Market hype touts that alliances are critical to developing competitive offerings and capturing new revenues. Just three years ago, several recognized consulting firms cited a 60% failure rate. Today, Anderson Consulting reports that 82% of executives believe alliances are a prime vehicle for growth, and, in fact, contribute an average of 26% of Fortune 500 companies’ revenues. Five years ago, alliances only contributed an estimated 11%.
But are alliances good for everyone—is there a one-size-fits-all approach? Statistics tell only part of the story, and judging by the plethora of new titles in the bookstores, corporations of all sizes are talking about the "glue" to put (and keep) these relationships together. When should you engage with other providers? Or is the question more of knowing when and how to gracefully disengage? How can you manage the politics of "alliancing"? How will you create value (for yourself, your partner, your clients? In short, what do you want to accomplish through an alliance and how do you know when you have been successful?
What is and is not an alliance?
The term “alliance” is often loosely applied to a variety of third-party relationships. At the most simplistic level, an alliance is a mutually beneficial relationship that drives value. It involves a commitment of resources (human, financial, technical, business), leverage of collective strengths, common objectives and, hopefully, incremental, if not significant, financial return. We also might add that successful alliances are built upon existing relationships that desire more return on investment; in an ideal situation, this is achieved via formal partnering agreements with measurable metrics of success.
Alliances, then, are neither one-off teaming arrangements to pursue a particular client, nor are they preferred vendor relationships that are focused on various discounting and cost containment strategies (although an alliance may embrace these benefits). Alliances should provide value beyond a simple reseller or vendor relationship.
It is also important to note that companies often classify their alliance relationships differently. Some have a hierarchical approach to classification, implying tiering and relative importance. Still others focus on the engagement model—solution providers, channel partners, simple resellers, and so on. Unless there is a common understanding of terms and partnering structures, relationships can de-rail early into the process.
What drives alliances? Why create them?
The adage, “beauty is in the eyes of the beholder” also holds true for alliances—alliances drive perceived value, making them valuable to the other partner. Benefits, or value, can take many forms, depending upon the needs and perspective of the organizations involved. Companies cultivate alliances to:
· Accelerate time-to-market (new offerings/services vs. creating them in-house)
· Reduce/share risk (associated with entering new markets, regions, or creating new products/services)
· Expand their footprint in new regions, markets and/or services
· Achieve more “feet” on the street –i.e. to expand their sales, delivery or marketing channels
· Capitalize on partner client/vendor relationships
· Acquire additional resources: knowledge-ware (subject matter expertise), dollars for development, complementary capabilities
· Enhance “brand”, “image” (by associating with “best-in-class” providers or market leaders)
· Fight a common enemy and/or to increase competitiveness
· Create innovative, unique offerings
· Achieve market/industry dominance
Why are some alliances successful while others are not?
Alliances can essentially “level the battlefield” in a competitive situation or become an “Achilles heel” in a client pursuit. As such, one must not take an ambivalent view to their selection, construction and execution.
Kick the Tires
Successful alliances are the result of a thorough screening and selection process and should clearly offer a compelling value proposition to each partner and the clients they serve.
Each organization should identify what is important to them early into the alliance selection process. At this stage, one should investigate basic information such as organizational structure; vendor, partner and client relationships; financial stability; industries, clients and markets served; competitive position and competitiveness; potential market share, strategies and objectives; availability of resources and so on. Cultural fit, strategic and portfolio fit, organizational synergies and disconnects should also be identified early into the process so that potential issues, or relationship ‘decelerators’, can be addressed quickly.
Alliances probably should not be consummated if you have never worked with the other company before. Alliances that result from several “test drives” usually have the higher rate of success.
Build the “Car”—Create Value
After a thorough market and competitive analysis is completed, the nuts and bolts (or tactical components) of the relationship should be decided. What are you going to do together? Where? When? How? and Why?
Alliances that accomplish something—that is, ones that result in creating revenue—take time to develop. They should involve dedicated resources that participate throughout the relationship (for continuity) and should follow a project management approach to creating a joint business strategy (for consistency). Mutual trust is a pre-requisite. Organizational buy-in and endorsement is mandatory.
Some critical questions must be asked: How should the companies engage? Is there a balance of trade (each sells to the other)? Who is primary/secondary in a sales pursuit? Who owns the client relationship? Is there a formal problem escalation process? How are the sales teams compensated? Does each team have sufficient resources to properly support the relationship? Respond to mutual client needs? How should the relationship be marketed? How are market/business development funds going to be sourced? How is performance going to be measured and against what metrics?
Alliances that have mutual objectives and a clear plan to achieve them are more likely to commit the necessary resources (human, technological and financial) to achieve them and to honor the resulting contractual obligations set forth. As a side note, some companies have a formal internal review process—this is normally after an alliance candidate is evaluated and/or before the contract is formally signed. Alliance agreements should address at the minimum:
· Terms of engagement—Who is providing what? Who is primary in a sales pursuit? How are solutions delivered? Trade shows? Development funds? Commitment of resources?
· Defined problem escalation process
· Defined communications process regarding press releases, information (pipeline) sharing, training, etc. both for internal and external consumption
· Performance objectives (number of people trained, revenue targets, pipeline targets, etc.)
· Compensation plan
· Roadmap for execution
· Terms for disengagement, legal recourse
· Periodic reviews, measures and metrics of success/failure
Common contractual elements might include a master nondisclosure agreement, a general alliance agreement, a statement of work, a master services agreement, licensing/reseller agreement, etc. If there is a direct sales relationship in addition to the alliance (that is, one company buys services from the other), it is often easier to do these separately in order to expedite the agreements. Having said this, terms that are mutually constructed have the best chance of being executed/ honored.
Tool Down the Freeway
Once there is organizational consensus and all contractual agreements have been signed, the alliance can be launched. By this time, all resource requirements, funding, services, and other commitments made during the business planning process are now put into motion. Management, sales, marketing and delivery resources should be quickly identified if they already have not been selected. It is critical that both organizations have peer-to-peer representation whenever possible.
During this stage it is also important to immediately address what is not working and to continually monitor performance against agreed-upon objectives.
How’s the trip?
Experience tells us that alliances that are measured against agreed-upon metrics are more likely to meet contractual commitments and other objectives. They are also likely to have an interest in resolving issues quickly when something is not working. In light of this, companies should decide for themselves (1) what is important to measure, (2) how often and (3) by whom. This should be included in the contract as a formal process. If there is a performance issue, both parties should either recommend corrective action, agree to re-negotiate more acceptable terms, extend the relationship or disengage.
As you can see, it is better to load the work at the birth of the relationship rather than at the demise of it. Careful, deliberate evaluation and assessment against objectives is critical to the selection of a viable partner. Just as important is the creation of a cogent business strategy and later the contractual language that assures that this “plan” is executed. Of course, basic relationship/business management skills are required throughout the entire process. By loading “alliance work” up front, companies can save money potentially wasted by a poor choice of partner, or they can create a growth engine to supplement their core business. Either way, it is time well spent.
*Jennifer Jafari is the Director or Strategy and Development for EDS Global Alliances and will serve as moderator for the "Bottom Line Partnerships" workshop at Harvesting Partnerships on September 26th.
