Noteworthy

By Eric Krell , Joanne Sammer

Business Finance
May 2000, Page 9

BUSINESS STRATEGY

The Science of an Alliance

Strategic alliances have become a popular growth strategy for many companies, particularly those engaged in e-business. The reason: Strategic alliances allow one company to tap into the strengths of another without the legal, financial and cultural complications that often accompany a merger or acquisition.

"Strategic alliances tend to be more successful than most mergers or acquisitions for a number of reasons," says Dorothy Langer, founder and president of Langer and Co. in Boston, a strategy consulting firm specializing in strategic alliances, mergers and acquisitions. For one thing, strategic alliances are not as complicated. There is less pressure to show a return on investment, "because you don’t have a highly visible transaction," she says.

Nevertheless, even strategic alliances are not sure winners for every company. To avoid problems, Langer recommends that companies considering alliances take the following steps:

  • Have a plan. To forge a successful strategic alliance, companies should develop a "partnering" plan before they begin identifying potential partners. "Know what you want to do, why, and what you want to achieve, then find a partner to help you do that," advises Langer. "An ad hoc approach is never a good idea." By involving various departments in the development of this plan, companies can foster buy-in among all the disciplines that will be involved in the alliance. "You can’t just do the analysis in the CFO’s office," says Langer. "It won’t go anywhere if the vice president of sales or technical support does not want to do it and won’t sell or support the resulting products." The plan should specify the overall objective for the alliance and the time frame for accomplishing it, as well as the value the company can bring to potential partners, the risks the company will incur and any restrictions on proprietary information.

  • Identify a potential partner. The next step is to conduct due diligence on a short list of potential partners. After choosing one, "engage the partner by proposing what you want to do and the vision for the partnership," says Langer. If your company has developed a strong alliance plan, it can use the plan to structure the conversation with the partner. "Sell to them," she says. Tell them, " ‘If we did this, we’d accomplish this.’ " Then once the partner is on board, put together a plan specific to that partnership. "Identify what you want to achieve using objective measures, such as increase market share by X percent, increase revenue by Y percent, develop and launch three products in two years," says Langer. "They need to be specific, but they don’t all have to be financial in nature. Work with your partner and know their objectives for the alliance."

  • Make it work. Once the alliance is under way, each company should appoint an employee to manage its end of the relationship. "They are there to make sure each company delivers on its commitments and keeps its promises," says Langer. In addition, both companies must agree up front on everything — deadlines, marketing plans, when and where meetings will be held and who will attend them, how to communicate regularly, and what to do if something goes wrong.

  • Monitor progress. Above all, companies must monitor the overall progress of the alliance regularly to make sure it is working and achieving its objectives.

© Business Finance


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