Using Business Alliances as a Growth Strategy
Business alliances have become an increasingly powerful weapon in the war to gain and sustain a competitive edge. When two companies align themselves, their synergistic strengths seem more apparent, their individual weaknesses somehow less noticeable. Joining forces with another business can give your company deeper pockets and greater access to new technologies. It can also increase brand awareness, enlarge your customer base, and enhance your product or service offering. Yet, in spite of all of these wonderful benefits, if you aren't careful, there can be some major bumps and pitfalls along the way.
Choosing the right company to partner with can be as important to your professional life as choosing the right husband or wife is to your personal life. So how do you know if forming an alliance is right for you? The following is a step-by-step guide specifically designed to help you understand if your company could in fact benefit from an alliance and how to make the relationship work, once you have both said your "I do's."
- Types of Alliances
- Major Classifications of Cash Flow
- Operating Activities
- How to Approach Potential Partners
- Making Alliances Work
- What to Do When Alliances Don't Work
- IAlliance Case Study: PeopleSoft
Types of Alliances
In today's competitive market, there are many reasons for forming alliances. Some of the most common include a need for increased cash, a need to keep up with ever-changing technological advances, a need to find viable solutions for tough problems, a need to fend off a competitor, and a need to gain market share — to name a few. Each of these reasons, on its own, is cause enough to form an alliance.
For as many reasons as there might be for forming an alliance, there are as many different types of alliances and, of course, an array of benefits to be reaped from each. Partnerships vary, too, from the extremely complex relationships between huge corporations to simpler arrangements, where the small corner store partners with a supplier on a small scale promotion. Likewise, the duration of business alliances varies from one situation to the next. Some partnerships are formed on a long term basis while others are for one product, service or project only.
In sniffing around for a potential alliance, you may find yourself subconsciously disregarding various companies without giving any consideration to their worth as a partner. In your mind, you don't want to partner with a small company that has little to offer you, nor are you interested in a really large corporation that will take away your power and swallow you whole. You may also steer away from companies or people whose politics and values don't mesh with yours.
Knocking potential alliances off your list before you even investigate the possibilities, however, is foolish. The rule today is that you can form an alliance with just about anybody, and that includes even your staunchest competitors. The following is a list of assorted partnership possibilities, including some that probably seem very unlikely, but deserve consideration nonetheless:
Suppliers - Forming partnerships with suppliers is a strategy that's been around for many years. By forming partnerships with suppliers, you increase your chances of always having the product you want — when you want it. For example, Walt Disney relied heavily on alliances with suppliers. When he first built Disneyland, he formed alliances with companies like Coca-Cola and Eastman Kodak, giving them exclusive rights to sell their goods at the park. It was a decision neither he nor his financial advisers ever regretted.
A more contemporary example of this is the extremely successful Bristol Myers and Wal-Mart alliance. When a Wal-Mart store sells a lot of Bristol Myers' products, company representatives inform the manufacturer, which sends out replacements within 24 hours. This insures that Wal-Mart's shelves are always stocked with Bristol Myers' products, whereas other stores may have to wait longer, and thus disappoint customers and miss potential sales.
Employees -- Odd as it may seem, some employees make wonderful partners. You may use employees to build stronger relationships with customers, vendors and distributors, or to perform special projects or promotions. By offering bonuses or stock options, you can motivate your current staff to take on added responsibilities, and they in turn will feel more ownership for your organization. And, best of all, you already have a business relationship with them and they're familiar with your products, services and goals, so there shouldn't be many surprises in this type of alliance.
Some companies who have taken advantage of alliances with employees are 3M, IBM, Sony and Hewlett Packard.
Competitors -- You may consider competitors to be your enemies, but have you ever imagined the possibilities if your organizations got together and pooled your resources? Still reluctant to explore the idea? Take some lessons from giant corporations that are hooking up with rivals and achieving phenomenal results. Paramount Pictures teamed up with 20th Century Fox to produce the blockbuster movie "Titanic." Due to the film's exorbitant costs, the picture probably wouldn't have been made had there not been two major players involved. After the film won numerous awards and accolades, along with hefty box-office receipts, both partners were glad they'd made the alliance.
Customers -- Though this is a liaison that happens much more rarely, you should not overlook a chance to partner with a customer. They have been on the buying end of the stick and can, most likely, provide extremely useful information and feedback about your company.
