more effective process.
  • Strategic alliances allow two organizations, individuals or other entities to work toward common or correlating goals.
  • Strategic alliances diversify revenue streams, grant access to potentially difficult-to-obtain resources, and may improve a company's public image.
  • Strategic alliances may also cause companies to expend resources resolving conflict, not yield results as expected, or negatively impact a company's public image.

Investopedia / Crea Taylor

Understanding Strategic Alliances

At the heart of strategic alliances lies companies striving to be better but may not have the resources to embark on certain endeavors. Instead of single-handedly attempting to build out market opportunities, companies can seek out existing resources to leverage personal growth.

Consider the massive clientele base of Uber. While Uber may have an interest in making the ridership experience as strong as possible, it may not be feasible for the company to single-handedly build out their own repository of music with technological capabilities to be played on demand. For this reason, Uber turned to Spotify to enter into a strategic alliance.

On the other hand, Spotify can boast of a strong technological product. However, it may seek opportunities to get in front of a wider consumer audience (exactly what Uber has to offer). By forming a strategic alliance in where Uber provides the consumers and Spotify offers the technology, the two companies came together to create a market opportunity that neither entity could have achieved on their own.

Though less formal than other types of agreements, a strategic alliance is often still bound with a contractual obligation that legally binds the actions of each alliance member.

Types of Strategic Alliances

There are three primary forms of strategic alliances. These three types of strategic alliances vary in the degree of financial investment each company makes into the agreed-upon joint effort.

Joint Venture

A joint venture occurs when two companies agree to come together to create an entirely new, separate company that each of the existing companies become a parent to.

In 2012, Microsoft and General Electric Healthcare signed a joint agreement to create a new third company called Caradigm. Caradigm was created to develop and market an open healthcare intelligence platform. The idea behind the joint venture was Microsoft had the technical capability of making such a platform work, while GE's healthcare IT division had the expertise on the healthcare side.

Equity Strategic Alliance

An equity strategic alliance may have similar outcome goals as a joint venture ; however, it is funded differently in that one company makes an equity investment into another.

In 2010, Panasonic invested $30 million into Tesla. The investment was intended to help build a stronger alliance between the two companies and to rapidly advance the electric vehicle market expansion. As one of the world's leading battery cell manufacturers, Panasonic's skillset blended strongly with Tesla's ambition of incorporating proprietary packing using cells from multiple battery suppliers.

Non-Equity Strategic Alliance

A non-equity strategic alliance forms when two entities realize mutual benefit exists and no equity transfusion is necessary. As discussed below regarding Barnes & Noble and Starbucks, each member of the alliance simply brings their resources to the alliance for the other party to capitalize upon. A more simple contractual obligation is agreed upon for the two entities to pool resources and capabilities together.

How Do Strategic Alliances Create Value?

There's many reasons why a company may choose to enter into a strategic alliance. These reasons may include but are not limited to:

  • Improving short-term finances. Companies wanting to make immediate financial impacts may find it easiest to leverage another company's resources to improve its short-term position in the market.
  • Eliminating barriers to entry. Companies may not have the capital on hand to enter certain markets. Instead, they can use companies that have already made those investments to gain access cheaper and faster.
  • Gaining better business insights. Companies may have no idea how a certain business model may perform. Instead of having to build out an entire model and self-fund an experiment, companies can leverage strategic alliances to "test run" how certain situations may go and use that information for future decision-making.
  • Sharing financial risk. Should a business venture fail, both parties in a strategic alliance are likely to contribute to paying for those losses. Instead of single-handedly being responsible for the failure, both parties may receive assistance from the other as part of the alliance agreement.
  • Innovating beyond current capabilities. In the Panasonic/Tesla alliance mentioned above, that partnership created a cutting-edge, innovative agreement that put some of the smartest experts for electric vehicles batteries on the same team.

Strategic alliances often form between companies with varying business or product cycles. For example, companies with short cycles may seek companies that have made long-term investments to aid in the rapid development of a product that would otherwise require more time.

Forming a strategic alliance requires creativity, forward-thinking, and savvy business sense. Though many strategic alliances are not the same, each is rooting in common steps outlined below.

  • Brainstorm Potential Partners. Often, strategic alliances exist between companies in different industries. Consider other companies that may have a need for your services or have a weakness where your company has a strength. On the other hand, consider the weaknesses of your own company and what types of entities can bring you resources to help fill your gap.
  • Outline Alliance Proposals. Strategic alliances must make sense for both parties; otherwise, one party may not agree to the alliance if they feel it does not benefit them. Therefore, you can find a strategic alliance by devising financial budgets and strategies. Then, propose these plans to companies to gauge their interest. Companies are more likely to find a strategic alliance when the other company is receptive to an idea that has a demonstrated plan of benefitting both sides.
  • Determine Goals. All sides of a strategic partnership should provide input on what the revenue, profit, and operational strategy will be for the alliance. These goals should be well-documented and include language around what should happen if one party fails to comply with the alliance agreement.
  • Devise the Plan. Once all parties are onboard to form a strategic alliance, the formal plan is presented. This often results in a series of legal documents outlining the contract between the two entities. This plan also acts as the roadmap for decision-making in the future as the newly formed alliance moved forwards.

Advantages and Disadvantages of a Strategic Alliance

Pros of a strategic alliance.

A strategic alliance allows a company to embark on opportunities it may otherwise not have been able to embark upon. This includes earning new clients, engaging in different markets, or selling different products. Each of these avenues has the potential to increase a company's revenue and profitability.

Strategic alliances are also a way to diversify a company's revenue stream and generate different opportunities to mitigate company-wide financial risk. Risk is also mitigated with the help of the alliance members as each entity may have resources that can be used to solve unique challenges or navigate unfamiliar business scenarios.

Last, strategic alliances allow a company to operate differently than it normally would. This means using resources it doesn't have. This might be physical goods, access to markets, or labor with specific expertise. This may also mean the company can leverage the market presence of another firm to more positively gain public perception about their own company. Entering into an alliance with a company with a strong public reputation helps create brand trust and recognition of your own entity.

Cons of a Strategic Alliance

A strategic alliance is most likely to succeed if there is strong communication. This means both parties must continually expend resources to manage the alliance to ensure both sides are in agreement. Should the transmission of information or strategy fail, it will be more difficult for the alliance to succeed.

Though strategic alliances may seem fair and romantic, they are often not equally balanced. One company will almost always naturally benefit more than the other, and there may not be a simple solution to balance the trade. There may also develop an unnatural reliance on one side or the other in terms of resources consumed or expertise relied upon.

Just like how a strategic alliance can help boost a company's public image, the wrongdoing of an alliance company may do harm. One company's reputation may rely on the other, though they have no control over how the other company handles itself in public. Similar difficulty may exist if there are conflicts between the alliance members; should there be strategic disagreements, resources may be wasted on resolving interpersonal conflicts that would not have existed without the alliance.

Strategic Alliances

May result in gaining customers, especially ones in unfamiliar markets

May generate additional revenue and increase profitability

May diversify a company's revenue stream

May reduce operational risk of a company due to the addition of unique assets

May positively influence the brand and perception of the company

May require more work in collaborating and communicating with larger teams

May result in one side getting a better deal than the other (even if this wasn't what was planned)

May result in conflict should the alliance members disagree on longer-term strategy

May negatively influence the brand and perception of the company

Examples of Strategic Alliances

The deal between Starbucks and Barnes & Noble is a classic example of a strategic alliance. Starbucks brews the coffee. Barnes & Noble stocks the books. Both companies do what they do best while sharing the costs of space to the benefit of both companies.

Strategic alliances can come in many sizes and forms:

  • An oil and natural gas company might form a strategic alliance with a research laboratory to develop more commercially viable recovery processes.
  • A clothing retailer might form a strategic alliance with a single manufacturer to ensure consistent quality and sizing.
  • A website could form a strategic alliance with an analytics company to improve its marketing efforts.

Why Are Strategic Alliances Important?

Strategic alliances are important because it enables a company to further benefit in areas it would not because of its personal lack of resources. Whether it is forming an alliance to gain entry into a market, labor from skilled workers, or resources from limited sources, successful companies work with other companies. This is important as it allows a company to personally benefit by leveraging the assets of another company.

What Is the Difference Between a Partnership and a Strategic Alliance?

An alliance is a collaboration between two companies in which each individual company is expected to profit or benefit from the agreement. A partnership is a more formal type of agreement in which partners merge to create a single, shared economic interest.

What Is the Most Important Factor in a Strategic Alliance?

A strategic alliance is a relationship between two entities. For this reason, the most important factor in the alliance is the trust and collaboration between the two teams. There must be a mutual commitment to joint success for strategic alliances to be successful, and the alliance must be guided by clear objectives, strategic, and conversations to make sure both sides are continually on the same page.

A strategic alliance is an agreement between two parties for the mutual benefit of both. The concept of the Shapley value describes the fair distribution of costs and profits to each participant. Each side often provides some resource it allows the other party to use; by collaborating with another entity, both parties are poised to benefit in some way.

Uber. " Your Ride, Your Music ."

Microsoft. " Microsoft and GE Healthcare Complete Joint Venture Agreement ."

Tesla. " Panasonic Invests $30 Million in Tesla ."

business plans strategic alliances

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How to Manage Alliances Strategically

Why do so many strategic alliances underperform — and what can companies do about it?

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Strategic Alliances

A strategic framework that eliminates faulty assumptions can help make alliances successful.

Since its initial public offering in 2010, the electric car manufacturer Tesla Motors Inc. has had some substantial successes. For example, in the summer of 2016, the company boasted a market capitalization of around $30 billion, an appreciation of more than 800% over its initial public offering price in 2010. Tesla’s leading executives (including cofounder and CEO Elon Musk, chief designer Franz von Holzhausen, and cofounder and chief technical officer J.B. Straubel) deserve much of the credit for this. However, it’s also important to recognize the role played by Tesla’s strategy of creating alliances with larger, more established companies. Two key strategic alliances in particular — one with Daimler AG and the other with Toyota Motor Corp. — were crucial to Tesla’s early success. The Daimler partnership provided a much-needed cash injection; the Toyota partnership gave Tesla access to a world-class automobile manufacturing facility located near its headquarters in Palo Alto, California.

Initially, Tesla, which began selling its all-electric Roadster model in 2008, had neither a market nor legitimacy. Moreover, it was plagued with both thorny technical problems and cost overruns. Yet it managed to overcome these early challenges, in part by turning prospective rivals into alliance partners. In 2009, the year before its IPO, Tesla worked out the alliance with Daimler, whose roots in automobile engineering extend back to the early days of the automobile powered by an internal combustion engine about 130 years ago. The deal provided Tesla with access to superior engineering expertise and a cash infusion of $50 million, helping to save the company from potential bankruptcy.

The alliance with Toyota, signed the following year, brought other benefits. It enabled Tesla to buy the former New United Motor Manufacturing, Inc. (NUMMI) factory in Fremont, California — created as a joint venture between Toyota and General Motors Corp. in 1984 — and to learn large-scale, high-quality manufacturing from a pioneer of lean manufacturing. As it happened, the NUMMI plant was the only remaining large-scale car manufacturing plant in California, and some 25 miles from Tesla’s Palo Alto headquarters. Without this factory, Tesla would not have been able to initiate production planning for its recently announced Model 3, which received more than 350,000 preorders within three months of its announcement. 1

In 2014, Tesla Motors signed another strategic alliance — this one with Osaka, Japan-based Panasonic Corp., the consumer electronics company and a world leader in battery technology. As Tesla tries to position itself in the business of sustainable and decentralized energy, the relationship with Panasonic is significant. The two companies are jointly investing in a new $5 billion lithium-ion battery plant in Nevada. Tesla’s ability to attract and manage leading companies in the automotive and other key industries as strategic alliance partners is an important part of its formula for success.

The decisions by Daimler, Toyota, and Panasonic to collaborate with Tesla highlight that individual companies may not need to own all of the resources, skills, and knowledge necessary to undertake key strategic growth initiatives. When conditions are uncertain and the stakes are high, partnerships can be an attractive alternative to going it alone or to mergers and acquisitions. 2 Accordingly, many companies now maintain alliance portfolios. As a result, executives must manage multiple alliances with diverse partners across the globe simultaneously. 3 However, the skills required to develop and manage alliances are still not well understood. Prescriptions for how to achieve effective alliance management are frequently too condensed, piecemeal, and static — and don’t pay adequate attention to the strategic element. In this article, we attempt to address these shortcomings by offering an integrative and holistic framework of alliance management along with practical guidance.

Taking a Strategic Approach

The Tesla example illustrates the potential benefits of a carefully crafted and well-executed alliance strategy. Although strategic alliances are often viewed as a critical tool for pursuing growth opportunities, survey data suggests that roughly one half of all alliance portfolios underperform. 4 These assessments of alliance performance are subjective; however, it is fair to say that many alliances fail to live up to expectations. Why? In theory, growth in the number of alliances should mean that companies are able to develop alliance capabilities through learning-by-doing.

Our research on the factors driving alliance performance, however, shows that companies move down the learning curve at different rates. 5 (See “About the Research.”) Smaller companies may have advantages in this relative to larger partners because they are usually less complex internally and have stronger incentives to learn. We found that the benefits of alliance experience do not come automatically but depend on the extent to which the organization can actively capture and leverage its experience (for instance, one partner may be able to draw additional benefits from an alliance, while the other may continue to make the same old mistakes). 6 Hence, a company’s alliance portfolio — the combination of all of its alliances — requires a holistic and strategic approach. Tesla, for instance, doesn’t view its alliances as individual deals but as part of an overall strategy to establish a new standard in automotive technology and, along the way, to gain a competitive advantage. 7

In the face of the comparatively low success rate of alliances, it’s worth asking: Why is the rate so low? And more important: What can managers do about it? In attempting to answer these questions, we found that managers are frequently ill-prepared to handle the key stages of the alliance process. Instead, they tend to make three misguided assumptions that sow the seeds for failure: (1) that they will find good partners, (2) that they will be able to capture an adequate amount of economic value, and (3) that the alliances will continue to serve the company’s needs over time.

Assumption 1: The company will find good partners. The assumption that you will be able to line up the best partners available ignores the broader context in which alliances are formed. The market for alliance partners is often crowded and competitive. Moreover, managers often don’t have complete information to identify the best matches. During the biotechnology revolution, for example, some 2,000 new ventures burst onto the market. Many of them sought to attract the attention of the big pharma companies on the theory that an alliance would be an endorsement of quality and pave the way to a faster IPO with a high valuation. 8 However, four decades after the start of biotech revolution, only a handful of biotech firms have become highly successful. 9 Most of the others failed. 10

Assumption 2: The company will be able to capture a reasonable amount of economic value from its partnerships. Even if you can bring a partner to the negotiating table, there is no guarantee that the deal will allow you to capture adequate value from the alliance. Strong competitive pressure often leads companies to conclude a deal quickly; not enough time is spent assessing key factors that can drive relative value capture in an alliance, such as evaluating the partner’s alternatives against your own. In other cases, companies give away too much value, fearing that the prospective partner, especially when that partner is a large, well-established company, will otherwise walk away. As a result, a company’s alliance portfolio can become unsustainable.

Assumption 3: The alliances will continue to serve the company’s needs over time. Because coordination and monitoring costs are difficult to measure, companies often work from unrealistic estimates of the value partnerships can provide. Failure to anticipate and resolve problems before they escalate, for example, can result in a significant amount of lost value. In addition, adding new alliances to existing portfolios can lead to unintended competitive repercussions. 11

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In one strategic alliance in the health care field, the executives who negotiated the partnership recognized that there was a lack of operational fit but assumed that the problems could be remedied as the collaboration unfolded. Unfortunately, the challenges were more serious than the executives initially thought. Due to differences in the companies’ decision-making structures that hadn’t been acknowledged and accounted for, misunderstandings and negative perceptions spiraled into personal animosities and mistrust. As ad hoc remedies were put in place, the two companies struggled to respond to competitive developments, and the less-experienced partner missed a valuable opportunity to develop a cadre of knowledgeable managers who could be assigned to work on future collaborations.

Improving Alliance Management

Prior research on alliance management tended to focus on one stage of the process — for example, how to manage a stand-alone alliance. 12 This approach presents a piecemeal and truncated understanding of the relevant issues and remedies. Given factors such as globalization, technological change, and business model innovations, executives frequently need to manage multiple alliances at once with partners in different geographies and at different stages of the alliance life cycle. This requires a number of different, interrelated activities, with many opportunities for missteps. Based on our experience, we have developed a process framework and a set of critical questions that can help managers undertake alliances more effectively.

