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.