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How to Determine if Alliances Are Right for Your Company
How do you know if forming an alliance is the right thing to do for your company? Unfortunately, the answer isn't always clear. While many alliances are hugely successful, there are also those that flop. However, when examining your own company, if you find yourself lagging behind the market in sales, growth and/or technological advances, forming an alliance may be your best hope to forge ahead. Similarly, you might want to look at alliances if you find a close competitor breathing down your neck.
Once you have decided that an alliance is right for you, it's important to move slowly and choose the right partner, since choosing the wrong partner could make your situation deteriorate substantially. The first step is to find a company you're compatible with. How do you do this? You should be able to obtain the information you need from the Internet, from annual reports, and by talking directly with customers and suppliers and the company itself. Remember, you are not only attempting to determine if the potential partner is financially sound, but also if it shares the same core values as you do, and if it can fill the holes that you're looking to fill.
The following are some areas to examine closely before entering into an agreement with any potential partner:
Financial Situation -- You want to be fairly certain that a company isn't going to face serious financial problems after you enter into a deal with them. If possible, find out what their annual sales are. How about their annual growth? How much of their revenue is profit? What are their financial goals, and more importantly, are these goals compatible with your own?
Operations -- Ideally, you want to find out how well the company is managed. How many employees does it have? How does this number compare to last year and the year before? Who are the people in charge? What is their background and experience?
Market Presence -- You should check to see where the company does the majority of its business. How much of the market share does this company control? What are its plans for the future, and do those goals meet yours? Could you garner a larger collective share of the market if you joined forces?
Quality of Product or Service --This is an area you will want to approach with extreme caution. Does a potential partner take quality as seriously as you do? Do they offer the same warrantees and service hours that you do? If a company's standards do not live up to your own, cross them off your list immediately. You have likely built a reputation by providing quality to your customers. If you tarnish that image through an alliance, you may well lose the customers you have fought so hard to get.
Views on Customers and Service -- It is imperative that your potential partner share your views on customers and service. The easiest way to see exactly where your potential partner stands is by talking directly to this company's customers and briefly surveying them about your potential partner's customer service practices. Ask if they are satisfied with the company. Are there any things they would like to see changed? Does the company deal well with customer complaints? If they were in your shoes, would they form an alliance with this company?
Marketing -- You will want to see how your new potential partner markets its product or service. You should find out specifically how much money is in their budget for marketing and how many people they have to do the job. Keep in mind, in addition to marketing your products and services, you will also need to think in terms of marketing the new alliance to the public.
Desire -- This information may be tougher to obtain, but you'll want to figure out if your potential partner shares your level of enthusiasm for forming an alliance. If not, this could be a sign of potential problems.
If your new potential partner seems inflexible on many issues, it should be taken as a sign for you to move on. You may also want to check into whether or not your potential partner has ever been in an alliance before. If possible, talk with the company they were aligned with and see what the results were.
The following quiz is designed to help you determine whether or not the alliance you are considering is right for you:
- I have checked into and am comfortable with my potential partner's financial situation.
- I know how much my potential partner makes in annual revenue.
- I am aware of the company's annual growth.
- I have a clear understanding of how the company is organized.
- I am familiar with the experience and background of the company players.
- I have carefully assessed the market presence of this company.
- I am familiar with all the markets in which this company does business.
- I feel this is a market that represents true growth opportunities for my company.
- I have closely examined the company's quality standards.
- I believe this company places the same value on quality that I do.
- I have spoken with my potential partner's customers and obtained valuable feedback.
- I have a clear understanding of how this company handles customer complaints.
- I approve of the way this company markets its product or service.
- I agree that this company has both the money and personnel to effectively market our new alliance.
- I believe that this company shares my enthusiasm to form this alliance.
If you have answered true to at least 12 of the 15 questions, you can be reasonably sure that you are well prepared to enter into an alliance with your potential partner. Though you should consider all of the factors listed above, you should give the heaviest weight to those areas that are most important to you and your company values.
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How to Approach Potential Partners
Once the above questions have been answered to your satisfaction, it's time to get the partnership show on the road. The first thing you will want to do before approaching another company is to make sure that the deal you are proposing is equally as beneficial to them as it is for your company. Going to a potential partner and explaining everything they can do for you but nothing you can do for them will not entice the company to join forces.
Once you have a potential partner's interest, discuss all of the details of the alliance — even those you would rather not bring up for fear of putting your partner off or because you are afraid of the answer. Remember, it's important that you both lay all of your cards out on the table. In these situations, it's always best to identify potential issues up front and try to work through them rather than to wait until you're already involved in an alliance.