The framework acknowledges the complexity of generating benefits from alliances and the vigilance required to extract their benefits fully. For example, even if a company executes its alliances exceptionally well, the overall returns may be low because inappropriate partners were selected, too much value was ceded in negotiations, or the alliance contributes little to the company’s alliance portfolio. We offer a holistic approach to alliance management, organized around five distinct steps: partner selection, deal negotiation, execution, exit, and portfolio management. (See “Managing Alliances Effectively.”) To illustrate how the framework works, consider the example of Lego A/S, the privately held toy company based in Billund, Denmark. After facing financial difficulties in the early 2000s, Lego has been able to rebound, in part based on how it used alliances to leverage and extend its core competence. 13 Between 2005 and 2015, Lego grew significantly, from about $1 billion in revenues to more than $5 billion.

Step 1: Partner Selection Strategic alliances are voluntary arrangements between two or more organizations to develop new processes, products, or services. There are important distinctions between alliances in which partners access existing knowledge, resources, and capabilities and those that lead to the development of new knowledge, resources, and competencies. 14 Our research suggests that partner selection should account for potential partners’ experiences gained through collaborations, since they shed light on the partner’s ability to contribute to the success of an alliance. 15 Since external experience can be combined in complementary ways with internal competencies, potential partners should be evaluated in part on the bundles of relevant experiences they are able to bring to the alliance. 16

When managers take the time to conduct thorough evaluations of this kind, they can increase the odds of successful negotiations by using the information to communicate alliance benefits to potential partners. The analysis can be used as a tool for internal communication as well, ensuring that a promising alliance can get the resources and managerial attention it requires. Potential partners shouldn’t be evaluated in a vacuum but need to be examined in terms of value-creation potential and strategic fit with the overall alliance portfolio.

Previously, Lego had selected its alliance partners based on a limited set of criteria, with the implicit assumption that if the partnerships leveraged and extended the company’s brand, they must be creating value. The company obtained licenses for intellectual property (characters and brands) such as Star Wars, Indiana Jones, Harry Potter, Lord of the Rings, Batman, the Simpsons, and Iron Man. Because Lego didn’t own the intellectual property but had to invest in the manufacturing, global distribution, and promotion of the licensed products, the benefits accrued mainly to the partners. 17

Recently, Lego has become more selective in assessing and working with partners, attempting to achieve both a strategic and an operational fit. “The Lego Movie”, which grossed more than $450 million on a $60 million budget in the year following its 2014 release, offers a good example of its new approach. To produce the movie, Lego negotiated partnerships with several companies to obtain key resources and capabilities that it lacked. For example, the animation and visual effects for the movie were developed by the digital animation and design studio Animal Logic Pty Ltd, based in New South Wales, Australia, while Warner Bros. Pictures provided financing and distribution. The movie attracted audiences well beyond Lego’s traditional market of children between 5 and 12 years old.

Step 2: Deal Negotiation This stage of the process, where the parties define the terms of the partnership and their mutual responsibilities and rewards, is fraught with challenges. Negotiators who focus on capturing the lion’s share of the potential value at the expense of their partner run the risk of undermining the alliance and seeing little in actual gains. Negotiations between small and large companies are particularly susceptible to poor outcomes due to differences in the partners’ negotiating power. Negotiators for small companies warn that lopsided deal terms that result in the smaller partner assuming most of the risks can have consequences down the line, causing the small company to focus on preventing losses in the execution stage. Such responses to poorly negotiated deals can leave alliance teams less willing and less able to realize the value-creating potential of the partnership. 18

A successful deal negotiation should set the stage for the execution stage and support knowledge sharing between the negotiators and the individuals who will be taking over the day-to-day execution. Corporate development teams that move through this process too quickly miss out on the opportunity to receive the feedback they need to improve future negotiations. To this end, the composition of the steering committee should be optimized to facilitate information exchange and improve coordination. 19 The handoff from those negotiating the agreement to those who will manage the execution stage provides an opportunity for companies to hone their alliance capabilities. 20

Although discussing the details of an exit from the relationship as it is being formed may be uncomfortable, beginning to plan for contingencies and wind-down procedures as part of the front-end negotiation is nevertheless helpful. 21 Without such discussions, there is a tendency toward inertia that can mean a company’s alliance portfolio fails to reflect changing strategic and environmental conditions. For instance, when negotiating the various strategic partnerships needed for “The Lego Movie”, Lego was more explicit about defining the scope of the project than it had been in past partnerships. While some of its old alliances had been on the books for years and were becoming stale, relationships involving “The Lego Movie” were clearly defined and limited to a single project, with an option for future collaboration.

One executive we interviewed admitted that the lack of an exit plan left his company at a loss for what to do when a larger partner terminated their four-year partnership.

Step 3: Execution To achieve the strategic goals of the individual partners, it’s necessary to have collaboration between people from different organizations that have their own ways of doing things. Many alliances involve collaboration across geographic, industry, and sector boundaries. Successful execution requires working through the inevitable frictions to achieve new solutions and shared understanding.

With “The Lego Movie”, for example, Lego saw the need to combine detailed alliance negotiations with strong execution. It sought contractual safeguards to maintain the integrity of its brand and ensure adequate returns. At the same time, there was an understanding on the part of management that creativity — both in terms of the storyline and the visual quality — was essential. This required partners to be flexible and to maintain open communication. With this in mind, Lego wanted agreements that allowed different partners to bring their best ideas to the movie project. For its part, Lego shared core intellectual property, including software and data related to its virtual brick-building system, collaborated on new characters and set designs, and provided input to key decisions during the three-year movie-making process.

In smaller organizations, alliance experience is often limited to a few key employees. Larger companies have the opportunity to create structures, processes, and incentives to proactively harness and store their alliance experience for future use. 22 Companies such as pharmaceutical giant Eli Lilly and Company have invested heavily in this area, creating specialized roles that bring together the strategic commitment and internal operational know-how needed to succeed at alliances. 23 Senior-level alliance champions and on-the-ground alliance leaders are, in turn, complemented by specially trained alliance managers who are able to transmit knowledge and best practices to the rest of the organization. In order to identify and overcome problems early on, it is important to deploy alliance managers, create shared tools, and conduct regular assessments of alliance health. It’s also helpful to establish conflict-resolution procedures in advance to have a road map for how specific issues will be resolved and by whom. Best practice calls for establishing a dedicated alliance function, 24 which coordinates all alliance-related activities while creating systems, processes, and structures to centralize and share accumulated alliance experience.

Step 4: Exit Although some alliances end in bitter conflict, dissolving an alliance is not always a sign of failure. Since alliances can be vehicles for exploring new opportunities, it shouldn’t be surprising that some will prove to be less fruitful than initially expected. By negotiating exit triggers, partners can determine in advance when the dissolution process should begin. At Lego, for example, the purpose of many of its partnerships was to inject novelty into its product line and boost sales. However, everyone knew they weren’t meant to last forever and that most would reach a point of diminishing returns. This didn’t seem to sour companies on the idea of working with Lego. In fact, Warner Bros. was so pleased with the results of its involvement with “The Lego Movie” that it signed an agreement to produce a sequel and other spin-off movies.

Terminating an alliance should follow a process that clearly stipulates the responsibilities of the partners and the various stakeholders. Among other things, partners should agree up front about how gains and losses will be shared. The reasons for exit should be communicated clearly to both partners’ other alliance partners so as not to damage either company’s reputation. One executive we interviewed admitted that the lack of an exit plan left his company at a loss for what to do when a larger partner terminated their four-year partnership. The uncertainty and confusion that ensued led to a significant drop in his company’s stock price and a loss in shareholder value.

Companies should conduct regular assessments of their alliance portfolios in order to ensure that future alliances fill important gaps.

Step 5: Portfolio Management The combination of partners and deal structures that comprise a company’s alliance portfolio can yield additional value. At a minimum, having multiple partners reduces a company’s reliance on any single partner. A focus on lowering risk and increasing bargaining power, however, shouldn’t come at the cost of too much redundancy lest scarce resources (including managerial resources and attention) be spread thin. New partners should add complementary strengths and increase the company’s strategic flexibility rather than reducing it. 25 At the corporate level, alliances should also complement the company’s acquisition strategy and internal development choices. 26

Companies should conduct regular assessments of their alliance portfolios in order to ensure that future alliances fill important gaps. In the interests of advancing its ability to innovate, Lego, for example, recognizes that partnerships that are primarily about leveraging existing resources and know-how, such as licensing agreements, need to be balanced with relationships that are higher-risk and exploratory — but also more likely to lead to new generations of products. For example, a partnership with the MIT Media Lab in the 1990s gave rise to Lego’s MindStorms, build-and-program robot kits that produced a large, loyal following of both teenagers and adults. This collaboration has in turn inspired new products that mix Lego’s physical toys with digital interaction.

As a whole, our framework assists companies in managing their alliances throughout their entire life cycle. While each stage of an alliance process raises distinct issues, the stages are interconnected and can contribute to a valuable alliance portfolio. Companies can begin by assessing their existing and potential alliances with a set of questions to reveal whether the value creation and capture potential of each alliance — and the resulting alliance portfolio as whole — is being fully realized.

About the Authors

Ha Hoang is a professor of management at ESSEC Business School in Cergy-Pontoise, France. Frank T. Rothaermel is the Russell and Nancy McDonough Professor of Business at the Georgia Institute of Technology’s Scheller College of Business in Atlanta, Georgia.

1. M. Richtel, “Elon Musk of Tesla Sticks to Mission Despite Setbacks,” New York Times, July 24, 2016.

2. For a careful analysis and discussion of how to select and execute across different corporate strategy initiatives, see L. Capron and W. Mitchell, “Build, Borrow, or Buy: Solving the Growth Dilemma” (Boston, Massachusetts: Harvard Business Review Press, 2012).

3. For an insightful discussion of competitive implications when adding alliances to an existing alliance portfolio, see U. Wassmer, P. Dussauge, and M. Planellas, “How to Manage Alliances Better Than One at a Time,” MIT Sloan Management Review 51, no. 3 (spring 2010): 77-84.

4. Recent survey data estimates the failure of alliance portfolios to be about 50%, and Benjamin Gomes-Casseres estimates that 33%-66% of all alliances break up within 10 years. In 2001, Jeffrey H. Dyer, Prashant Kale, and Harbir Singh estimated that almost half of alliances fail. See, respectively, The Association of Strategic Alliance Professionals, “Fourth State of Alliance Management Survey,” 2012, www.strategic-alliances.org; B. Gomes-Casseres, “Remix Strategy: The Three Laws of Business Combinations” (Boston, Massachusetts: Harvard Business School Press, 2015), 12; and J.H. Dyer, P. Kale, and H. Singh, “How to Make Strategic Alliances Work,” MIT Sloan Management Review 42, no. 4 (summer 2001): 37-43. While alliances may be terminated for a host of reasons, including the achievement of the intended alliance goals, the estimates above suggest that many alliance portfolios do not deliver the expected strategic benefits. There are several explanations of why the estimated alliance failure rate has not improved over time. As the business environment has become more uncertain (due to technology change, regulatory changes, political factors, financial crises, etc.), a greater variety of external factors can limit alliance benefits. Alliances also tend to be more complex today and thus are more challenging to manage at the alliance-portfolio level. However, although the average failure rate does not appear to have changed much, if any, over time, individual companies may improve their alliance performance, as we detail in this article.

5. H. Hoang and F.T. Rothaermel, “The Effect of General and Partner-Specific Alliance Experience on Joint R&D Project Performance,” Academy of Management Journal 48, no. 2 (April 2005): 332-345; and H. Hoang and F.T. Rothaermel, “Leveraging Internal and External Experience: Exploration, Exploitation, and R&D Project Performance,” Strategic Management Journal 31, no. 7 (July 2010): 734-758.

6. R. Gulati, T. Khanna, and N. Nohria, “Unilateral Commitments and the Importance of Process in Alliances,” MIT Sloan Management Review 35, no. 3 (spring 1994): 61-69.

7. F.T. Rothaermel, “Tesla Motors, Inc.,” McGraw-Hill Education, December 17, 2015; see also E. Musk, “The Secret Tesla Motors Master Plan (Just Between You and Me)” (blog), August 2, 2006, www.tesla.com.

8. F.T. Rothaermel, “Technological Discontinuities and Interfirm Cooperation: What Determines a Start-Up’s Attractiveness as Alliance Partner?” IEEE Transactions on Engineering Management 49 no. 4 (2002): 388-397; and T.E. Stuart, H. Hoang, and R.C. Hybels, “Interorganizational Endorsements and the Performance of Entrepreneurial Ventures,” Administrative Science Quarterly 44, no. 2 (June 1999): 315-349.

9. F.T Rothaermel and D.L. Deeds, “Exploration and Exploitation Alliances in Biotechnology: A System of New Product Development,” Strategic Management Journal 25, no. 3 (March 2004): 201-221.

10. G.P. Pisano, “Science Business: The Promise, the Reality, and the Future of Biotech” (Boston, Massachusetts: Harvard Business School Press, 2006).

11. Wassmer, Dussauge, and Planellas, “How to Manage Alliances.”

12. Jonathan Hughes and Jeff Weiss provide fresh insights but focus on the effective management of a specific alliance. In a similar vein, Ranjay Gulati, Maxim Sytch, and Parth Mehrotra provide a helpful framework on how to plan an exit from a specific alliance. Other authors highlight the importance of a dedicated alliance function. By contrast, we focus on the entire alliance process from initiation to termination in a holistic fashion, as well as providing guidance pertaining to alliance portfolio management. In sum, our approach is more strategic in nature, and thus more likely to help companies gain and sustain a competitive advantage. See J. Hughes and J. Weiss, “Simple Rules for Making Alliances Work,” Harvard Business Review 85, no. 11 (November 2007): 122-131; R. Gulati, M. Sytch, and P. Mehrotra, “Breaking Up Is Never Easy: Planning for Exit in a Strategic Alliance,” California Management Review 50, no. 4 (summer 2008): 147-163; and Dyer, Kale, and Singh, “How To Make Strategic Alliances Work.” For a complementary treatment on how to create and capture value from broader corporate development activities including alliances, joint ventures, and acquisitions, see Gomes-Casseres, “Remix Strategy.”

13. F.T. Rothaermel, “Lego’s Turnaround: Brick by Brick,” in “Strategic Management: Concepts,” 3rd ed. (New York: McGraw-Hill Education, 2016), 457-459.

14. F.T Rothaermel and D.L. Deeds, “Exploration and Exploitation Alliances in Biotechnology: A System of New Product Development,” Strategic Management Journal 25, no. 3 (March 2004): 201-221.

15. Hoang and Rothaermel, “Leveraging Internal and External Experience.”

16. A.M. Hess and F.T. Rothaermel, “When Are Assets Complementary? Star Scientists, Strategic Alliances and Innovation in the Pharmaceutical Industry,” Strategic Management Journal 32, no. 8 (August 2011): 895-909.

17. H. Hoang and F. Brice, “Rebuilding Lego Group Through Creativity and Community,” INSEAD case study (Fontainebleu, France: INSEAD, 2007).

18. J. Lerner, H. Shane, and A. Tsai, “Do Equity Financing Cycles Matter? Evidence From Biotechnology Alliances,” Journal of Financial Economics 67, no. 3 (March 2003): 411-446. The academic literature highlighting how contracts and governance support alliance goals is summarized in D.J. Schepker, W.-Y. Oh, A. Martynov, and L. Poppo, “The Many Futures of Contracts: Moving Beyond Structure and Safeguarding to Coordination and Adaptation,” Journal of Management 40, no. 1 (January 2014): 193-225.

19. Adaptive partnership governance is discussed by F.A. Martinez-Jerez, “Rewriting the Playbook for Corporate Partnerships,” MIT Sloan Management Review 55, no. 2 (winter 2014): 63-70.

20. An extensive literature dissects these challenges and offers strategies and tactics to boost the likelihood of a successful negotiation. See, for example, D.A. Lax and J.K. Sebenius, “3-D Negotiation: Powerful Tools to Change the Game in Your Most Important Deals” (Boston, Massachusetts: Harvard Business Review Press, 2006).

21. Gulati, Sytch, and Mehrotra, “Breaking Up Is Never Easy.”

22. F.T. Rothaermel and D.L. Deeds, “Alliance Type, Alliance Experience, and Alliance Management Capability in High-Technology Ventures,” Journal of Business Venturing 21, no. 4 (2006): 429-460.

23. Hoang and Rothaermel, “The Effect of General and Partner-Specific Alliance Experience”; and Hoang and Rothaermel, “Leveraging Internal and External Experience.” For a careful study of the positive performance impact of dedicated alliance functions in large companies, see P. Kale, J.H. Dyer, and H. Singh, “Alliance Capability, Stock Market Response, and Long-Term Alliance Success: The Role of the Alliance Function,” Strategic Management Journal 23, no. 8 (August 2002): 747-767.

24. Dyer, Kale, and Singh, “How to Make Strategic Alliances Work”; and Kale, Dyer, and Singh, “Alliance Capability.”

25. D. Lavie, “Alliance Portfolios and Firm Performance: A Study of Value Creation and Appropriation in the U.S. Software Industry,” Strategic Management Journal 28, no. 12 (December 2007): 1187-1212.

