What makes a strategic alliance ‘strategic’?
In a business context, partnerships and alliances are formal relationships in which two or more distinct companies decide to collaborate. Why are some of these relationships deemed strategic alliances while others are simply conventional alliances or indirect sales channels?
As companies begin to implement partnering strategies, the number of alliances within the organization tends to proliferate. It is not uncommon to learn that a mid-tier company has 20-30 alliance partners, or more. So management will typically structure the alliance portfolio by levels (some variation of platinum, gold, silver…) with the highest level being called ‘strategic alliances’.
What criteria should we use to classify an alliance as strategic? A strategic alliance implies that:
- the success of the alliance impacts one or more major business goals, especially involving revenue growth
- the success of the alliance develops or reinforces a core competency, especially one which provides a competitive advantage and / or blocks a competitive threat
- The success of the alliance creates additional opportunities, new products and services being sold and delivered into new markets, especially in new ways with new partners called ‘ecosystems’
- the success of the alliance enables corporate sustainability and mitigates one or more significant risks to the business, especially concerning regulatory affairs and / or public relations
- the success of the alliance allows the organization to innovate and adapt in a better, smarter way to changing economic conditions than it could do on its own, especially shared innovation initiatives
Due to the organizational commitment and investment required, not all partner relationships can be given the same degree of attention. The decision-making process for executives requires a strategic review to determine a small number of alliance partners which the firm determines are truly strategic to their organization.
The consequences of mismanaging a strategic alliance or permitting it to not function efficiently can have a material impact an organization’s ability to grow and innovate, and to ensure future prosperity. The larger companies have understood this maxim for some time, and have already allocated within its strategic plan the means to manage its portfolio of strategic alliances.
What are some of the required tasks smaller organizations can do within their means in order to build and run successful strategic alliances?
- understand and implement an alliance life cycle management program – select, develop and eventually retire alliance partners
- set mutual expectations in terms of revenue growth and capabilities development at the outset – review and renew annually
- establish a legal framework which allows all parties to work efficiently within the confines of the alliance agreement – flexible yet contractual
- design an advanced planning system to plan the work, and collaboratively work the plan – sales and service field teams can reference a strategic road map and its link to alliance activities
- create a fair and equitable compensation process, especially for the direct sales force – establish bonus incentives for alliance sales and cooperation
- gain top management support for alliance initiatives in order to arbitrate effectively between short term alliance decisions and long term strategic interests – direct executive involvement
- ensure a professional alliance management system to run its day-to-day business between the strategic partners – a dedicated team of alliance professionals
The art and science of strategic alliance development are evolving rapidly, but as a professional tradecraft still lack history and maturity.
The good news is that professional associations such as the Association of Strategic Alliance Professionals (A.S.A.P.) are working hard to create standards and certifications to elevate the profession, and promote the discipline of alliance professionals.
In the future, we will see the alliance profession become even more critical to every organization’s growth and ability to innovate. Strategic alliance excellence will determine an organization’s ability to remain relevant. Strategic alliance management, incorporated as a core competency, will become more complex with the advent of new ecosystems, i.e. multiparty alliance arrangements.
Organizations which are already designing and executing strategic alliances – ecosystems and partner networks – are ahead of the trend and have a competitive advantage over those who continue to operate in the traditional linear value chain: supplier – company – client.
In summary, what makes a strategic alliance ‘strategic’ is the demonstrable commitment an organization makes towards its partners in terms of time, investment and top executive sponsorship. Going forward, we will see more and more creative collaborative solutions appear and transform the way we organize our work and all work-related activities.