Be sure to discuss all possible partnership opportunities with your potential partner. You will also want to talk about resources and your plans for turning each opportunity into an advantage. Additionally, you will want to talk specifically about how you will get your new alliance up and running, and come to some definitive terms on exactly what needs to happen in order to bring this product or service to the market. This is also an ideal time to discuss future goals of the alliance, including future product or service offerings.
Be Sure to Remember …
The following is a checklist that should be formally discussed with a potential partner or alliance before you enter into any agreement:
What is the business opportunity at hand?
What are the financial resources and responsibilities of each company?
What specific steps need to be taken in order to get the alliance up and running?
If you are jointly developing a new product or service, what specific steps need to be taken in order to get it off the ground?
Which company will supply which employees to the project?
Is this a long-term commitment or an alliance only for a specific product or service?
What are the future products or services that the alliance could potentially produce?
It stands to reason that you may have issues of trust, especially if your potential partner is a former competitor. Building trust in such cases takes time, but there are things you can do to facilitate the process. Probably the most important step you can take at the beginning is to spend as much time as you can with your potential partner. Go to business lunches and trade shows together, do a joint presentation at an industry conference, or call on a customer together.
Then start making small commitments to each other. Perhaps you agree to divulge a little information about your company and your partner does the same. In cases where the shared information is sensitive, you may want to ask each other to sign non-disclosure agreements. This binding agreement should help put your mind at ease. Note: An attorney should be consulted when drafting or signing any legal documents.
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As with any joint venture, it is extremely important that you protect yourself legally. It should be pointed out, however, that alliances are a fairly new proposition — a proposition all lawyers may not be entirely used to or comfortable with yet. As a result, dickering over the details of the arrangement can hold up the alliance for weeks. You will want your attorney to take enough time to protect your company against any liabilities resulting from the alliance, but you will not want him or her to take so long that you miss out on important time sensitive opportunities.
The one thing you should insist on is an exit strategy that allows you to get out of the contract if in fact the alliance doesn't work out.
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Making Alliances Work
You have now reached a critical juncture. You've found a partner you feel comfortable with, hammered out the legalities and are now formally in business together. In order to make this alliance a smooth transition for both companies, you must now figure out specifically how to make the marriage work. Keep in mind, however, that you are not forming an alliance between two people, but rather two entire companies. In this situation, it's guaranteed that there will be issues that need to be dealt with — especially when each partner feels like they are the ones rightfully in charge. You may want to sit down ahead of time with your potential partner and discuss your mutual expectations and an acceptable division of duties.
Openly express your expectations up front. By holding back, the only thing you build up is resentment down the line. Outline your goals and objectives in writing so you will have a benchmark to use later to measure whether the alliance is working. Keep lines of communications open every step of the way and meet regularly to discuss what aspects of the alliance are working for both of you and what you would like to see changed. Make sure that each of you knows how to get in touch with your alliance partner at all times, in case urgent matters arise.
In order to keep the alliance working, it's imperative that you keep it balanced. The moment one partner starts to feel like the other isn't pulling their weight or, at the opposite end of the spectrum, is being too domineering, problems will arise.
You will also want to discuss money matters up front — who will invest what, as well as to how you will divide the profits and spread out your various personnel. Customer focus will also be a key during this period. How will you get the word out to your customers?
It is important to remember that your companies are now "married" in some ways, and thus you may not enjoy all of the freedoms that you did before the alliance. It used to be that you were the sole person in charge. Now you have a partner you must answer to — someone who may rightfully question your decisions and judgments.
The following questions are designed to help guide you through the beginning of a new alliance:
- Have we clearly defined which duties will be assigned to which parties?
- Have I openly expressed my expectations for the alliance?
- Have I put my expectations in writing?
- Have we established clear lines of communication?
- Have we talked through all money matters?
- Do we have a clear plan for dealing with customer service issues?
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What to Do When Alliances Don't Work
Your alliance has been up and running for a short time now, but somehow, you find that it isn't working the way you'd planned. For whatever reason, this isn't the business arrangement that you envisioned. What should you do? The first thing to consider is whether at least some of the problems could be your fault. Many companies make mistakes when entering into alliances and rather than recognize them and try to fix them, they let the relationship sour until it is virtually beyond repair.
Next, ask yourself whether you have been withholding information. A common mistake is for one or both of the alliance partners to continue to secretly view each other as the enemy. Therefore, they tend to keep secrets and avoid revealing too much to their partner. The bottom line is, you are now partners. If your relationship isn't based on trust, you shouldn't be in a business relationship together.
Next, consider whether your expectations about the alliance were unreasonable. Were you expecting results too quickly? Did you anticipate higher financial returns than were possible given your resources?