26. Capron and Mitchell, “Build, Borrow, or Buy.”

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Strategic alliances: the right way to compete in the 21st century.

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Regardless of the industry or type of business, strategic alliances are the best way for a company to compete and succeed in today’s networked economy. But building a strategic alliance and making it work are not easy. Partnering well is a key core competence, and it is one that needs to be developed.

The principles for developing that competence apply to any type of alliance. I will describe some of those principles in this article, as well as some of the risks that a company will face and the benefits it will derive from entering into a strategic alliance.

STRATEGIC ALLIANCES TODAY

Strategic alliances are critical to organizations for a number of key reasons:

1. Organic growth alone is insufficient for meeting most organizations’ required rate of growth.

2. Speed to market is of the essence, and partnerships greatly reduce speed to market.

3. Complexity is increasing, and no one organization has the required total expertise to best serve the customer.

4.Partnerships can defray rising research and development costs.

5. Alliances facilitate access to global markets.

In recent years, there has been an explosion of alliances around the world and across industries. For example:

1. In an effort to establish itself as a force in European and Japanese markets, the Nasdaq formed a joint venture with SSI Technologies of India to develop an Internet-based trading and market system to launch Nasdaq Europe and Nasdaq Japan.

2. In February 2001, The Coca-Cola Company and Procter & Gamble announced a $4.2-billion (all currency in U.S. dollars) joint venture to use Coca-Cola’s huge distribution system to increase reach and reduce time to market for the P&G products Pringles and Sunny Delight.

3. EPOST was the world’s first national, secure electronic mail-delivery system, an alliance between Bank of Montreal and Canada Post Corp. This partnership connects billers and users in an efficient and secure environment.

4. Star Alliance is the largest partnership in the airline industry; its reach extends to 130 countries and more than 815 destinations, with collective revenue for the partnership at more than $63 billion.

5. Hewlett-Packard and NTT DoCoMo created a partnership to conduct joint research on technology for fourth-generation mobile phones, bringing together HP’s network infrastructure and computer servers with DoCoMo’s wireless broadband technology

business plans strategic alliances

HUGE OPPORTUNITY, HUGE RISK

Much has been written about the power of strategic alliances. However, a balanced perspective is critical. An article by Geoff Baum in the April 3, 2000, issue of Forbes ASAP gave a strong vote of confidence to alliances: “Our statistical analysis shows that companies with more joint ventures, marketing and manufacturing alliances, and other forms of partnerships, have substantially higher market values [than companies that do not form such partnerships].” The article concluded that, “In the connected economy, connections matter. Alliances are incredibly, even decisively, important.” Studies by others—including the Corporate Executive Board in Washington; Peter Drucker; Booz, Allen & Hamilton; and Andersen Consulting—also highlight similar opportunities and associated risks.

According to a 1999 survey on global alliances by Accenture Consulting:

  • Eighty-two percent of executives surveyed believe alliances will be a prime vehicle for future growth.
  • Alliances account for an average of 26 percent of Fortune 500 companies’ revenues, up from 11 percent five years ago.
  • Alliances account for six to 15 percent of the market value of the average company.
  • U.S. banks expect to hold a portfolio of more than 50 alliances within three years, accounting for as much as 50 percent of revenue.
  • Within five years, alliances are projected to account for 16 to 25 percent of the average company’s market value.
  • Senior management at 25 percent of firms surveyed expects alliances to contribute more than 40 percent of their company’s market value within five years.

It is clear that the importance of alliances is already being felt. Yet despite the opportunity, there are enormous risks:

  • As many as 70 percent of alliances fail.
  • Studies have found that although the 15 most successful alliances increased shareholder value by $72 billion, the 15 least successful alliances decreased market capitalization by $43 billion.

MITIGATING THE RISK OF FAILURE

Mitigating the risk of failure in any partnership is a critical requirement for success in a global economy. To ensure the greatest likelihood of success, organizations contemplating forming an alliance need to develop a disciplined, structured and systematic Strategic Alliance Process. The Strategic Alliance Process described in this article has been successfully applied to partnerships in Canada, the U.S., Europe, Asia and Mexico.

business plans strategic alliances

In our research, we consistently found that the major causes of alliance failure were a lack of strategic alignment and cultural incompatibility. We also found that using a process that addresses these issues greatly reduces the risk of failure.

THE STRATEGIC ALLIANCE PROCESS

The Strategic Alliance Process involves planning, implementation and evaluation. An alliance has a five-stage “life cycle,” and a structured methodology is applied to preparation and negotiations at each stage.

1. Setting alliance strategy

The first step in creating a successful alliance is to develop a well-thought-out alliance strategy. This is a critical step. We have found that too many organizations “find” a potential partner and then either develop their strategy or “fall into it.” It is worth remembering that if you do not follow your strategy in a partnership, you will follow someone else’s. The result will be catastrophic.

An alliance strategy stems from the business strategy. An alliance is not the answer for all businesses, but once a business does decide that a partnership is desirable, it must develop an alliance strategy. This is best accomplished through a structured, disciplined process in an Alliance Strategy Session.

An alliance strategy is most effectively developed jointly by the business team and an objective third party, whether the latter is an external consultant or part of the organization. The business team includes an executive sponsor, who is the head of that business, or, in a corporate alliance, the president and CEO. If senior executives do not support the initiative, the alliance will die. The team also includes key content experts and decision makers for that business.

An Alliance Strategy Session needs to address the vision and strategy for the partnership, and include a market analysis and a competitive assessment. Also required is an honest self-assessment that articulates the organizational strengths and weaknesses, as well as the organizational culture. The outcome of such a session includes an alliance game plan, partner selection criteria, a cultural self-assessment and a negotiating strategy.

2. Selecting a partner

This is based on the criteria identified in the strategy session. Once the partner is selected, the key is to determine if both organizations are strategically aligned and culturally compatible. A Joint Strategy Session where both (or multiple) organizations articulate their vision and strategy will determine if the organizations are strategically aligned. It will also become clear whether all parties have like ambitions and are culturally compatible. This also becomes the ideal opportunity to identify any strategic gaps and previously unanticipated opportunities. Any deal-breakers for either party are articulated at this stage.

Alliance governance is another aspect that is important to discuss at the very early stages. If it is a joint venture, thought needs to be given to the structures for management and the board.

Note that at this stage, due diligence has not yet occurred. The strategic alignment must first be ensured before due diligence is begun. At the outset, it is extremely important to determine if the partners are strategically aligned and culturally compatible. No positive results on due diligence or a “great” financial deal will overcome the lack of strategic alignment. Without this assurance, the alliance is guaranteed to fail.

3. Structuring the alliance

This is the step that has traditionally received the greatest amount of attention; it is during this stage that the deal is financially and legally structured, and negotiated. While important, the stage is not worth entering into unless the first two stages involving the strategy have been completed. It is important to keep an open mind regarding the structure of the deal until the alliance strategy has been developed. A joint venture is not always the best route, nor is majority ownership. Preconceived notions about the deal structure can bias the strategy, including conversations with the potential partner. Ideally, the strategy dictates the optimal structure.

business plans strategic alliances

Negotiation is also an aspect that requires significant attention. Some best-practice companies rehearse their negotiations before meeting the partner. It is critical to be clear about your deal-breakers, and the “floor” and “ceiling” of your negotiating points. A negotiating strategy is critical, and developing one must begin at the alliance-strategy stage. A key point to remember is that negotiations with a potential partner begin long before you first sit down at the table. It begins the first time you meet the partner. Every interaction reveals information that is consciously and subconsciously stored for future reference.

Every alliance agreement should include an exit strategy. This does not imply a pessimistic view of the relationship, but rather recognizes that all alliances have a natural life. The average lifespan of an alliance is seven years. It may be necessary to recognize that an alliance is impermanent in order to maximize its useful life.

Finally, at this point, a solid view of, and agreement on, alliance governance is important. This work is begun at the alliance strategy stage and needs to be negotiated before signing the definitive agreement.

4. Managing the alliance

Once the ink is dry, the hard work begins. Making the relationship work on an ongoing basis is a challenge. In a well-structured alliance, an implementation plan is developed before the deal is signed. A full launch strategy needs to have been jointly developed before the deal is announced. To hit the ground running, an implementation plan with specific action plans, and the resources assigned to the alliance, must be known. Ideally, some members of the alliance team would have been involved from the very first stage.

Conflict in any alliance is inevitable. It is not the fact that it occurs that is a problem, but rather how it is dealt with and resolved. A conflict-management process is an important element of alliance management.

This is another stage where the alliance can be derailed. As previously noted, the lack of strategic alignment is a key cause of failure. This is not only the case at the outset but throughout the life of the alliance. Periodic checks are critical. If a shift in a partner’s strategic direction is taking place, there is a risk that the alliance may no longer be a strategic priority. In the case where an alliance partner has sold its interest to another organization, it will be necessary to ensure that the new partner has the same strategic vision and interest in the alliance. Periodic strategy sessions become a valuable means of ensuring strategic alignment, as well as a vehicle for revisiting the strategy’s market relevance. As with conflict management, these sessions are best managed with the support of an objective third party.

5. Re-evaluating the alliance

Measuring the results of an alliance is critical. You must regularly determine if the alliance is achieving its objectives. The metrics need to be tailored to the alliance and include both qualitative and quantitative criteria. In the earlier stages, qualitative criteria, which are the hardest to measure, are most meaningful. Some examples are the level of trust, and the ability and willingness for cross-organizational co-operation and collaboration. These are all leading indicators of future performance. The qualitative metrics need to be clear and specific, in line with the way each organization sets its performance standards.

The discussion about performance standards must have taken place as early as stage one. The relationship will not succeed if both parties do not have the same expectations for success. If one party is expecting results within the first 12 months, and the other has a three-year horizon, conflict is inevitable. The key is to agree on standards and metrics jointly, before the final agreement has been signed.

In the re-evaluation stage, it is also necessary to take stock of the alliance and determine the next steps. As previously stated, alliances are impermanent; this should be taken into account when planning an alliance. This does not mean that the relationship should end when the alliance itself ends. In fact, towards the end of the life of the alliance it is worth revisiting the alliance strategy. Here, one wants to determine to what extent the original goals have been achieved, and whether the partnership can be reconfigured to serve other market needs. The goal is to make a decision as to whether the alliance should be terminated as the exit strategy has prescribed, or whether it still has life and new opportunities to partner.

Maintaining a good relationship will usually mean that there will be opportunities to continue to work together. It is much easier to manage multiple or reconfigured relationships with an existing and known partner than it is to manage multiple relationships with different partners. Therefore, where possible, deep relationships are always more desirable. For example, by reconfiguring and reinventing their relationship, Fuji and Xerox have remained partners for close to 40 years, well above the seven-year average.

It is absolutely necessary to evaluate and further develop the alliance at each stage of the life cycle. The strategy sessions create a structured, disciplined forum for recapturing “the lost art of conversation.” It is essentially through this conversation that gaps are identified and opportunities discovered. In our hurry to achieve, we at times forget to assess whether we are pursuing something that is worthwhile.

ALLIANCE PITFALLS

There are seven common pitfalls in the alliance cycle.

business plans strategic alliances

Stage 2: Many organizations do not develop an explicit joint strategy with their partners. Consequently, the organization with the strong direction leads the alliance, while the other partner does not realize the full benefit, or worse still, follows someone else’s strategy.

Stage 3: Too often, a disproportionate amount of attention is paid to the financial aspects of the deal, at the expense of—and sometimes neglect of—the strategy and the focus on implementation. Consequently, the ability to compete successfully is compromised.

Stage 4: Lack of ongoing commitment to the alliance by either party will derail it. Examples include not putting the best people in the partnership or pulling key resources from the alliance.

Stage 5: Lack of realistic or meaningful metrics is a common pitfall. In an attempt to quantify all results from the outset, employing meaningful qualitative metrics is often overlooked. Some of the most meaningful metrics which are predictors of success include things such as the level of trust between the parties.

Stage 6: Another common pitfall for large organizations is losing track of multiple relationships with a partner. This occurs when various alliances with this partner exist in different parts of the organization. At times, a partner is also a supplier, and this complicates the relationship. Having a good handle on the extent of the relationship is critical.

Stage 7: Finally, partnering with competitors requires particular attention. One of the common pitfalls occurs when insufficient boundaries are set around an alliance with a competitor. The risk is that their newly acquired knowledge of your organization makes them a more formidable competitor.

Organizations will increasingly need to partner or risk perishing. In the global economy, all boundaries are artificial and limitations self-imposed. Yet partnering carries with it huge risks.

These risks can be mitigated by creating an organizational competence in strategic alliances. To make alliances work, organizations must develop a systematic, structured and disciplined process that involves planning, implementation and evaluation. There are no shortcuts. It is both an art and a science. And one thing is clear: In order to succeed, there must be a solid alliance strategy in place. And throughout, there must be a keen awareness of the reasons for having undertaken the alliance in the first place.

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Joint ventures and strategic alliances

Examining the keys to success

The globalization of business models and dramatic changes in the way that businesses operate and compete have resulted in a shift in  mergers and acquisitions (M&A) strategy and execution . M&A or organic growth is not always feasible, nor is it always the fastest route to achieving desired objectives in a competitive marketplace. Increasingly, corporations and investors are moving beyond the traditional acquisition/disposal model and using joint ventures (JVs) and strategic business alliances to achieve their business development objectives.

Alliances on the rise

Alliances play a key role in a corporate growth strategy. They are an alternative to the organic option of building a new business from the ground up, or the inorganic option of making an acquisition. Consistent with previous years, PwC's 22nd annual CEO survey results show that 40% of US CEOs plan to pursue a new strategic alliance or joint venture in order to drive corporate growth or profitability in the coming year.

Even as partnerships and strategic business alliances are becoming more important to CEOs, the challenge of managing them is rising. The need for trust, collaboration, and equitable risk-sharing make these arrangements far more delicate to navigate than traditional M&A transactions.

Factors for achieving a successful strategic alliance or joint venture

Alliances, if done well, can lead to outperformance and competitive advantage. Nevertheless, these rewards can be accompanied by high risk. Constant vigilance and significant commitment from the senior leaders of each parent is necessary to maintain rigorous, professional end-to-end execution. Despite the fact that there is no “silver bullet” to help facilitate the success of an alliance, there are several factors that can help.

Are you ready?

Is your alliance strategy underpinned by a structured strategic plan – or did you start by considering a partner.

As globalization and competitiveness intensify, more organizations are likely to turn to JVs and alliances as an effective strategy to win in the marketplace. Nevertheless, the complexity and level of commitment associated with these arrangements cannot be underestimated. Organizations that take a collaborative approach built on trust and gain sharing — and combine it with formalized and well-planned execution — will dramatically increase their chance of success and be well-positioned to leverage these arrangements to create a sustainable competitive advantage.

Do you lack a dedicated corporate development team to create an alliance strategy or the capabilities to establish a strategic alliance?

Learn more about PwC's unique, scalable and either deal-specific or recurring services that help address  corporate development  support needs for clients.

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Partners in profit: Creating successful business alliances

In this episode of the Inside the Strategy Room podcast, Ruth De Backer and Eileen Kelly Rinaudo share insights on ways to manage business partnerships successfully. In their conversation with Strategy & Corporate Finance communications director Sean Brown, they discuss the four key principles that help partners in joint ventures and alliances thrive, which they wrote about in a recent article . You can listen to the episode on Apple Podcasts , Spotify , or Google Podcasts .

Sean Brown: From McKinsey’s Strategy & Corporate Finance practice, I’m Sean Brown. Welcome to Inside the Strategy Room. In this episode we talk to two of our experts about ways to make joint ventures and alliances more successful. The better companies do at managing such increasingly complex partnerships, the more likely they are to emerge as partners of choice for tackling new markets or channels. Ruth De Backer is a partner in our New York office and leads our global joint ventures and alliances work within the M&A practice . Eileen Kelly Rinaudo, also based in New York, is a senior expert on transactions.

Ruth, let me ask you first: how do such partnerships typically evolve? Do companies start with small joint ventures and then expand them?

Ruth De Backer: A lot of it tends to be industry-specific. In some industries, such as the pharmaceutical sector, partnerships tend to focus on specific products, so if you get a successful product, you may work on development for five years and have a patent life of another ten years. Now we see lots of partnerships with finite objectives in the digital sector as well.

In industrial sectors, companies often turn to partnerships to access new geographies, and these tend to be larger joint ventures. Some companies are starting to partner with more digital firms as well to gain new capabilities. It also tends to shift over time. We’ve heard people say at the start of a partnership, “It’s going to be five years, just to help us put a beachhead in China,” but then the companies want to scale up and carry on for decades.

Eileen Kelly Rinaudo: It’s important to recognize that having a partnership end doesn’t mean failure. It can end very successfully because it has achieved its objective. The key is to make sure you have the capabilities and tracking mechanisms in place so you can adjust as a partnership evolves.

