Alliances

Definition: Joining forces with another company or individual to combine talents or strengths in order to attract more business

Alliances can be short cuts to growth. One recent study found that the average number of alliances fast-growing companies were involved in has increased in the past few years from three to four. And many allies are small. This statement is supported by a recent survey of CEOs of small, fast-growing companies in which 90 percent reported forming alliances.

Small businesses in search of growth favor alliances because these partnerships can quickly and inexpensively provide a company with access to technology, expertise, marketing, production, distribution and other capabilities. Studies show that businesses that participate in alliances grow faster, increase productivity faster and report higher revenues than those who do not.

Alliances are also excellent for testing the waters before a full-scale merger. Because no ownership changes hands, it's easy to back out. Another advantage to alliances compared with mergers or acquisitions is that you can participate in several at the same time.

Synergy is the benefit most alliances are after. If you have a product but lack distribution, you may seek synergy by allying with a company that has good distribution and no competing product. Companies that own technologies that can be combined with yours to create a compelling product are also potential allies. In international alliances, one company can provide local market skills while another supplies imported products or technologies. Allies may also benefit by purchasing cooperatively, marketing jointly, combining research and development, co-sponsoring training, or agreeing to set standards in a new technology.

Yet it requires skills to maintain healthy alliances. Three out of four corporate alliances disappoint, producing higher costs or lower returns than expected.

Allying well is almost as difficult as marrying well. Ask yourself the following questions to help you decide whether forming an alliance is the right move for your business at this point:

  • Do you need an alliance? If you can accomplish your strategic goals without an alliance, it's probably best to go it alone.
  • Will both parties benefit more or less equally? Alliances that only aid one side are unlikely to last.
  • Are desired results clearly explained? You should know what you and your ally want out of the alliance, and clearly communicate it.
  • Do you have time to manage it? Alliances are almost as time-consuming for top-level managers as running a separate business.
  • Is there an exit strategy? An alliance that doesn't include a clear plan for ending the partnership is headed for trouble.

The following are a few ways to find and make a match that will last:

  • Plan first, pick later. You should know exactly what traits your ally needs before you start looking for one.

  • Network. The most likely place to find an ally is among customers, suppliers, competitors and other professional associates.

  • Look for synergy. A combination of allies should add up to more than either does separately.

  • Value trust more than competence. An expert ally you can't trust is no ally at all.

  • Listen to your gut. Check a potential ally's credit rating, financial reports and reputation in the industry, but trust your feelings when it comes to the final decision.

  • Identify benefits, including synergistic effects. Make sure the benefit isn't lopsided so that no one will feel he or she is being taken advantage of.

  • Set precise goals for what you want to accomplish. Without goals, an alliance can flounder.

  • Carefully and frankly communicate expectations, along with the ways performance will be measured, to allies and your own employees. Describe what and when each party will invest, as well as expected returns and how any disputes will be resolved. Put it in a legal document.

  • Don't forget to devise an exit strategy. It's a serious mistake not to have a comprehensive plan for ending the alliance.

  • Once you've started an alliance, keep it going. Refer frequently to your original objectives. See how you measure up and communicate the results and any changes to everyone involved.

The fact that these roads to growth aren't the ones most companies travel doesn't make them any less effective. Even if you're determined to grow by following conventional routes, you should be aware of the alternatives. After all, you may decide to change your course along the way.

Ask yourself the following questions to help you decide whether forming an alliance is the right move for your business at this point:

  • Do you need an alliance?
    If you can accomplish your strategic goals without an alliance, it's probably best to go it alone.

  • Will both parties benefit more or less equally? Alliances that only aid one side are unlikely to last.

  • Are desired results clearly explained? You should know what you and your ally want out of the alliance, and clearly communicate it.

  • Do you have time to manage it? Alliances are almost as time-consuming for top-level managers as running a separate business.

  • Is there an exit strategy? An alliance that doesn't include a clear plan for ending the partnership is headed for trouble.
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