Also ask yourself whether you're treating and respecting the other person as an equal. Is it possible that you still view yourself as the boss, making unreasonable demands or your partner?
By talking with your partner, you can get a good idea of whether it's time to end the relationship or not. It may be worth it to try to come to some agreement on how to work better together before deciding to end an alliance.
Before giving up on an alliance, ask yourself the following questions:
- Do I trust my new partner?
- Is it possible I am withholding information?
- Am I disappointed things aren't moving quicker?
- Do I treat my partner as an equal?
- Are there actions that I can take to improve the relationship?
- Are there actions we can take together to achieve better results?
If you have tried to overcome all of the above issues, but the alliance still is not working, you may want to ask your lawyer to execute the exit strategy to get you out of the agreement. However, this action should be taken only as a last resort.
The majority of business alliances work out to both partners' advantage. It's well worth your company's time and resources to do whatever you can to make the relationship work. The synergy that a business alliance provides can supply your company with increased revenues, improved brand awareness, and higher market share for many years to come
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Alliance Case Study: PeopleSoft
Almost every high-tech company is going the alliance route these days. One company that knows firsthand the huge benefits that can be reaped from forming alliances is PeopleSoft. PeopleSoft is a leading enterprise software company located in Pleasanton, Calif. PeopleSoft's products help firms manage everything from accounting to human resources management more effectively.
In analyzing their growing customer base, PeopleSoft's management team recognized early on that each of their customers was unique, and each had slightly different needs. PeopleSoft also realized that it would be impossible for one company to properly address all of those individual needs on their own. Not only were they short on the necessary personnel, but they also lacked other important resources including — in some cases — expertise. So, to best serve all of their customers, PeopleSoft began to form alliances.
A prime example of the benefits PeopleSoft has gained from this strategy is their alliance with IBM's HR Access International Payroll. This alliance focuses on meeting the payroll and human resource strategies of multinational companies. It gives customers of both companies an expanded network of consulting services to help them best address the problems of human resource management on an international level. Additionally, IBM's HR Access brings an installed base of more than more than 1,100 customers in 40 countries.
PeopleSoft formed another important alliance with The Bombay Company, a Fort Worth, Texas-based retailer specializing in classic and traditional home accessories. In 1997, with more than 4,000 employees and annual sales of $332 million, The Bombay Company needed a comprehensive HR services strategy to support its more than 400 stores in 42 states and Canada. The Bombay Company's HR department was not equipped to support these initiatives. Neither its existing HR system, which was not Y2K compliant, nor the outsourced payroll service met to the company's reporting or data-tracking needs.
In November 1997, The Bombay Company chose a company called The Hunter Group to develop an innovative set of solutions, including support for employee self-service and automated workflow for HR transactions. These solutions minimized the time spent on HR processes by store managers, and enterprise-wide linkages from loss prevention and point-of-sale processes into payroll. This unique solution enabled the client to create incentive bonuses based on quantifiable performance, at any level within the operation.
The Bombay Company needed a leading HR management system and a premier payroll service provider that was accurate and customer service oriented. They chose the PeopleSoft HRMS application suite for its strong reporting capability and ability to integrate with core business systems.
Working through an alliance, The Hunter Group provided rapid implementation assistance and training for the PeopleSoft system. In a short, 11-month period, the new strategy was implemented and both of the new HR and payroll management systems were live.
In 1999, the Bombay Company had more than 5,000 employees and reported annual sales of $356 million.
These are just two of the more than 150 successful alliances PeopleSoft has formed. Other partners include Digital, Microsoft, Lotus and Hewlett-Packard. PeopleSoft currently employs 6,900 people and had revenues of $1.4 billion in 1999. A recent survey revealed their customer approval rating to be 98 percent. PeopleSoft openly attributes this success to their alliance oriented growth strategy.
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Larraine D. Segil, "Intelligent Business Alliances: How To Profit Using Today's Most Strategic Tool" (Times Books, 1996)
Robert P. Lynch, "Business Alliances Guide: The Hidden Competitive Weapon" (John Wiley & Sons, 1993)
Juli Betwee, David Meuel, William Berquist and David Memel, "Building Strategic Relationships" (Jossey-Bass, 1995)
Yves Doz and Gary Hamel, "Alliance Advantage" (Harvard Business School Press, 1998)
Charles Poirier and William Houser,"Business Partnering For Continuos Improvement," (Berrett-Koeler, 1994)
John K. Conlon and Melissa Giovagnoli, "The Power Of Two" (Jossey-Bass 1998)
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