Sean Brown: What are some of the unique challenges in managing joint ventures and alliances?

Ruth De Backer: The main reason partnerships need somewhat different management attention is that you don’t operate a joint venture in the same the way you would operate your own business unit. First, you have multiple owners, each with their own characteristics, so you need alignment of objectives among the partners. Otherwise, the partnership becomes inherently unstable.

Second, you create a new entity with its own independent character. It has its own culture that is usually a blend of the two partners’ cultures, and it has its own objectives and strategy. The governance of such partnerships is quite complex, and certain questions require a lot of thought. For example, if they have a formal structure with a board, who sits on the board? How often do you rotate the board members? How is the board involved with leadership? Complex governance structures can lead to slower decision making, which can cause friction among the partners.

Finally, there is the issue of partner interdependence, especially in operations, with one or both partners providing services to the separate entity.

Sean Brown: What do you see as the key factors that determine whether a joint venture or alliance succeeds?

Ruth De Backer: We surveyed several hundred people involved in business development and management of partnerships and asked them what is most critical for partnership success. We saw clearly that two factors contribute the most to the success of partnerships, and, when they are absent, to their failure. One is being clear on the venture’s objectives and strategy, and the second is communication and trust, because you are dealing with other human beings and it comes down to whether you trust the people you work with day to day (exhibit).

The third and fourth are governance and key performance indicators (KPIs), which really speak to the systems and processes for accountability and clarity on what you’re tracking, and what you want the management of the partnership to achieve. The last is a factor that’s less important to success than it is to avoiding failure: a plan for restructuring. The world changes. The partners will change. How easily you adapt to a changing environment, or changing strategic objectives, or changing markets will determine the partnership’s fate.

Sean Brown: Eileen, what did this research suggest to you in terms of how leaders should approach the management of partnerships?

Eileen Kelly Rinaudo: As we looked at these factors, we tried to figure out what the major levers were from a management perspective. We saw that the first focus has to be on establishing a clear foundation. In the preparation phase, that means making sure there is alignment within every department on the objectives and priorities. Sometimes this early phase is short-circuited. It’s also useful to involve team members who are experienced in negotiations in those alignment discussions. Ideally, you also have your operating team and your management team already involved during the negotiation phase so there is a clear understanding of the overall market and objectives. Without those expectations being defined, setting up the next phase of KPIs and processes will be much more difficult, along with making sure everybody has clarity on their roles.

Sean Brown: In establishing that clear foundation, are there particular failure points that you tend to see with clients?

Eileen Kelly Rinaudo: We often see people walk into negotiations thinking they are all on the same page, but because they haven’t taken a disciplined approach to getting things articulated and written down, they end up disagreeing with their own teammates about what they are trying to achieve. It’s important to make sure you get that done before you walk into the negotiation room—that’s the number-one failure point.

Ruth De Backer: One thing I would add is, be mindful of who the ultimate decision makers are. It’s especially important when negotiating with private-equity-owned companies. The private-equity owners’ timeframes and objectives may be different from the management’s, and it is really important to know who is at the other side of the table. Otherwise, they could swoop in at the last minute, and if your objectives don’t meet their exit plans, that would jeopardize any agreement.

It’s sometimes easy to wave your hands a bit and assume everybody is on the same page on the big issues. But making sure those perspectives are clearly defined becomes exponentially more important as you deal with broader topics, bigger partnerships, and longer timeframes. Eileen Kelly Rinaudo

Eileen Kelly Rinaudo: That kind of preparation becomes even more important when you think about who should do what task and how you will manage operations. Sometimes you get focused on the day-to-day and lose track of the decision makers who need to be incorporated into the ongoing discussions. You should consider how to handle the alignment when you have a mixed partnership portfolio or a large joint venture or a group of smaller alliances. Smaller partnerships tend to have more clearly defined objectives, and joint ventures tend to be more all-encompassing. As a rule of thumb, the broader the partnership, the more critical it is to have clarity on your priorities and strategy. It’s sometimes easy to wave your hands a bit and assume everybody is on the same page, especially when it’s about big issues on which you think people would have a similar perspective. But making sure those perspectives are clearly defined becomes exponentially more important as you deal with broader topics, bigger partnerships, and longer timeframes.

Sean Brown: Can you discuss some specific ways managers can make sure everyone agrees on those core perspectives?

Eileen Kelly Rinaudo: When we think about the partnership strategy across the design, launch planning, and post-launch phases, there are a couple different techniques we can use. First, bringing in your operational and management teams early is a best practice because it ensures everybody understands how strategic decisions are made and what the major value-creation opportunities for the partnership are. During launch, we again come back to communications. It’s critical to communicate frequently and clearly, and to be sure everybody has a similar set of expectations.

When tracking performance, you want to make sure that you clearly define the KPIs early in the process. How are you going to evaluate the partnership’s performance over time? Dashboards are very helpful. And finally, the financial aspects. You have to make sure that financial incentives are clearly defined and that you understand the financial flows.

Sean Brown: Once you have established that foundation, what is the next big lever that partnership managers need to pull?

Eileen Kelly Rinaudo: One of the most critical aspects of successful partnership is maintaining a positive and productive relationship. While people work hand-in-hand with their own teammates, they also work with individuals from another company, and that dynamic can create some tension. The two groups don’t necessarily have the same approach, they don’t necessarily communicate in the same fashion, whether electronically or in person, and they come from different cultures.

As a result, you have to put a lot of effort into finding opportunities to build trust and keep communication flowing. Make sure the teams can connect socially, and that it’s not all about business, so they can get to know each other and understand how each approaches problems. This should start even prenegotiations, and continue right through the management phase.

Sean Brown: I would think cross-border and cross-cultural partnerships create some challenges on that front. Can you share any advice on how to overcome those barriers?

Eileen Kelly Rinaudo: Cross-border partnerships are tricky. However, because people expect those differences, they put in some extra time and care making sure they address the different communication styles, and that they understand and appreciate the different cultural situations. Unfortunately, that sometimes stops at the negotiation phase, whereas it should be encouraged and role-modeled on a continual basis.

Understanding the cultural predilections and how people want to operate can be tremendously helpful in cross-border situations. Sometimes, it requires a little bit of cultural training. Sometimes, it’s about a shift in your communication style. For example, some people like to have meetings that are all action—you send out a preread, everybody does their homework, they walk in ready to problem-solve on any sticky situations—they want a strong, working team meeting. Others walk in and want to review the progress to date, then they want to think about a tricky situation, and then have committee meetings and smaller group discussions to come to the answer. Knowing what type of meeting you are walking into is critical because you could have the best of intentions and yet a horrible meeting.

Domestic partnerships deserve the same level of thoughtfulness too. They require the same understanding of your partner’s communication style and culture. That sometimes gets missed, in particular as we see more partnerships between traditional industries and innovation-driven industries.

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Ruth De Backer: Having an explicit conversation about this is very important. People should be aware that a Japanese partner, for instance, will have a final sign-off meeting that is quite different from the American style, where many issues could still be open for discussion. Digital companies are accustomed to releasing beta versions and tinkering with solutions. Compare that with pharma, where they have ten-year development cycles, or oil and gas, where the exploration phases take a long time and if you make a mistake, you can’t say, “Oh, we drilled a well in the wrong place. Now let’s move it six months later.” So being aware of how the partner makes decisions is key. You may think, “Well, we’re both from the Midwest, we have a similar culture. They’re innovation-driven. We’re innovation-driven.” But it’s what is under the surface that needs to get exposed.

Sean Brown: That’s helpful. Are there other elements to nurturing the relationship with your partner?

Eileen Kelly Rinaudo: There needs to be clarity from a corporate perspective on the capabilities and motivations, and who is best suited to what task. Sometimes individuals or organizations get attached to doing one task or another. We worked with two consumer companies that wanted to set up a joint venture and the first company walked in expecting it would be in charge of all the financial aspects. About halfway through the negotiations, they realized their counterpart was actually very rigorous and thoughtful about their financial assessments and KPIs, and had strong procedures in place. The first company ended up having one of its senior executives lead the finance team but leveraged its partner’s finance team, processes, and dashboards.

That brings up the final point in nurturing relationships, which is involving the right personnel. Having senior sponsors for the partnership is critical. They should be there in the internal partnership-design phase and through the negotiations and launch and management of the partnership. Those sponsors should stay involved, both in terms of ensuring there is clarity in the decision making and to course-correct if the situation warrants. You also need a partnership management team within the parent organization, which monitors the cross-company relationship. And then, of course, experienced negotiation support is key because you want to make sure people are going after a “1 plus 1 equals 2.5 or 3 or 4” result, and not a “we win and you lose” kind of mentality.

Sean Brown: Can you elaborate a bit on the tools and processes that you would recommend?

Eileen Kelly Rinaudo: We mentioned the issue of agendas—these are critical. How are you handling meetings? How do you make sure that agenda items are addressed ahead of time? Similarly, you have to make sure you define the KPIs for the performance updates, and even more importantly, define why and how your KPIs reflect the goal. It can be hard for an operating team or a management team to track thousands of KPIs, so you have to define which ones really matter. The last process is the portfolio review, making sure you have time set aside to review the performance of each partnership and how it is furthering the strategy of your parent organization.

Finally, as we think about the tools, obviously the financial models and guidelines are important. Those get a lot of discussion because everybody thinks in terms of hitting financial targets, but it’s also important to think about the tools you will use for that tracking—especially when you have a portfolio of partnerships or multiple similar partnerships.

Sean Brown: Do you find that most partnerships have these tools and processes in place?

Eileen Kelly Rinaudo: In our survey, we asked companies whether they had tools to support their joint ventures and alliances, and we had some surprising results. About half the respondents did not have the financial models and guidelines for financial evaluations. That’s lower than we expected. But it was nothing compared to the surprise of learning that very few companies have the playbooks to support the launch and ongoing management of their partnerships.

Sean Brown: What about accountability? I assume many of those processes and tools are intended to track that. Ruth?

Often, companies say they track metrics, but it turns out they only track their own—they don’t care whether their partner is successful! But partnership is a bit like a marriage: you want to know whether your partner is happy as well because otherwise the relationship won’t last very long. Ruth De Backer

Ruth De Backer: There are two parts that underpin accountability. One is governance and the other is performance metrics. On governance, most people think about who the CEO will be and how the CEO/chairman role will be split, but we emphasize that governance starts with structure. The most successful partnerships have one central point of accountability—the CEO of the joint venture, or the central management team, and an active board. You do want to link back to each partner organization and the board should provide that link, but not in all the decisions.

We also like to see independent board members in joint ventures. The board should not consist solely of executives from the partner organizations. Instead, think about capabilities you may need on the venture’s board and find independent directors who have them. As for roles and responsibilities, the management’s and the board’s roles need to be clear. You don’t want the joint venture to function like a kids’ soccer team where everyone wants to be involved in all the decisions. Certain veto rights are the role of the board, especially on capital allocation and key executive appointment, but otherwise the board should track performance and intervene when metrics are missed. For that, you need regular meetings that track partnership performance. Where are we falling behind? Do we need to evolve this partnership, or expand it because it’s so wildly successful?

And be mindful that these have to be joint metrics. Often, companies say they track metrics, but it turns out they only track their own—they don’t care whether their partner is successful! But it’s a bit like a marriage: you want to know whether your partner is happy as well, because otherwise the relationship won’t last very long.

Sean Brown: Can you share any examples of a partnership governance structure that worked well?

Eileen Kelly Rinaudo: In one situation, two energy companies created a joint venture to reduce cost and risk, inked the deal rather quickly, and ended up with a board of 28 people. That’s very large. All of the board members were from the two parent companies, and they ended up getting mired in these long meetings. The board also felt the need to control virtually all decisions, which made the management team very frustrated, understandably, and made everything very slow. There was confusion about what the operating team was supposed to be doing and how they were being judged. The lack of efficiency during board meetings and in the joint venture’s operations became a critical point.

So, the companies restructured the governance processes. They clarified the roles and responsibilities for the board and operating team—first, in who was in charge of which pieces and, second, giving the board members more of a committee-like approach. They also reduced the board to 11 members. The committee structure made the meetings much more efficient because the full board would deal with committee recommendations that it either ratified or sent back. And, importantly, the operating team became much happier and more effective.

Sean Brown: That brings us to the final of your four levers, which is about making the partnership dynamic. How much change typically happens over the course of a joint venture or alliance?

Ruth De Backer: Most partnerships experience change either in external environments or internal roles. A partnership is a living, breathing thing. In our survey, among alliances that were deemed successful, four out of five had at least one restructuring, and of those that remained unchanged only a third survived. As for what elements of a partnership change, it could be pretty much anything. Some partnerships go into entirely different markets over time. The governance and the board’s composition may change. The decision-making terms may change. You may evolve your KPIs, especially as you change your strategy. Organization of talent—oftentimes partnerships start with legacy employees from partner companies, but as the organization works to adapt to the competitive situation, it brings in outside talent. So, don’t be afraid to evolve the partnership, and make your negotiations reflect this, putting in place mitigation plans and formulas on how things may change.

Sean Brown: So, of these four levers, which do you find is most important, or the one on which people most frequently stumble?

Eileen Kelly Rinaudo: I’d say those are two separate questions. The clear foundation is probably the most critical, because without that you are potentially wasting your time. The one that most people miss is the ability to have this dynamic partnership and setting up the reevaluation and restructuring mechanisms ahead of time. People have a very negative view of restructuring, and it isn’t actually a negative thing.

Sean Brown: Would you advise then that partners discuss the conditions that might require a potential restructuring even at the early partnership stage?

Eileen Kelly Rinaudo: Best practice is absolutely to have clear triggers for reevaluation. Ideally it would be every year for the first five years, and then every two or three years after that, the partners should evaluate whether they are still achieving their goals and what needs to shift. So instead of saying whether we need to shift, it’s what needs to evolve, because it could be something very small and simple or it could be something wide-reaching and complex.

Ruth De Backer: Things often morph over time. The people who negotiated the partnership may have been very clear on the foundation for it, but then the operators, and especially the second-generation operators, may not be fully aware of that foundation. If you put together the dynamic partnership and the metrics, it’s a way to keep everyone aligned over time.

Sean Brown: How do you decide when a joint venture or alliance is the right solution, and when you should look at a merger or an acquisition instead?

Eileen Kelly Rinaudo: That’s complicated. I’d say the order is usually M&A versus a joint venture, and then joint venture versus alliance, and alliance versus contractual agreement. That’s the spectrum you usually see. In terms of M&A versus joint venture, you should ask yourself, are you the right company to buy and operate the asset? Because if the answer is yes, then M&A may be preferable. The control can be quite appealing. However, if you are not the right owner and don’t have the skill sets to operate the asset, you can destroy value, whereas a joint venture may be safer, if a bit more complicated. Also, there are situations where regulatory constraints, geographic concerns, or just the fact that you can’t get access to the right assets might make a joint venture the right path.

Sean Brown is McKinsey’s global director of communications for strategy and corporate finance and is based in the Boston office, and Ruth De Backer is a partner in the New York office, where Eileen Kelly Rinaudo is a senior knowledge expert.

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Related Expertise: Strategic Alliances , International Business

Unleashing the Innovation Power of Alliances

January 13, 2022  By  Gözde Yalazı Özbek ,  Konrad von Szczepanski ,  Nikolaus Lang ,  Huseyin Batu Yigit ,  André Kronimus , and  Benjamin Gansel

More companies are forging strategic alliances as they seek competitive advantage. Here’s what they must do to build and manage them successfully.

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The development and deployment of COVID-19 vaccines in less than a year was a stunning achievement for science. But it also illustrated the power of a particular kind of partnership: the strategic alliance.

Strategic alliances brought together biotech ventures with revolutionary vaccine technologies. They united pharmaceutical giants with the capabilities and infrastructure required to successfully speed the drugs through clinical trials and regulatory approval and into mass production and distribution. And the partnerships, which produced the Pfizer-BioNtech, Moderna, and AstraZeneca-Oxford vaccines, were executed with impressive efficiency.

The speedy development of COVID-19 vaccines illustrates why the number of strategic alliances has grown dramatically in recent years. (See Exhibit 1.) Companies in sectors as diverse as health care, transportation equipment, and discretionary consumer products are scrambling for competitive advantage in an era of swift, disruptive technological change on multiple fronts. And they’re finding that strategic partnerships offer one of the best ways to meet the crushing need to innovate, scale up, and get to market.

  • BCG’s Digital Ecosystem Accelerator Kick-Starts Platform Strategies
  • What Does a Successful Digital Ecosystem Look Like?
  • Four Strategies to Orchestrate a Digital Ecosystem
  • How Chinese Digital Ecosystems Battled COVID-19

business plans strategic alliances

Building and managing a successful collaboration isn’t easy, however. Indeed, a high percentage of strategic alliances fail. That’s a risk many companies can no longer afford. In today’s rapidly transforming business landscape, investing six months to a year in an unproductive effort to jointly develop a cutting-edge mobility, industrial Internet of Things (IOT) , blockchain , or remote health care-delivery solution, for example, can translate into big missed opportunities and a loss of market share.

