Flash Forward

Cooperation between companies has been going on for as long as people have been doing business, but lately the interest in alliances seems to be heating up. Companies are getting together to share expertise, set technological standards, market cooperatively and pursue many other joint objectives.

A Coopers & Lybrand LLP study of fast-growing businesses found 48 percent more alliances in 1997 than three years ago. Mitchell Lee Marks, a San Francisco alliance consultant and co-author with Philip H. Mirvis of Joining Forces (Jossey Bass), cites separate studies showing some 25,000 alliances were formed by U.S. firms in 1995. And small business led the pack: About 90 percent of CEOs of small, fast-growing companies reported intentions to form business alliances. Marks estimates that in the last four years, U.S. companies have formed upwards of 45,000 alliances.

Why now? Globalization is one spur, according to Marks. "There are many, many international alliances," he says. "That's because so many foreign countries have regulations against foreign ownership."

The ever-increasing pace of technological change and the opportunities it presents also encourages alliances, according to Hal R. Varian, dean of the school of information management and systems at the University of California, Berkeley, and co-author with Carl Shapiro of Information Rules (Harvard Business School Press), a guide to the new networked economy. Companies are especially prone to form alliances to set technological standards, such as the standard for 56K computer modems that went into effect in 1998, he says.

Joining a standard-setting alliance gives members a technological edge over those who try to go it alone, Varian contends. "You can't compete if you're not compatible," he says.

Alliances aren't the easiest management tool to use, however. Marks estimates three-quarters of all alliances fail to achieve their objectives. But with adequate management resources, constant communication between participating companies, and a careful description of the alliance's goals in the beginning, joining up with a friend or even a foe can prove to be a valuable business move, according to Dillard Tinsley, a marketing professor at Stephen F. Austin State University in Nacogdoches, Texas, and author of a small-business alliances study.

"The number-one reason to form an alliance is that you see a particular type of competence is going to be important and you don't have the time or resources to develop it," says Tinsley. "And access to the right kind of expertise today is extremely important." (For more on alliances, see "United We Stand," April 1998.)

This article was originally published in the January 1999 print edition of Entrepreneur with the headline: Flash Forward.