In the 1990s, more than 60,000 strategic alliances formed. Out of these, half were joint ventures while the other were non-equity arrangements such as technology licensing agreements, joint marketing arrangements and research or development projects. The majority were international, meaning that the world’s largest multinational business such as IBM, General Motors and Philips used alliances.  

 

Most management teams emphasize developing and perfecting the ability to create and manage strategic alliances. If you cannot make effective use of alliances in today’s world, you will be at a serious competitive advantage.  

 

An Alliance’s Purpose

Most businesses would rather enter a new market by themselves or buy another company than enter an alliance. GM would have preferred to buy Fiat but they weren’t for sale. Alliances are often seen as difficult to manage, unclear of who makes the decisions and require an extraordinary amount of time and attention.  

 

There are both positive and negative reasons for going into an alliance:  

 

POSITIVE

Harnessing that partner’s energy and knowledge; Set an industry standard; Have a worldwide influence; Reduce risk; Increase productivity.  

 

NEGATIVE

Required by Federal Law; More economical to carry out than acquisitions; Only financially affordable alternative; Fear of being bought out; Prevent a competitor from acquiring or partnering up with the business in question; Too expensive to fold.  

 

Make sure that you are clear on both your own and partner’s motives. Although, it’s not always the case, alliances that are formed for positive reasons may have a higher rate of success.  

 

Alliances come in many forms. The simplest are straightforward licensing agreements and shared marketing deals. The most complex kind show themselves as multi-part arrangements such as cross-ownership positions, joint ventures and cooperative projects between partners. With the many types to select, business owners that enter an alliance need to make a key decision: Do they want a shallow or deep alliance.  

 

This maybe thought of as a flirtation or a low-commitment alliance that doesn’t have a lot of resources devoted to it and can be broken at any time.  

 

Current airline alliances such as Star and One World feature new partners every month; Cisco is another with its Internet-related businesses. The latter often can’t judge if a younger business’ fledgling technology will prove to be important a year later.  

 

The shallow alliance solution is to buy 10% of the business’ stock in a friendly transaction and obtain a seat on the board with an option to buy the remainder of the equity. The assigned board member can then assess the business’ management, its market prospects and technology. If it looks good, they will buy the rest. If not, they walk. Shallow alliances create options for businesses in fast-changing industries where the way ahead is vague. These are never meant to be permanent.  

 

Deep alliances – The Long Haul

Unlike shallow alliances, deep ones involve high levels of financial and managerial commitment by the partners. They feature many links between the partners, usually including one or more seats on the board of directors, cross-ownership positions, at least two or three joint ventures and many less formal but important cooperative projects. Deep alliances also move at a slower rate than shallow ones as well as are more difficult to manage and end. There are high benefits for success but the costs of failure can be great as well.  

 

Like most alliances, you’ll discover once the deal has been made that your partners have different ways of doing things as well varying objectives, priorities and performance standards. These factors will make the management a difficult task. The best way to handle this is to maximize the probability of success by assigning some of your best people on the operation at hand that have superb people skills, cross-cultural sensitivity and a tolerance for ambiguity and frustration. Patience and persistent are two attributes that must be held for this to be successful.