Why More Companies Are Choosing Alliances

Strategic alliances are medium- to long-term partnerships in which each participant contributes nonmonetary assets to achieve a joint goal. The core advantage of strategic alliances is that they can enable deeper collaboration and higher agility than other forms of partnerships. Alliances are typically preferable to straightforward transactional contracts when both parties share a strategic goal, need more than a short-term collaboration, and aren’t certain of the outcome. They are also much easier to establish and dissolve than joint ventures , mergers, and acquisitions and require less commitment. Alliances enable narrower, more-focused collaborations. For example, the two companies can collaborate on a single product line. And they don’t require a merger with or acquisition of the entire company in order to create synergy. Alliances can also take on more experimental projects that move partners into unknown territory.

In fact, alliances are often a means for two companies to test the waters with each other before committing to a joint venture. The strategic alliance Sony and Panasonic formed in 2013 is a good example. After collaborating successfully, the two companies formed a joint venture that manufactures televisions with organic light-emitting diode screens.

Companies often have several motivations for forming alliances. Of the 200 alliances we studied that were formed in 2019, acquiring know-how, distribution, and scale were the most frequently cited objectives. But the innovation power of alliances is increasingly becoming a key motivation. We counted 634 strategic alliances in 2019 devoted to such hot tech topics as mobility, big data, artificial intelligence, blockchain, and IOT. Three years earlier, only a few dozen a year were formed. (See Exhibit 2.)

business plans strategic alliances

These arrangements can be powerful tools for innovation, which often requires collaboration and the pooling of different capabilities among different partners. Because innovation also requires agility and speed, alliances tend to be preferable to joint ventures or mergers, which take longer to set up. Alliances also allow companies to share risk in investments with uncertain outcomes—and are easier to exit if a program fails.

What It Takes to Build an Alliance That Creates Value

By analyzing a number of alliances and interviewing a range of executives and other experts, we were able to identify ten key insights into building a successful alliance. They cover three broad topics: alliance strategy, partner screening, and mode selection; negotiating and designing the alliance; and relationship management. (See Exhibit 3.)

business plans strategic alliances

Alliance Strategy and Partner Selection. It’s important that companies view strategic alliances as a portfolio game. Because alliances are more agile and require less commitment than other types of collaboration, companies can team up with the best potential partner for each topic that aligns with the company’s strategy. A portfolio also enables companies to better enjoy the benefits of larger scale.

Daimler, for example, is tapping top capabilities across the industry to address the future of mobility by using a portfolio of alliances as well as joint ventures. In electric mobility, it has alliances with Beijing-based BAIC Group, which owns several auto companies, for the China market and with US electric-bus maker Proterra. It’s also partnering with BMW, Bosch, and Torc Robotics to develop autonomous driving systems and with ChargePoint for electric infrastructure solutions.

Pfizer draws on a broad ecosystem of partners along the pharmaceutical value chain and product life cycle, spanning research, drug development, manufacturing, commercialization, and distribution. This is how Pfizer came to partner with BioNtech and other companies to create a COVID-19 vaccine in record time. (See “How Strategic Alliances Helped Pfizer Achieve Its Moonshot Challenge.”)

How Strategic Alliances Helped Pfizer Achieve Its Moonshot Challenge

The most critical factor in the success of an alliance is to choose the right set of partners . According to a study by Swiss public research school University of St. Gallen, roughly three-quarters of failed alliances can be attributed to the wrong choice of partners and lack of commitment.

One key insight from our research is that it’s critical to figure out which kinds of collaborators can help achieve the alliance’s strategic objective. If the goal is to enter new markets or expand scale, partners within the same industry are often the best fit. A good example is the Renault, Nissan, and Mitsubishi alliance , which collaborates on purchasing, engineering, and manufacturing while maintaining each OEM’s brand identity. If the objective is to acquire new capabilities and innovate, however, companies should be willing to look for partners in different parts of their value chain—and even beyond their own industry. Among Google’s many innovation-based alliances, for example, is its relationship with upmarket eyewear manufacturer Luxottica, which it relies on for developing wearable devices. The alliances between Tesla and Panasonic to develop and produce lithium-ion batteries for electric cars and between Uber and the Spotify for mobility solutions illustrate how participants can leverage their partners’ different roles in the value chain to innovate.

It’s also important that the collaboration partner be the right fit throughout the life cycle of the alliance. Does the partner have sufficient capabilities and experience with its alliances, for example, and a reputation for providing good reciprocal give and take? Companies should also do their research to ensure the potential partner is financially sound and presents no legal or reputation risks.

In addition, companies need to know where to ally and where to acquire. In some cases, an outright acquisition is the best route.

Negotiating and Designing the Alliance. Companies must do their homework before contacting a potential partner. They need to prepare well for negotiations and design. They should also develop a game plan for each phase of the negotiation and design process.

It is critical to build trust with partners from the outset . Remember that, unlike with an acquisition, the key objective of an alliance isn’t to get the transaction done—it’s to capture the highest value from the relationship. Approach the negotiations constructively, and don’t try to conceal agendas. Both sides, even if they have well-entrenched corporate cultures, should find common ground and commit to a shared set of values for the partnership. Companies should approach the relationship with an “abundance” mindset—viewing it as a pie that can grow larger as each partner expands on the alliance’s achievements, not as a fixed entity from which maximum gain is to be extracted.

Set milestones, and plan on how to exit the alliance. Expectations for the alliance over a range of time horizons—such as quick wins, medium-term goals, and ultimate goals—and a detailed roadmap for the partnership’s life cycle should be established early in the negotiating process. It’s important to determine how the value created through the alliance will be shared among the partners and to define conditions, processes, and a time frame for exiting the arrangement. When aluminum manufacturer Alcoa and mining company Rio Tinto formed a strategic alliance to develop a low-emission aluminum production process, for example, they agreed on a one-year target for the collaboration to either evolve into a joint venture or dissolve. The alliance fulfilled its objectives, and the two companies decided to form a joint venture, Montreal-based Elysis.

Furthermore, companies should develop a sound governance system. Diligently designing and negotiating a governance structure will help ensure that the partnership is sustainable and can create value. The governance structure should carefully distribute power in the steering body and specify each partner’s role in operations. Although many archetypes exist for alliance governance structures, only a design tailored for the desired strategic objective and partners’ unique capabilities can unleash the full potential of the alliance.

Relationship Management. Understand that an alliance is an ongoing relationship that must be nurtured. Productive partnerships develop over time, and the value they create depends on how well they are executed. Managing the “soft” aspects of the relationship is particularly important because an alliance, by its nature, isn’t as binding as a joint venture or merger. Therefore, it’s vital that all partners remain aligned on scope and get along well. Both sides must invest effort to nurture a successful relationship.

Conflicts will inevitably arise. Rather than shy away from differences, partners should learn to leverage them. Hewlett-Packard and Microsoft, for example, found that their complementary strengths were valuable to their alliance but also made collaboration challenging. Executives from both companies systematically documented differences and discussed them in working sessions. They learned from each other, and the collaboration benefited.

Establish an alliance office to manage the collaboration on an ongoing basis and to ensure that it remains on track to meet targets. Regular meetings among personnel at all levels of the partners’ organizations will strengthen commitment.

In today’s environment, alliances have become critical to remaining at the vanguard and securing competitive advantage.

Finally, keep the portfolio of alliances agile. Leaders should continuously assess their mix of alliances to ensure it puts them in the best position to compete as technologies, business models, and market demands change. They should remain flexible to form new alliances to meet new needs and exit those that no longer serve their purpose.

Companies have been entering into strategic alliances—with mixed results—for decades. In today’s environment of disruptive change on multiple fronts, however, alliances have become critical to remaining at the vanguard and securing competitive advantage. And the consequences of success or failure have never been greater. A sound strategic approach, a well-conceived design, and careful attention to relationship management will help unleash a strategic alliance’s powerful innovation potential.

The authors wish to thank Oskar Wilczynski for his contributions to this article.

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Strategic Alliances

Collaborations between two or more organizations or business divisions

Prachee Rajvanshi

Before deciding to pursue his  MBA , Andy previously spent two years at Credit Suisse in Investment Banking, primarily working on  M&A  and  IPO  transactions. Prior to joining Credit Suisse, Andy was a Business Analyst Intern for  Capital One  and worked as an associate for Cambridge Realty Capital Companies.

Andy graduated from University of Chicago with a Bachelor of Arts in Economics and Statistics and is currently an  MBA  candidate at The University of Chicago Booth School of Business with a concentration in Analytical Finance.

What Are Strategic Alliances?

Understanding strategic alliances, why are strategic alliances important.

  • Types Of Strategic Alliances
  • Advantages Of Strategic Alliances
  • Disadvantages Of Strategic Alliances
  • Examples Of Strategic Alliance

Strategic Alliance for Competitive Advantage

Strategic alliances faqs.

Strategic alliances are collaborations between two or more organizations or business divisions that collaborate to accomplish mutually beneficial strategic objectives.

business plans strategic alliances

The strategic partnerships approach has immense potential. It can significantly improve an organization's operations and competitiveness if done appropriately. Recent research conducted by Anderson Consulting indicates that 82% of executives feel that alliances will be a key growth driver in the future.

Companies are forging partnerships to obtain technology, gain access to certain markets, decrease financial risk, reduce political risk, and attain or ensure competitive advantage.

These are gaining prominence within the global economy . In the past decade, the number of strategic partnerships has nearly doubled, and this trend is anticipated to continue.

Over the previous two years, more than 20,000 business unions have been created worldwide, and the number of groups in the United States has increased by 25% annually.

business plans strategic alliances

Not all alliances, meanwhile, are regarded as "strategic." There are five accepted factors to use when determining whether a potential relationship is strategic for your business. If even one of the following requirements is met, a strategic alliance may be taken into consideration:

  • In order to achieve the primary business objective, cooperation is required. In other words, whether or not the partnership is active will significantly affect whether the objective is achieved.
  • Collaboration is necessary to create or maintain any aspect of a business that gives it a competitive edge.
  • The alliance strengthens the ability to counter threats from competitors.
  • The collaboration facilitates, supports, or upholds strategic decision-making.
  • The partnership significantly reduces risk.

Key Takeaways

  • Strategic alliances are collaborations between organizations or business divisions to achieve mutually beneficial strategic objectives.
  • Research indicates that 82% of executives believe that alliances will be a key growth driver in the future.
  • Companies form strategic alliances to access technology, markets, reduce risk, and gain a competitive advantage.
  • There are five factors to determine whether a potential alliance is strategic for a business, including cooperation for primary business objectives and countering threats from competitors.
  • Strategic alliances involve combining resources to pursue common goals while remaining separate entities. They can lead to market expansion, new technology access, and increased brand recognition. 

It is a voluntary, formal agreement between two or more parties to combine their resources to pursue a common set of goals that satisfy vital needs while remaining separate entities. 

business plans strategic alliances

In this formation, products, services, procedures, and processes are exchanged, shared, or co-developed.

The overarching objective is to sustain long-term competitive advantage in a rapidly changing world, for instance, by reducing costs through economies of scale .

It can also be achieved by boosting research and development efforts, increasing access to new technology, entering new markets, reviving sluggish or stagnant markets, reducing cycle times, enhancing quality, or impeding competitors.

Strategic Partnership Process

The process of forming a strategic partnership often entails the following key steps:

business plans strategic alliances

Strategy development:  At this stage, the potential for a strategic alliance is assessed in light of the goals, significant problems, and resource allocation plans for the production, technology, and workforce. The alliance's and the company's goals must be compatible.

Partner evaluation:  In this phase, prospective partners for the strategic alliance are examined in order to choose a suitable business with which to collaborate. 

A business must be aware of the alliance partner's advantages, disadvantages, and reasons for joining.  Additionally, appropriate partner selection criteria are identified, and plans are created to accommodate the management style of the partner.

Contract negotiations:  These begin once the ideal partner for an alliance has been chosen. First, everyone engaged talks about whether their aims and objectives are doable and reasonable. 

The roles of each member in the alliance, including contributions and rewards, penalties, and protecting corporations' interests, are determined by special negotiation teams.

Alliances provide partners with temporary and more flexible access to one another's resources than mergers and acquisitions . 

business plans strategic alliances

Two interrelated but distinct reasons for a company to contemplate forming a group are to acquire the resources of others and to keep and grow its resources by combining them with those of others. 

It is crucial for market expansion, access to technology, business diversification, restructuring, resource concentration, product, standard development, market complementarities, etc., and future business expansion.

Access to the distinctive expertise of the business you are collaborating with is another crucial advantage of a strategic partnership. Technical know-how and marketing strategy are two examples of information that companies in an alliance share.

These days, effectively managing an alliance means not only dealing with internal difficulties but also managing the alliance's daily struggle with rivals and risk management, which has spread to every department within the organization. 

business plans strategic alliances

Equity-based alliances have expanded considerably in the last few years, while acquisitions have dropped during the last decade. 

For instance, Bookshop X and record label Y have entered into a strategic alliance. By obtaining access to one another's markets, the two alliance partners can each increase the scope of the products they offer.

Types of Strategic Alliances

There are two types of alliance formations: equity and non-equity .

Equity Alliances

Generally, equity associations take the form of equity ventures, which are independently incorporated entities jointly owned by the partners. 

business plans strategic alliances

Equity ventures are formed to integrate the joint efforts of partners substantially and are the most effective collaboration form for the transfer of implicit knowledge between partners because partners are exposed to each other to a major degree. 

Non-Equity Alliances

Non-equity alliances are agreements between companies to pool their resources without establishing a new business or distributing equity.

business plans strategic alliances

In comparison to equity-based partnerships, non-equity partnerships are usually looser and less formal. These make up the majority of corporate partnerships.

One can separate non-equity coalitions into unilateral contract-based collaborations and bilateral contract-based coalitions. 

  • Such unilateral partnerships are founded on contracts that are typically exhaustive and explicit, and partners carry out their commitments alone, with little coordination or collaboration. 
  • Bilateral contracts are typically incomplete and more ambiguous than unilateral contracts, and the parties are normally required to allow their cooperative relationship to develop through experience.

Advantages of strategic alliances

There are numerous advantages and positive aspects of the same, which are mentioned in detail below.

business plans strategic alliances

Additional Resources

Companies can acquire supplementary resources, such as goods, information, or other assets, through these alliances without having an impact on their core activities.

Every business has a specialty, and the majority want to concentrate on those areas. If you can bring the best of each partner's strengths together to create something that is greater than the sum of its parts, business partnerships can achieve exponentially greater heights.

You may frequently adapt and apply the lessons you learn from the experience of one organization to your own.

Exploring New Markets

One of the most frequently cited grounds for these alliances is opening up access to a new market. When a new product, activity, or marketing campaign is being introduced, this is very typical.

Exciting and exclusive offerings made in collaboration with a partner can help both businesses grow their markets.

Increased Clients

It is typical for businesses to receive public recognition from their alliance partner. In reality, businesses frequently select business partners based on their position in a different market or their regional clout.

Due to the enhanced visibility brought about by a strategic partnership, both firms get access to a wider audience of customers.

Dynamic Expansion

A strategic partnership provides the benefit of having twice the workforce, skill set, expertise, and other variables. Your aims may be instantaneously accomplished much more swiftly and successfully.

However, because the costs and risks are also shared, a strategic partnership's informal nature makes it a good way to test a theory in less time and at a lower cost. 

A Stronger Understanding Of The Brand

Strategic partnerships can help you grow into new markets and clientele while increasing brand recognition. Working with a business that has a solid reputation will enhance your own by association.

Disadvantages of strategic alliances

There are several potential risks connected with forming an alliance that should be carefully evaluated before choosing this course of action, as explained in detail below:

business plans strategic alliances

Looking For A Compatible Partner Is Time-Consuming

Most of the work involved in creating an alliance is spent finding the right partner. Spend some time locating a spouse who is committed to maximizing the partnership and who shares your aims and values.

Do they have the same time and resources to contribute? Do they enjoy a good reputation? It could be difficult to work as a cohesive team in a strategic alliance if you and your partner don't always share the same opinions.

The Difference In Management Styles

The only way a strategic partnership can be successful is if both parties are willing to cede some authority. You're committing to sharing responsibilities and resources, and different businesses run in different ways. 

When partners originate from different cultures or countries, this could be more noticeable.

At the outset, be clear about your expectations and include any novel suggestions. After that, stay in constant contact to monitor how the collaboration is progressing.

The ultimate goal of a strategic partnership is to achieve the best outcomes for both sides, not just for you.

Lack Of Trust

In a strategic partnership, both parties must exchange a specific amount of information and resources. To do this, a base of mutual faith and trust must be built.

