Contact.

MOYCOM.DE
Strategic Alliances
Central, South East & Eastern Europe (CSEEE)

F. Juergen Moy

Corporate Alliances Manager & Communications Consultant

Official Spokesman of Azure Community Deutschland (ACD) - Communications & Alliances

ACD Web: wazcommunity.wordpress.com

Greinwaldstrasse 13

D-82327 Tutzing am Starnberger See / Munich
GERMANY

 

Mobile. 

+49 (162) 701 6087

 

Email. 

juergen.moy@moycom.de

 

Fax.

+49 (3212) 141 0813





Success Factors, Advantages & Disadvantages, Risks & Mistakes

   

Success factors of strategic alliances


The success of any alliance very much depends on how effective the capabilities of the involved enterprises are matched and whether the full commitment of each partner to the alliance is achieved.

 

There is no partnership without trade-offs, but the benefits of it must preponderate to the disadvantages, because alliances are made to fill gaps in each other's capabilities and capacities. Poor alignment of objectives, performance metrics, and a clash of corporate cultures can weaken and constrain the effectiveness of the alliance effectiveness.

 

 

Some key factors that have to be considered to be able to manage a successful alliance include:

  • 'Understanding': The cooperating companies need a clear understanding of the potential partner´s resources and interests and this understanding should be the base of set the alliance goals.
  • 'No Time Pressure': During negotiations time pressure must not have an influence on the outcome of the process. Managers need time to establish a working relationship with each other, develop a time plan, set milestones, and design communication channels.
  • 'Limited Alliances': Some incompatibilities between enterprises might not be avoidable, so the number of alliances should be limited to a necessary amount, which enables the companies to achieve their goals.
  • 'Good Connection': Negotiations need experienced managers. The managers from large firms need to be connected very well so they have the possibility to integrate different departments and business areas over internal borders, and they need legitimations and support from the top management.
  • 'Creation of Trust and Goodwill': The best basis for a profit-yielding cooperation between enterprises is the creation of trust and goodwill, because it increases tolerance, intensity and openness of communication and makes the common work easier. Further it leads to equal and satisfied partners.
  • 'Intense Relationship': Intensifying the partnership leads to the fact that partners get to know each other better, each other's interests and operating styles and increases trust.

 

 

Further important factors

  • Ability to meet performance expectations
  • Clear goals
  • Partner compatibility
  • Commitment to long term relationship
  • Alignment

 

 

 

Advantages of strategic alliances


For companies there are many reasons to enter a 'Strategic Alliance':

  • 'Shared Risk': The partnerships allow the involved companies to offset their market exposure. Strategic alliances probably work best if the companies´ portfolio complement each other, but do not directly compete.
  • 'Shared Knowledge': Sharing skills (distribution, marketing, management), brands, market knowledge, technical know-how and assets leads to synergistic effects, which result in pool of resources which is more valuable than the separated single resources in the particular company.
  • 'Opportunities for Growth': Using the partner´s distribution networks in combination with taking advantage of a good brand image can help a company to grow faster than it would on its own. The organic growth of a company might often not be sufficient enough to satisfy the strategic requirements of a company that means that a firm often cannot grow and extend itself fast enough without expertise and support from partners
  • 'Speed to Market': Speed to market is an essential success factor in nowadays competitive markets and the right partner can help to distinctly improve this.
  • 'Complexity': As complexity increases, it is more and more difficult to manage all requirements and challenges a company has to face, so pooling of expertise and knowledge can help to best serve customers.
  • 'Costs': Partnerships can help to lower costs, especially in non-profit areas like 'Research & Development'.
  • 'Access to Resources': Partners in a strategic alliance can help each other by giving access to resources, (personnel, finances, technology) which enable the partner to produce its products in a higher quality or more cost efficient way.
  • 'Access to Target Markets': Sometimes, collaboration with a local partner is the only way to enter a specific market. Especially developing countries want to avoid that their resources are exploited, which makes it hard for foreign companies to enter these markets alone.
  • 'Economies of Scale': When companies pool their resources and enable each other to access manufacturing capabilities, economies of scale can be achieved. Cooperating with appropriate strategies also allows smaller enterprises to work together and to compete against large competitors.

 

Further advantages:

  • Access to new technology, intellectual property rights,
  • Create critical mass, common standards, new businesses,
  • Diversification,
  • Improve agility, R&D, material flow, speed to market,
  • Reduce administrative costs, R&D costs, cycle time
  • Allowing each partner to concentrate on their competitive advantage.
  • Learning from partners and developing competencies that may be more widely exploited elsewhere.
  • To reduce political risk while entering into a new market

 

 

 

Disadvantages of strategic alliances

 

  • 'Sharing': In a strategic alliance the partners must share resources and profits and often skills and know-how. This can be critical if business secrets are included in this knowledge. Agreements can protect these secrets but the partner might not be willing to stick to such an agreement.
  • 'Creating a Competitor': The partner in a strategic alliance might become a competitor one day, if it profited enough from the alliance and grew enough to end the partnership and then is able to operate on its own in the same market segment.
  • 'Opportunity Costs': Focusing and committing is necessary to run a strategic alliance successfully but might discourage from taking other opportunities, which might be beneficial as well.
  • 'Uneven Alliances': When the decision powers are distributed very uneven, the weaker partner might be forced to act according to the will of the more powerful partners even if it is actually not willing to do so.
  • 'Foreign Confiscation': If a company is engaged in a foreign country, there is the risk that the government of this country might try to seize this local business so that the domestic company can have all the market on its own.
  • 'Risk of Losing Control': Over proprietary information, especially regarding complex transactions requiring extensive coordination and intensive information sharing.
  • 'Coordination Difficulties': Due to informal cooperation settings and highly costly dispute resolution.

 

Risks of strategic alliances


Using and operating Strategic Alliances does not only bring chances and benefits. There are also risks and limitations that have to be taken in consideration. Failures are often attributed to unrealistic expectations, lack of commitment, cultural differences, strategic goal divergence and insufficient trust.

 

Some of the risks are listed below.

  • Partner experiences financial difficulties
  • Hidden costs
  • Inefficient management
  • Activities outside scope of original agreement
  • Information leakage
  • Loss of competencies
  • Loss of operational control
  • Partner lock-in
  • Partner product or service failure
  • Partner unable or unwilling to supply key resources
  • Partner's quality performance
  • Partner takes advantage of its position

 

 

Common mistakes of strategic alliances

 

Many Companies struggle to operate their alliances in the way they imagined it and many of these partnerships fail to reach their defined goals. There are some very "popular" mistakes which can be seen again and again.

 

Some are mentioned here.

  • Low commitment
  • Poor operating/planning integration
  • Strategic weakness
  • Rigidity/ poor adaptability
  • Too strong focus on internal alliance issues instead on customer value
  • Not enough preparation time
  • Hidden agenda leading to distrust
  • Lack of understanding of what is involved
  • Unrealistic expectations
  • Wrong expectation of public perception leading to damage of reputation
  • Underestimated complexity
  • Reactive behaviour instead of prepared, proactive actions
  • Overdependence
  • Legal problems
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