There are situations when a business willfully withholds or falsifies knowledge that could have a substantial influence on the collaboration. Or a partner can join the partnership with great zeal but find it difficult to maintain it over time.

The other partner could feel duped in these circumstances and stop appreciating the value of the partnership.

More Accountability

Strategic alliances may increase the risk for all parties involved. A company's partner could also suffer if it mismanages its resources, experiences financial problems, or breaches its agreements.

Even if a business runs into problems beyond the purview of the strategic alliance, if those problems have any bearing whatsoever on the partnership, the partner may also be held jointly accountable.

Examples of Strategic Alliance

Some of the examples of strategic alliances are:

business plans strategic alliances

Uber And Spotify

The agreement between Uber and Spotify enables Uber riders to stream their Spotify playlists during rides simply. 

This personalizes the Uber experience and encourages Uber riders to subscribe to Spotify Premium (for more control of their tunes both inside and outside Uber).       

Apple Pay And Mastercard

At the launch of Apple Pay, only MasterCard customers could connect their card to an iPhone and make purchases without carrying their real card.

Target And Starbucks

There are Starbucks cafes at tens of thousands of Target shops to help fuel shoppers' trips to the retailer. And Target customers are aware that if they become hungry or thirsty while shopping, Starbucks is conveniently located within the store.

International Multi-Company Strategic Alliance

Apple, Sony, Motorola, Philips, AT&T, and Matsushita formed a strategic partnership to form General Magic Corporation to develop Tele-script communications software.

Red Bull And GoPro

Although the energy drink and camera businesses may have nothing in common, Red Bull and GoPro have a strategic partnership that is difficult to match. Red Bull and GoPro joined forces strategically in 2016.

The Red Bull and GoPro partnership, which saw Red Bull get equity in GoPro (equity form of alliance) and GoPro emerge as Red Bull's lone partner in delivering Point-of-view imaging technology for documenting Red Bull's media output and events, likewise make use of the equity type of alliance.

Both companies are the epitome of spontaneity and adventure for travelers and adventurers who carry cameras to capture the experiences as they happen.

Later, the two companies came together to develop a long-term strategic partnership for Red Bull's extreme sports competitions like the Red Bull Rampage. At these competitions, only GoPro cameras are used to record athlete point-of-view images.

The reason the Red Bull/GoPro strategic relationship is so successful is that both brands cater to audiences who seek out the thrill. Both brands now have a stronger link with high-end thrills as a result of this strategic cooperation.

One distinct advantage of strategic alliances is the possibility of expedited time-to-market. 

business plans strategic alliances

This is consistent with the concept of minimum viable transformation (MVT) , which strives to lower initial investment and time-to-market through incremental product and service development that can contribute to the creation of competitive advantage.

Based on small, rapid implementations coupled with feedback and iterative learning cycles, the MVT methodology enables businesses to learn and change more rapidly.

By applying the MVT technique to a company's growth strategy, corporate development executives can utilize an agile methodology to test desired capabilities and accelerate the time to value capture. 

Increasing innovation velocity, soaring valuations, and regulatory uncertainty assist to position coalitions as valuable alternatives to mergers and acquisitions (M&A).

A good cooperation management skill is characterized by the ability to articulate a crystal-clear vision, specify growth avenues, and then establish a relationship through rigorous diligence and effective negotiation. 

Below are the phases of partnership establishment and implementation:          

business plans strategic alliances

  • This necessitates close alignment between corporate strategy , business development, and functional leadership to evaluate desired capabilities and strategic decision considerations.
  • Deal development : Focuses on moving the prospective partnership from an initial examination of strategy compatibility and partner suitability to a full evaluation of the partner.
  • This greater mobility can be a potent competitive weapon in the face of volatile markets and unforeseen disruptions.

In conclusion, strategic partnerships can be a successful means of swiftly disseminating breakthrough technology, entering a new market, bypassing regulatory constraints, and learning from leading enterprises in a specific industry. 

business plans strategic alliances

However, these are not simple to form, cultivate, and sustain.

It is advised that businesses view collaborations as an opportunity to acquire certain benefits, such as extraordinary financial and human resources, increase in market power , an increase in competitive advantage, and the potential to expand the market.

Frequently, the efforts fail due to management's tactical blunders. By utilizing a well-managed strategic partnership agreement, businesses can profit in industries that would be unprofitable otherwise.

To form a successful group, considerable time and effort must be expended by all parties involved. Firms must enter into this with a precise plan, including expectations, requirements, and anticipated rewards.

A positive relationship with the partner, mutual trust, a minimum level of commitment between the parties, and clear objectives and strategy is demonstrated to be the most significant aspects influencing alliance success.

business plans strategic alliances

Strategic partnerships benefit customers by providing a convenient one-stop shop with a broad range of services. 

Customers can get specialized knowledge and talents for a small portion of the market price . Additionally, they gain from referrals and cross-promotion from alliance partners.

Alliances provide the additional benefit of lowering capital requirements and hence lowering risk, in addition to enhancing strategic optionality and speeding up the time to value capture.

business plans strategic alliances

The two major risk categories in strategic alliances are relationship risk and performance risk.

Relational risk is the type of risk that has to do with the laws that govern how organizations conduct and communicate with one another. Trust is the cornerstone of strategic collaborations. Businesses can develop control to measure and reduce relational risks by building trust.

Performance risk refers to the possibility of businesses failing to achieve their goals even while the alliance as a whole is fully operational. Synergy is the secret to reducing performance risk. Synergy may allow partners to divide performance risk among themselves.

Goal-setting, structural requirements, and cultural integration are the most crucial control mechanisms. It is well acknowledged that managing coalition culture is a difficult endeavor, as it requires merging and harmonizing two distinct organizational cultures.

The formation phase entails the creation of a collaboration strategy, the selection of partners, the negotiation of contractual terms, and the establishment of the group.

A joint venture is an organization created by two or more different legal entities to achieve particular business goals. On the other hand, an alliance is a partnership between two or more businesses that serves a specific function.

The average lifespan of a joint venture is for five to seven years; however, the period of a partnership can be either long or short-term, depending on the circumstances.

In a joint venture, the parties' exposure to risk is limited. However, the trust connection in a collaboration business increases the likelihood of risk.

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Strengthening Business Relationships: Creating Strategic Alliances and Building Trust, Online Course

All Start Dates

11:00 AM – 2:30 PM ET

3 consecutive Mondays

Registration Deadline

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3 consecutive Tuesdays

August 19, 2024

Foster innovation and creativity by learning new ways to stimulate effective relationships and build powerful alliances.

Overview, strengthening business relationships training program.

Challenges of the digital workplace are not limited to strategy and technology changes. They also include new ways of working with your peers and connecting with your customers. As a result, you might notice that your new agile processes are exposing flaws in your relationships.

In order for you to drive, design, and deliver constant innovation, you have to reframe and customize your approach, connect with your peers across multiple departments, and foster creativity and innovation in complex environments. Most of the time, you will find yourself doing all of this while you work with a variety of challenging people on highly visible programs. Effective leadership requires powerful alliances, yet many of the behaviors that break trust in the workplace are small, subtle, and unintentional.

This program will help you understand how to work with others to create more effective interactions. By changing the way you demonstrate your level of contribution and commitment, and, ultimately, shift the perception others have of you, you will be able to lead with a new level of influence and confidence. Through the use of proven frameworks, tools, and action plans, you will discover unique ways of working that will help you capitalize on organizational values, maximize team networks, and use disagreement to create competitive advantage.

Who Should Register for the Strengthening Business Relationships Training Program?

All leaders with at least 5-7 years of experience can gain valuable takeaways from this program.

This program is suitable for managers, project and sales leaders, and executives from mid-size and large organizations, particularly those with innovation, design, and operation responsibilities.

It will be particularly helpful for leaders seeking to navigate complex work relationships as they work to align organizational objectives.

All participants will earn a Certificate of Participation from Harvard Division of Continuing Education.

Benefits of the Strengthening Business Relationships Training Program

Strengthening business relationships is all about building success together. Developing a trusted network of peers, innovation partners, and fellow businesses can lead to enriching experiences and rewarding outcomes.

During this interactive online program, you will master the skills you need to develop strong alliances. You will learn how to:

  • Create systematically effective interactions with stakeholders
  • Increase your level of contribution and presence when working with others
  • Build highly interactive teams that take advantage of hidden talent
  • Turn difficult discussions into opportunities for innovation
  • Build a personal network of alliances and innovation partnerships

The curriculum in this interactive online program involves guided group activities and discussions to allow participants to delve into topics such as:

  • Why relationships matter and how your behavior may impact them
  • How perception impacts the way you interact with others
  • Using conflict and friction to spark creativity and growth
  • Building collective genius to develop talent equity
  • Showing up as a trusted leader and advisor
  • Leveraging your strengths strategically

During this interactive course, you will hone in on new techniques to encourage productive friction in your organizations, methodologies to enhance your leadership presence, and insights on the true impact of perception on your leadership.

The cost for this online program is $2,700.

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Pamela rucker, why is it essential for leaders to establish strategic business relationships.

Today’s leaders must motivate and inspire their teams while navigating the challenges of a fast-paced, increasingly digital—and virtual—business environment. Driving innovation and stimulating change to stay competitive requires establishing strong relationships, building trust, and creating strategic alliances. Without the leadership skills to cultivate these critical relationships and alliances, leaders may find themselves unable to leverage their teams and organizations for short- and long-term success.

How will this business relationship training program help me advance in my career?

The curriculum in this business relationship training program will offer leaders new techniques and methodologies to help them make the most of their teams, work with challenging people on highly visible projects, and manage perceptions in order to lead with confidence. Building strategic relationships and improving your ability to create trust will help set you apart from your peers and enable you to advance your career.

What skills or experience are needed before enrolling in this business relationship training?

This program is ideal for anyone who leads a team, develops relationships with clients or customers, or relies on others for innovation, productivity, and success. While there are no prerequisites or required skills for this program, participants are encouraged to have a background of at least 5-7 years of leadership or management experience.

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Strategic Alliance: Meaning, Types & Examples

business plans strategic alliances

A strategic alliance is an agreement between two or more parties to pursue a set of agreed-upon objectives while remaining independent organizations. This partnership can occur between businesses, non-profit organizations, or government entities. The alliances often advance common goals, secure common interests, or leverage resources and capabilities.

Strategic alliances can offer a range of benefits for the companies involved. Here are some of the key advantages:

  • Access to New Markets : Strategic alliances can provide an effective way to enter new geographical markets, especially for international expansion. Local partners can help navigate unfamiliar regulations, cultural nuances, and customer preferences.
  • Resource and Knowledge Sharing : Companies can share resources, expertise, and knowledge. This can include technical know-how, intellectual property, supply chain and distribution networks, or market and customer insights.
  • Risk Sharing : By partnering with another company, businesses can share and manage risks, particularly when venturing into new markets or developing new products.
  • Cost Savings and Economies of Scale : Joint activities can lead to cost savings and increased efficiency. Companies can pool resources to achieve economies of scale in production, marketing, and research and development.
  • Increased Competitive Advantage : Alliances can strengthen a company’s position against competitors, especially in a crowded market.
  • Faster Innovation : Collaborating with other companies can lead to more rapid innovation and shortened development times for new products and services. Different perspectives and resources can spark creative solutions.
  • Learning Opportunities : Alliances can allow companies to learn from each other, developing new skills and capabilities.

However, while the potential benefits are significant, strategic alliances can also be challenging to manage. They require clear communication, cultural sensitivity, careful planning, and partner trust. Misalignment of objectives, operational differences, and power imbalances can pose risks and lead to the alliance’s failure if not managed well.

Types of strategic alliances with examples:

Joint venture.

A joint venture is a type of strategic alliance where two or more businesses agree to pool their resources and expertise to achieve a particular goal. The businesses usually create a separate entity, distinct from the parent organizations, for this purpose.

The specifics of a joint venture can vary widely based on the agreement between the involved companies. However, here are some general characteristics:

  • Shared Ownership : The companies involved in the joint venture share ownership of the newly created entity. The specific percentages can vary— it may be a 50/50 split or one company might own a larger portion than the others.
  • Shared Risks and Rewards : The companies also share in the venture’s risks and potential rewards. This includes profits, losses, and management responsibilities.
  • Limited Scope and Duration : Joint ventures are typically created for a specific project or business objective and have a defined lifespan after which they may be dissolved.
  • Shared Control : Each company involved in a joint venture has a say in managing the venture. The level of control is often proportionate to the company’s investment or ownership stake.

Joint ventures can be beneficial for several reasons:

  • They allow companies to share resources and expertise.
  • They can provide a way to enter new markets, particularly overseas.
  • They can allow companies to share the risks and costs of a new business venture.
  • They can be a way to gain new technological knowledge or insights.

However, joint ventures also come with risks. These can include conflicts between the parent companies over strategy or management, cultural clashes (especially in international joint ventures), uneven levels of investment or commitment, and the potential for one company to gain more from the venture than the others. Due to these complexities, joint ventures often require careful negotiation and management.

Examples of Joint Venture

  • Sony Ericsson : In 2001, Sony and Ericsson entered a joint venture to make mobile phones. The venture ended in 2012 when Sony bought out Ericsson’s share.
  • Nummi (New United Motor Manufacturing Inc.) : This joint venture between General Motors and Toyota operated from 1984 until its closure in 2010. The goal was for General Motors to learn about lean manufacturing from Toyota and for Toyota to learn about doing business in America from GM.

Equity Alliance

An equity alliance is a type of strategic alliance in which two or more companies own a percentage of equity in each other or an entity they have formed together. This means that each company involved has a vested financial interest in the other, incentivizing each to see the other succeed.

Here are some key characteristics of an equity alliance:

  • Shared Ownership : In an equity alliance, each company owns a share of the other company or a jointly created entity. The ownership percentages can vary depending on the agreement among the companies.
  • Shared Risks and Rewards : Like in a joint venture, companies in an equity alliance share the risks and rewards. However, because an equity alliance involves a direct financial investment, the risk may be higher if one company performs poorly.
  • Potential Influence on Management : The level of influence that each company can exercise on managing the other largely depends on the size of the equity share. If a company holds a large percentage of equity in another company, it may gain a seat on the board or have a significant influence on strategic decisions.
  • Long-term Commitment : Equity alliances usually represent a longer-term commitment between the companies involved, compared to non-equity alliances. The sale of equity is a significant transaction; unwinding it can be complex and potentially costly.

Equity alliances can offer several benefits:

  • They allow companies to access new markets, technologies, and skills.
  • They provide a way to share risks and costs associated with a new business venture or market entry.
  • They help build trust and commitment as each company has a vested financial interest in the other’s success.

However, equity alliances also come with challenges. These can include difficulty aligning objectives and strategies, potential conflicts of interest, and the risk of revealing sensitive information to a potential competitor. Also, selling and buying equity can be complex, and the exit from such an alliance can be more challenging than non-equity alliances.

Example of Equity Alliance

  • Daimler and Renault-Nissan : In 2010, Daimler AG and Renault-Nissan entered an equity exchange deal. Daimler acquired a 3.1% stake in Renault and a 3.1% stake in Nissan, while Renault and Nissan each got a 1.55% stake in Daimler.

Non-Equity Alliance

A non-equity alliance is a type of strategic alliance in which companies collaborate without exchanging equity stakes. This typically involves a contractual agreement where the companies agree to cooperate in certain ways to achieve shared objectives.

Here are some key characteristics of a non-equity alliance:

  • Contractual Agreement : Non-equity alliances usually involve some form of contract or agreement that outlines each partner’s responsibilities, rights, and obligations.
  • Shared Resources and Capabilities : Although there’s no equity exchange, companies often share resources and capabilities, including technology, knowledge, supply chain resources, marketing channels, etc.
  • Maintained Independence : Each company maintains its independence. While they are working together towards common goals, they remain separate entities.
  • Flexible and Easily Dissolved : Non-equity alliances are typically easier and quicker to form and dissolve than equity alliances and joint ventures because they don’t involve the legal complexities of sharing ownership.

The benefits of non-equity alliances can include the following:

  • Access to new markets, technologies, and expertise without merging with or acquiring another company.
  • Sharing of resources and capabilities.
  • Opportunity to work towards shared goals with reduced risk compared to equity alliances or joint ventures.

However, non-equity alliances also have their challenges:

  • Ensuring alignment of objectives and strategies can be difficult, especially without the binding tie of shared ownership.
  • Trust and cooperation are crucial, which can be challenging to maintain without a financial stake in each other’s success.
  • There’s a risk of unequal benefits, where one company gains more from the alliance than the other.
  • Potential for conflict and misunderstandings due to cultural, operational, or strategic differences.

Successful management of a non-equity alliance requires clear communication, careful planning, and a well-structured contractual agreement that outlines the roles and responsibilities of each party.

Examples of Non-Equity Alliance

  • Spotify and Starbucks : In 2015, Starbucks announced a multi-year product collaboration with Spotify to establish a next-generation music ecosystem. The alliance allows Starbucks employees to influence the in-store playlist and provides Starbucks customers unique access to Spotify’s streaming platform.
  • Google and NASA : In 2005, Google and NASA announced a partnership to collaborate on various technical projects. The alliance does not involve equity exchange but aims to bring together the strengths of both organizations to push the boundaries of how information can be used for all benefits.

What is a strategic alliance in international business?

In international business, a strategic alliance is an agreement between two or more businesses from different countries who decide to cooperate for mutual benefit. These alliances can take various forms, including joint ventures, equity alliances, and non-equity alliances.

The main goal of an international strategic alliance is often to gain a competitive advantage through access to a partner’s resources, including markets, technologies, capital, and people. They are seen as a way to respond to rapidly globalizing markets and are used to enhance the growth and market presence of the companies involved.

Key characteristics of strategic alliances in international business include:

  • Access to Local Markets : Companies often form strategic alliances with local firms to gain access to foreign markets. The local firm can help navigate local regulations, cultural nuances, and customer preferences.
  • Sharing Resources and Capabilities : Companies can also form alliances to share resources and capabilities. This might involve sharing technology, knowledge, supply chain resources, etc.
  • Risk Sharing : Entering a new market can be risky. Forming an alliance with a local firm can help share and mitigate this risk.
  • Learning New Skills and Techniques : Companies can use strategic alliances to learn new skills and techniques from their partners. This could include anything from manufacturing techniques to management practices.

However, international strategic alliances can also be more complex and challenging than domestic alliances. Challenges can include dealing with different legal systems and regulations, language barriers, cultural differences, etc. Successful international strategic alliances require careful planning, clear communication, cultural sensitivity, and robust legal contracts.

Example of a strategic alliance in international business

Starbucks and Tata Global Beverages (India) : In 2012, Starbucks formed a 50/50 joint venture with Tata Global Beverages, a division of India’s Tata Group. This strategic alliance allowed Starbucks to enter the Indian market, with Tata providing local knowledge and expertise. The joint venture, called Tata Starbucks Limited, operates Starbucks cafes in India, with Starbucks bringing its coffeehouse expertise and Tata contributing its strong understanding of the Indian consumer and the business landscape.

Renault-Nissan and Daimler : In 2010, the Renault-Nissan Alliance (a French-Japanese partnership) and Daimler AG of Germany announced a strategic alliance. The companies exchanged stakes and agreed to collaborate on shared vehicle platforms and engines. This alliance allowed them to share technology and resources, reduce costs, and improve their competitive position in the global auto industry.

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The Ten Stages of Successful Strategic Alliances

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The number of companies establishing strategic partnerships is growing all the time. According to Greve, Rowley and Shipilov , companies around the world formed nearly 42,000 alliances between 2002 and 2011. Steve Steinhilber cites a report claiming that more than 2,000 strategic alliances are launched each year and the number is growing at 15 percent per annum.

This is not surprising because partnerships can have significant cost and speed advantages over the alternatives: to buy or build. When they work, they bring significant value, with lower costs and shared risk. For example, partnerships help companies to:

  • Increase the speed of innovation and new product/service development
  • Accelerate growth (for example, by opening new markets or creating opportunities to sell to new customer segments)
  • Rapidly respond to changing market needs
  • Access new capabilities or talent

Despite their popularity, 60 to 70 percent of alliances fail, according to Jonathan Hughes and Jeff Weiss . Many partnerships don’t completely fail but struggle along the way, never realising the expected benefits. Very few companies build alliances consistently well and achieve their business plans. The discipline of alliance management has been well studied and there are plenty of “how-to” guides available. My favourite work on the subject is Rosabeth Moss Kanter’s sometimes tongue-in-cheek but mainly poignant analogy between strategic alliances and marriages . There are various humorous yet realistic parallels.

So, looking across the alliance lifecycle from courting to successful married life, here are my top tips for achieving corporate marital bliss.

Courtship and tying the knot

1. Be selective and faithful (make sure you find “the one”) . Perhaps surprisingly, some companies become infatuated with a potential partner and try to strike a deal without a sound business rationale, no matter the cost. To avoid this trap, it’s critical that companies develop partner selection criteria tied to the business problem or opportunity identified . Beware that several potential partners will meet some of your criteria. Don’t settle for second best. Try to find that partner that satisfies all of the most pertinent criteria. Once you’ve found “the one”, don’t be tempted to add more partners to multiply your success; this strategy rarely works. It’s better to be faithful and concentrate on making fewer, stronger alliances.   

2. Find a win-win (the whole should be greater than the sum of the parts) . Kanter refers to the importance of an interdependence where neither party can accomplish alone what both can do together. Steelcase, a leading global office furniture company, recently formed a partnership with Bolia.com, a top Scandinavian furniture designer. Steelcase did not have Scandinavian design and Bolia did not have business-to-business distribution. This combination created a growth opportunity for both organisations that neither could have achieved alone.

3. Ensure leadership alignment (make sure that the chemistry is right) . While the selection criteria are quite rationale in nature, the more emotional sense of attraction is just as important, especially between senior counterparts. If the chemistry is strong, the partnership is more likely to endure difficult times. When there is little chemistry, there is little resilience and a much greater risk of falling, even at the slightest hurdle.

4. Create a simple contract (exchange vows but keep it simple) . The conventional wisdom has been to put in place a detailed contract covering as many eventualities as possible. As the pace of business accelerates, developing such detailed contracts makes less sense. They take too much time to devise and do not inspire confidence between the partners. The best contracts are shorter, focusing on the critical aspects of the partnership and allowing wriggle room for the collaboration to evolve organically or for the partners to part ways.

The honeymoon phase

5. Invest alongside one another (demonstrate your devotion). Early investments show each partner’s commitment. Think of it as a young couple sharing the burden of the deposit to buy their new home. These investments should be in proportion to the return that each partner expects to gain. Investments won’t always be in cash. One or both sides might invest by temporarily seconding resources with specialised know-how to get the partnership off the ground.

6. Push connections deeper into the organisations (get to know the extended family). After the formalities of getting hitched have taken place at the highest levels, it’s critical to forge connections deeper in the organisations. Partnerships can be romantic but if the extended families don’t get along, watch out!

7. Balance leading and lagging indicators (don’t rush to judgment). At the early stages of any partnership, it’s important to be clear on the partnership’s objectives and business plan. But these hard targets are typically lagging indicators whose evaluation takes time. In the honeymoon phase, it’s more important to focus on the leading indicators of a successful partnership. For example, do both sides understand the business plan? Is information flowing easily between the two organisations? Is there a clear process for escalating issues? Hughes and Weiss talk about the need to develop goals pegged to alliance progress rather than to hard financial targets only.

Real life sets in

8. Deliver on your end of the bargain (live up to expectations). Ensure that you bring whatever you said you’d bring to the table. Kanter refers to “individual excellence” and “building on your strengths”. Steelcase partnered with Officebricks, a manufacturer of acoustic cabins for open plan spaces. One of the reasons that Steelcase chose Officebricks was its industry-leading acoustic performance. Officebricks has continued to build on this strength and plans to launch a new product for Steelcase with even better acoustic absorption ratings.

9. Blend formal governance with informal collaboration (keep communication lines open). While long-distance marriages are not that common, long-distance corporate alliances are. This distance makes formal governance structures like alliance steering committees and operational management teams essential. But fluid and regular informal communication can be even more critical, enabling real-time, daily alliance management and issue resolution.

10. Be open to different ways of collaborating (always keep your relationship fresh by trying new things). Entering into a partnership is like taking an option on future collaboration potential. Unless you keep an open mind, you never know where the next opportunity to work together will come from.

Partnerships are fragile

A wise colleague once told me that partnerships are fragile . There must be a balance of give and take. Partners should learn and teach. Differences should be respected because they are why the partnership was formed in the first place. Perhaps a lack of awareness of this fragility is what leads most partnerships to fail. By focusing on the success factors identified above, your partnership will become more resilient and create value for the customers it was built to serve and, in turn, for the partners that created it.

Paul Sanders   (INSEAD MBA ΄06D) is Director of Business Innovation, EMEA, at Steelcase.

Follow INSEAD Knowledge on  Twitter  and  Facebook .

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Paul sanders.

Strategy and transformation leader focused on helping organisations achieve their growth objectives.

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Anonymous User

28/05/2022, 06.47 pm

Thanks for sharing this useful information. I wanted to ask that does hiring a expert firm for this is more beneficial or not??

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06/08/2019, 05.29 pm

Always thought about writing on the interesting analogy between Marriage and strategic alliance. Was not much surprised to see dots are already joined !! Interesting article which summarises all the essential ingredients of strategic alliances

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10 Strategic Alliance Examples From Top Brands

  • Last updated February 13, 2024
  • By Jessica Huhn

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Key takeaways A strategic alliance is a partnership between two businesses with shared goals. Each company remains independent but pools resources to reach new markets and strengthen brand awareness. Examples of strategic alliances between big brands include Uber and Spotify, Starbucks and Target, Disney and Chevrolet, and Red Bull and GoPro. Small businesses can benefit from strategic alliances as well, as long as you're clear on your goals and have the resources to contribute in a mutual partnership.

Some of the best business results are born from strategic alliances.

To get a better picture of how this type of marketing works, we rounded up 10 examples of strategic alliances from big-name brands that have been a huge success. Use them as a springboard for inspiration to start your own valuable partnerships!

What is a strategic alliance?

A strategic alliance is a clearly defined partnership between two businesses with shared goals. In these business relationships, each company stays independent, while pooling resources together to reach new markets, strengthen both of their brands, increase market share, and get results they might not be able to see on their own.

( Affinity marketing strategies and co-branding new products or services are two major examples of strategic alliances.)

The best strategic alliances are ones that offer clear benefits to the audiences of both brands. When a partnership appeals to both audiences, then the two businesses are able to expand their reach and generate more sales. It’s a win-win strategy!

Top 10 strategic alliance examples

You’ll notice some popular brands, like Target and Starbucks, are mentioned in more than one strategic alliance example. If this type of partnership works for you, it can be used to grow your markets in many ways. Just be sure to time your strategic alliances and choose your partners wisely.

Here are our top 10 strategic alliance examples:

  • Uber and Spotify
  • Starbucks and Target
  • Starbucks and Barnes & Noble
  • Disney and Chevrolet
  • Red Bull and GoPro
  • Target and Lilly Pulitzer
  • T-Mobile and Taco Bell
  • Louis Vuitton and BMW
  • Apple Pay and MasterCard
  • BuzzFeed and Best Friends Animal Society

1. Uber and Spotify

Uber’s partnership with Spotify lets Uber riders easily stream their Spotify playlists whenever they take a ride. This makes the Uber experience feel more personalized, and encourages Uber riders to subscribe to Spotify Premium (for more control of their tunes both inside and outside Uber).

Uber’s rivals don’t have a similar personalized music experience, so this gives the rideshare giant a competitive advantage over Lyft and other similar services. And since not all Uber riders have Spotify, and not all Spotify users ride with Uber, both brands gain access to new, broad audiences in this business alliance.

uber-and-spotify

2. Starbucks and Target

One of the most well-known strategic alliance examples is the Starbucks and Target partnership. In fact, you’ve probably seen this strategic alliance example several times. As soon as you walk into Target, there’s a Starbucks counter waiting to blend your favorite drink.

Target and Starbucks know their brands share similar a audience – busy shoppers looking for affordable “luxuries” and a quick escape from the everyday.

This strategic alliance was formed all the way back in 1999, and is still going strong. We see thousands of Target stores hosting Starbucks cafes to help fuel people’s Target runs. And Target customers know if they get hungry or thirsty during a shopping trip, Starbucks has them covered right in the store.

target-starbucks

3. Starbucks and Barnes & Noble

Starbucks formed another successful in-store partnership with Barnes & Noble. While many larger brick-and-mortar bookstores haven’t survived the tough competition from Amazon, Barnes & Noble has seen continued success.

One reason is the co-branded Starbucks “B&N Cafes” inside most Barnes & Noble locations. A hot beverage and a good read have always paired well, which gives book enthusiasts have another reason to visit a physical Barnes & Noble store instead of buying online or from a competitor.

And at the same time, Starbucks gets to expand its audience even wider and boost sales by setting itself apart from competitors.

barnes-and-noble-starbucks

4. Disney and Chevrolet

At Walt Disney World’s EPCOT, Disney and Chevrolet have partnered to create Test Track – not just a thrilling ride, but a detailed Chevrolet brand experience. In this strategic alliance example, innovators from both brands collaborated to create a one-of-a-kind ride experience that leveraged the competencies of both brands.

As people move through the Test Track queue, they can watch videos about the Chevrolet design process and see current and futuristic Chevrolet models. Then, they’re invited to design a custom Chevrolet vehicle in a branded interactive game. The ride itself is a “test drive” of the vehicle they designed.

As visitors exit the ride, they can see more of the latest Chevrolet cars, speak to a Chevrolet representative, and even create a Chevrolet commercial with the car they designed.

Chevrolet gains plenty of brand exposure, while Disney benefits from the car company’s design expertise with an immersive ride experience for guests.

chevrolet-epcot-walt-disney-world-strategic-alliance-examples

5. Red Bull and GoPro

In 2012, Red Bull partnered with GoPro to support a record-breaking skydive from a balloon. Red Bull sponsored the dive, and the skydiver wore a GoPro camera to capture it.

The two brands later formed a long-term strategic alliance for Red Bull extreme sports events, such as the Red Bull Rampage. Only GoPro cameras are used to capture an athlete’s point-of-view shots at these events.

The Red Bull/GoPro strategic partnership is so successful because the brands have similar adrenaline-seeking audiences. Thanks to this strategic alliance, both brands now have an even stronger association with high-level thrills.

red-bull-go-pro-strategic-alliance-example

6. Target and Lilly Pulitzer

Lilly Pulitzer is a high-end women’s fashion brand known for its signature colorful patterns. However, its pricing is not accessible for most shoppers. And with the brand’s own stores being largely based in the eastern and southern United States, its brand awareness and accessibility are limited.

In 2015, the brand established a partnership with Target to release a more affordable, limited-edition Lilly Pulitzer collection at the retailer’s online and offline stores. This allowed Lilly Pulitzer to offer more affordable and accessible clothes for shoppers across the country. And in exchange, the strategic alliance generated buzz for Target, since it was carrying brand name items from a sought-after designer.

The collection didn’t just generate buzz – the first release sold out within hours (and in some stores, within minutes). This prompted other Lilly Pulitzer and Target collaborations in the following years, all of which have sold out just as fast.

lilly-pulitzer-for-target

7. T-Mobile and Taco Bell

During the 2019 Super Bowl, Taco Bell and T-Mobile unveiled an attractive brand partnership: T-Mobile customers could claim a free Taco Bell taco every Tuesday through the T-Mobile app, just for being a T-Mobile customer (no purchase required).

Yes, that’s it. All a customer needed to do to get a free taco was to stick with their T-Mobile plan. This strategic alliance example was a great way to encourage brand loyalty to T-Mobile. And since the promotion had customers rushing to Taco Bell to claim their free taco, they likely bought other food or drinks there. It also made the act of going to Taco Bell a habit, even after the promotion ended.

Another reason for the strategic alliance’s success? As Convince and Convert explains, “The [two brands’] customer bases are naturally aligned in that they skew male, they skew younger, and they skew toward value seekers.” That, coupled with the investment in Super Bowl ads and social media campaigns , made it a partnership worth talking about.

t-mobile-and-taco-bell-strategic-alliance

8. Louis Vuitton and BMW

Despite being in different industries, Louis Vuitton and BMW are both exclusive luxury brands  focused on craftsmanship.

Those who can afford a BMW vehicle can probably also afford a Louis Vuitton bag. Because of their shared audience and values, the two brands partnered up to create a collection of Louis Vuitton bags  custom made to pair with the BMW i8 sports car.

According to Patrick-Louis Vuitton, Head of Special Orders at Louis Vuitton, “This collaboration with BMW epitomizes our shared values and creativity, technological innovation and style.”

The four-piece bag set comes in a sleek black outer color and electric blue lining that matches the car’s design perfectly. Each one is also made from material you don’t see too often in bags – carbon fiber, just like the i8’s passenger cell. Plus, the entire set of bags fits perfectly into the i8’s parcel shelf.

The Louis Vuitton bag set may have retailed for a whopping $20,000, but that’s a reasonable price for someone who may also be in the market for a car worth over $135,000.

vuitton-bmw-strategic-alliance-example

9. Apple Pay and MasterCard

When Apple released the Apple Pay system for contactless transactions, it was poised to change the way people used their credit cards forever.

But first, Apple needed credit card companies to partner with them and support the technology. MasterCard was the first company to do so. So when Apple Pay launched, only MasterCard customers could pair their card with an iPhone and make payments without actually having their physical card with them.

By forming a strategic alliance with Apple early on, MasterCard connected itself with a company known to be on the cutting edge. This successful strategic alliance example also paid off later, when Apple partnered with MasterCard again in the launch of their Apple Card credit card .  

mastercard and apple strategic alliance example

10. BuzzFeed and Best Friends Animal Society

Forming a strategic alliance with a nonprofit can also be a great marketing strategy , as long as the partnership is genuine and relevant to your audience. Just ask BuzzFeed and Best Friends Animal Society, two brands that formed a simple yet effective strategic alliance intended to produce content.

One of the most popular posts was a BuzzFeed film of Emma Watson (of Harry Potter and Beauty and the Beast fame) answering fan questions and playing with adorable kittens . Of course, these kittens were all available for adoption from Best Friends Animal Society.

In this example of strategic alliance, BuzzFeed was able to produce cute and cause-forward content. And thanks to BuzzFeed’s 200-million strong readership, the content successfully drove more adoptions at Best Friends.

best-friends-adoption-video

Types of strategic alliance

Strategic alliances vary in how they’re set up. Here’s a brief overview:

  • Joint venture: Two companies come together to launch a new business entity, where profits are shared
  • Equity strategic alliance: One or both partners purchase shares in the other company
  • Non-equity strategic alliance: Partners pool resources to launch a joint initiative or project, but they both remain fully independent companies. They don’t form a new entity, and no equity changes hands.

A non-equity strategic alliance is the most common type. The examples we’ve showcased in this article are non-equity strategic alliances.

Next steps for exploring a strategic alliance

As you’ve seen from these 10 successful strategic alliance examples, partnering with another brand can be very fruitful, as long as both brands benefit from the partnership.

Look for a strategic partner brand that has a similar audience and similar goals, and be clear on what the partnership will offer to both brands.

And remember: Even though the strategic alliance examples we shared are between large, established businesses, small businesses can benefit from strategic alliances as well, as long as you’re clear on your goals and have the resources to contribute in a mutual partnership.

For more tips on starting a partnership with another brand, be sure to read our article on affinity marketing .

Or check out related articles focused on partnerships:

  • How to Build a Channel Partner Program
  • Partnership Incentive Ideas
  • How to Select the Right Partner Management Software (PRM Software)

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How Fast Should Your Company Really Grow?

  • Gary P. Pisano

business plans strategic alliances

Growth—in revenues and profits—is the yardstick by which the competitive fitness and health of organizations is measured. Consistent profitable growth is thus a near universal goal for leaders—and an elusive one.

To achieve that goal, companies need a growth strategy that encompasses three related sets of decisions: how fast to grow, where to seek new sources of demand, and how to develop the financial, human, and organizational capabilities needed to grow. This article offers a framework for examining the critical interdependencies of those decisions in the context of a company’s overall business strategy, its capabilities and culture, and external market dynamics.

Why leaders should take a strategic perspective

Idea in Brief

The problem.

Sustained profitable growth is a nearly universal corporate goal, but it is an elusive one. Empirical research suggests that when inflation is taken into account, most companies barely grow at all.

While external factors play a role, most companies’ growth problems are self-inflicted: Too many firms approach growth in a highly reactive, opportunistic manner.

The Solution

To grow profitably over the long term, companies need a strategy that addresses three key decisions: how fast to grow (rate of growth); where to seek new sources of demand (direction of growth); and how to amass the resources needed to grow (method of growth).

Perhaps no issue attracts more senior leadership attention than growth does. And for good reason. Growth—in revenues and profits—is the yardstick by which we tend to measure the competitive fitness and health of companies and determine the quality and compensation of its management. Analysts, investors, and boards pepper CEOs about growth prospects to get insight into stock prices. Employees are attracted to faster-growing companies because they offer better opportunities for advancement, higher pay, and greater job security. Suppliers prefer faster-growing customers because working with them improves their own growth prospects. Given the choice, most companies and their stakeholders would choose faster growth over slower growth.

Five elements can move you beyond episodic success.

  • Gary P. Pisano is the Harry E. Figgie Jr. Professor of Business Administration at Harvard Business School and the author of Creative Construction: The DNA of Sustained Innovation (PublicAffairs, 2019).

Partner Center

Banks must look past their zero-sum mindset and embrace collaboration

BankThink encouraging collaboration between banks

Retail banking is a highly competitive industry. We should applaud that. Competition fuels innovation and investment, and drives meaningful customer service. It also creates profit — which contributes to the economic well-being of people, cities and nations.

If banking suddenly lost its competitive drive, the world would miss it.

too much risk . New legislation often follows.

costing retail banks growth , but it doesn't have to. Here's an idea: strategic alliances. More growth-enabling than new legislation, less isolating than the zero-sum approach, strategic alliances could build bridges between banks. Bridges that financial services organizations can cross safely, confidentially and profitably. Bridges that empower the best aspects of competitiveness and curb the less-effective aspects.

Why not? There are no regulations against such alliances. Bridges between banks could increase the sector's resiliency and decrease over-concentration. Strategic alliances would improve organic customer acquisition — a major concern for any bank, especially lower-tier ones. And such bridges would increase the profitability of the strategically allied banks.

It's worth thinking about that in practice.  

Zero-sum ecosystems would probably, but not necessarily, discourage banks in the same market from allying, so the bank parties would likely serve different geographic or industrial clients. The alliance should be confidential, of course, and made on a trustworthy and simple platform to control costs — resource-intensive due diligence would defeat the purpose.

Alliances may be more effective as collaborations than as partnerships. If so, alliances should be contracted around a specific element, perhaps short-term or one-off, with well-defined parameters. It nearly goes without saying, but strategic alliances should be legal, ethical and transparent to bank examiners.

Let's look at the idea using a real-world banking issue — a highly pertinent one is delinquent commercial real estate (CRE) loans.

New York Community Bancorp lost $260 million net, causing its stock to fall 60% in five days. 

So, say that Bank A has significant CRE holdings and needs to diversify its loan portfolio before the NPLs pile up. Any loan of any type that Bank A originated or serviced would benefit the business, but Bank A competes in a limited pool, as all banks do. Bank A needs to make a strategic alliance with a bank in a different market, a bank with business loans it can originate but not service, say, or auto loans it can fund but not sell.

If Bank A could locate that bank, communicate confidentially and accept selected credit opportunities, it would safely diversify its portfolios, deflect risk and boost profits. So would the other bank. If Bank A made strategic alliances with many, many such banks, it would accelerate its competitive positions. It would accelerate profit, too.

The main problem is that banks must be able to locate and trust each other to build those bridges. The connection point is key to a strategic alliance.

An equally big problem is some banks' defensive posture. Keeping your elbows out is a natural, sensible response to a zero-sum environment, but it can deflect new business and inadvertently undermine risk management strategies.

The blockbuster merger proposal will be reviewed at a time when the Biden administration is expressing skepticism about consolidation. Its analysis will have to account for markets dominated by both big banks and the likes of Visa and Mastercard.

DOJ - Capital One-Discover

three or four times their blue book value . But when the frenzied demand for shipping subsided, Citizen Bank was left holding the bag.

By doubling down on that debt, Citizen Bank kept its elbows out against competitors. When those trends changed, the bank was alone with $14.8 million in bad loans. We should probably think about how many banks are as isolated as Citizen Bank.

Fed Governor Michelle W. Bowman stated back in 2022, "As any quick scan of the marketplace for financial products and services will tell you, in recent decades, the number of competitors to banks, if anything, has significantly increased, rather than decreased."

Some bankers may have trouble overcoming their zero-sum mindset. The "you win, I lose" construct is part of many retail banks' cultures, and probably many bankers' characters. They may not find it easy to make common cause with other retail banks.  

FS-ISAC 's 5,000 financial service members share cybersecurity issues and best practices with each other every day.

True, those activities serve the industry as a whole. They don't build bridges. To capitalize on business opportunities and contain risks, each bank probably needs to compete on its own terms.

It's worth thinking about. Especially now, as competitive pressures mount and as CRE charge-offs are increasingly troubling. Strategic alliances could reduce those risks. They could also increase profitability.

Profitability, of course, is the purpose of competition — and one reason among many to celebrate banking's inherent competitiveness. But we should ask if strategic alliances could be a bridge out of the industry's zero-sum ecosystem. And if they are, we need to think about how to build them.

Surprise overdraft fees and charges incurred by consumers who cash bad checks likely violate the law, state Attorney General Rob Bonta said. His message was especially notable because it was aimed at smaller institutions that have gotten less scrutiny from Washington.

California Attorney General Rob Bonta

An FDIC enforcement action against Lineage Bank is part of a wave of cases involving banks that have partnered with fintechs in recent years.

Tennessee welcome sign

After his aggressive cost-cutting raised profits above analysts' expectations, Block's CEO aims to retool several features of Square and Cash App to enable them to operate like a "social bank."

Jack Dorsey

The Department of Justice appoints Jonathan Mayer as its first chief AI officer, HTLF's CEO Bruce Lee plans to retire, Wilmington Trust's Doris Meister will step down in May, and more in the weekly banking news roundup.

A boat passes in front of the San Francisco skyline as seen from the Port of Oakland.

The USDA forecasted farm profits will plunge 26% this year, potentially creating credit quality challenges for lenders.

AB-FARM DATA-FLOURISH CHART -022124

The two companies in the largest bank merger since the 2008 financial crisis released details of their agreement. It leaves the door open for Discover to field better offers, though the payments company would pay a break-up fee of 4% if it accepts one.

Discover

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  1. Strategic Alliance: Definition, Motives, Types (+Example)

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  2. What Is a Strategic Alliance? Types, Benefits and How to Use

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  5. What Is a Strategic Alliance? Types, Benefits and How to Use

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  6. Building a Strategic Alliance Guide to Types and How to

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COMMENTS

  1. Strategic Alliances: How They Work in Business, With Examples

    A strategic alliance is an arrangement between two companies to undertake a mutually beneficial project while each retains its independence. The agreement is less complex and less binding than a...

  2. Strategic Alliances

    Strategic alliances are formed to gain market share, try to push out other companies, pool resources for large capital projects, establish economies of scale, or gain access to complementary resources. #3 Fast Cycle

  3. Partnerships 101: Strategic Alliances Explained (Finally!) Plus

    Strategic alliances, also known as strategic partnerships, are long-term, multi-department commitments with clearly defined goals for both companies. They differ from acquisitions and joint ventures because the companies remain separate entities (like how Starbucks and Target work together, within their own boundaries).

  4. PDF Strategic alliances An essential weapon in the growth arsenal

    Strategic alliances An essential weapon in the growth arsenal Partnerships are ever more important in a fast-changing business environment, making it vital for organizations to understand and overcome the challenges their development and execution present. Contents Introduction 1 Backdrop: New prominence for strategic alliances

  5. How to Manage Alliances Strategically

    Although strategic alliances are often viewed as a critical tool for pursuing growth opportunities, survey data suggests that roughly one half of all alliance portfolios underperform. 4 These assessments of alliance performance are subjective; however, it is fair to say that many alliances fail to live up to expectations. Why?

  6. How To Evaluate And Execute Strategic Partnerships And Alliances

    Business partnerships come in many different types, forms and structures because they serve different strategic purposes.

  7. Setting up strategic business alliances

    A strategic alliance allows you to grow your organization without necessarily expanding its size and increasing costs. It also allows you to test the market for growth potential. Some other possible uses of a strategic alliance include the following: Enter new markets Increase the scale of your production Get better prices through bulk purchasing

  8. Managing strategic partnerships

    Establish a clear foundation It seems obvious that partner companies would strive to find common ground from the start—particularly in the case of large joint ventures in which each side has a big financial stake, or in partnerships in which there are extreme differences in cultures, communications, and expectations.

  9. PDF Strategic alliances: a real alternative to M&A?

    As critical drivers of growth, strategic alliances should be up there with mergers and acquisitions (M&A) as a top priority for CEOs. But without rigorous planning, execution and nurturing, many alliances can fail to live up to expectations. In the face of fast-paced disruption and convergence, those organizations that embrace collaboration ...

  10. STRATEGIC ALLIANCES: THE RIGHT WAY TO COMPETE ...

    Regardless of the industry or type of business, strategic alliances are the best way for a company to compete and succeed in today's networked economy. But building a strategic alliance and making it work are not easy. ... The outcome of such a session includes an alliance game plan, partner selection criteria, a cultural self-assessment and ...

  11. Simple Rules for Making Alliances Work

    The authors have developed five principles—based on their two decades of work with alliances—to complement the conventional advice on alliance management: (1) Focus less on defining the...

  12. Joint ventures and strategic alliances: Keys to success: PwC

    Joint ventures and strategic alliances Examining the keys to success Overview The globalization of business models and dramatic changes in the way that businesses operate and compete have resulted in a shift in mergers and acquisitions (M&A) strategy and execution.

  13. Partners in profit: Creating successful business alliances

    In this episode of the Inside the Strategy Room podcast, Ruth De Backer and Eileen Kelly Rinaudo share insights on ways to manage business partnerships successfully. In their conversation with Strategy & Corporate Finance communications director Sean Brown, they discuss the four key principles that help partners in joint ventures and alliances thrive, which they wrote about in a recent article.

  14. The Innovation Power of Alliances

    Unleashing the Innovation Power of Alliances. January 13, 2022 By Gözde Yalazı Özbek , Konrad von Szczepanski , Nikolaus Lang , Huseyin Batu Yigit , André Kronimus, and Benjamin Gansel. More companies are forging strategic alliances as they seek competitive advantage. Here's what they must do to build and manage them successfully.

  15. Strategic Alliances: A Growth Model for Companies

    Building a Successful Corporate Alliance The dramatically high failure rate—estimated at 50 to 75%—suggests that companies often lack the knowledge and skills to determine strategic fit, negotiate win-win agreements, align organizational cultures, and—perhaps most important of all—get people to work together productively. Success is not ...

  16. Types and Benefits of Strategic Alliances

    Strategic alliances are collaborations between two or more organizations or business divisions that collaborate to accomplish mutually beneficial strategic objectives. The strategic partnerships approach has immense potential. It can significantly improve an organization's operations and competitiveness if done appropriately.

  17. Strengthening Business Relationships: Creating Strategic Alliances and

    Today's leaders must motivate and inspire their teams while navigating the challenges of a fast-paced, increasingly digital—and virtual—business environment. Driving innovation and stimulating change to stay competitive requires establishing strong relationships, building trust, and creating strategic alliances.

  18. Strategic Alliance: Meaning, Types & Examples

    A strategic alliance is an agreement between two or more parties to pursue a set of agreed-upon objectives while remaining independent organizations. This partnership can occur between businesses, non-profit organizations, or government entities.

  19. The Ten Stages of Successful Strategic Alliances

    1. Be selective and faithful (make sure you find "the one"). Perhaps surprisingly, some companies become infatuated with a potential partner and try to strike a deal without a sound business rationale, no matter the cost.

  20. 10 Ways To Ensure Successful Strategic Alliances

    1) Identify the Need: "First, determine why you would work together," Kaufman points out. Do your companies have complementary skills or are you adding extra capacity to each other? Understand the...

  21. Management Tools

    Strategic Alliances are agreements among firms in which each commits resources to achieve a common set of objectives. Companies may form Strategic Alliances with a wide variety of players: customers, suppliers, competitors, universities or divisions of government.

  22. Six Elements Of A Successful Strategic Partnership

    An analysis of strategic alliances in the U.S., Western Europe and Japan found that less than 40% of partnerships were still active after four years and only 15% after 10 years. Two-thirds of the ...

  23. 10 Strategic Alliance Examples From Top Brands

    A strategic alliance is a clearly defined partnership between two businesses with shared goals. In these business relationships, each company stays independent, while pooling resources together to reach new markets, strengthen both of their brands, increase market share, and get results they might not be able to see on their own.

  24. Advantages of Strategic Alliances in Business Plans

    Advantages of Strategic Alliances in Business Plans If business is a game of war, then strategic alliances is the art of developing allies in the battlefield. The strongest nations have relationships with others that enable them to increase in strength and numbers.

  25. U.S. Small Business Administration Announces Strategic Alliance to

    WASHINGTON - Today, Administrator Isabella Casillas Guzman, head of the U.S. Small Business Administration (SBA) and the voice for America's 33 million small businesses in President Biden's Cabinet, announced the signing of the Strategic Alliance Memorandum (SAM) with BAFT (Bankers Association for Finance and Trade), the leading global financial services association for international ...

  26. How Fast Should Your Company Really Grow?

    Gary P. Pisano is the Harry E. Figgie Jr. Professor of Business Administration at Harvard Business School and the author of Creative Construction: The DNA of Sustained Innovation (PublicAffairs ...

  27. Banks must look past their zero-sum mindset and embrace collaboration

    Strategic alliances could reduce those risks. They could also increase profitability. Profitability, of course, is the purpose of competition — and one reason among many to celebrate banking's inherent competitiveness. But we should ask if strategic alliances could be a bridge out of the industry's zero-sum ecosystem.