Forming a Strategic Alliance

Looking for a smart way to grow your business? A strategic alliance may be the answer. A strategic alliance is essentially an agreement, formal or informal, to combine efforts with another business. The project may range from leveraging better prices from suppliers by bulk buying to building a product together with each partner carrying out the part of the production process they are best set up for.

Just who might be a good candidate for a strategic alliance depends on what you want to achieve. Partnering with a key customer can cement the relationship and protect your custom with them. Partnering with a firm that already has a well established brand offers the opportunity to become better known by association. Even partnering with a competitor to achieve specific strategic goals can be beneficial. Apart from the bulk buying type deal, it could involve working with them to win contracts that may be too large for you to handle by yourself.

The nature of many businesses is that they are specialised in one area or another. That means your skills and knowledge will be most attractive as a strategic alliance partner to a business whose product or service you complement in some way. Relationships can be formed vertically (between supplier and manufacturer or between manufacturer and distributor) or horizontally (between similar firms in the same industry). They can operate at both the local and global level – forming an alliance is one way that businesses can get started in overseas trade.

Whatever the nature of the alliance there are some rules for ensuring it works out to deliver the advantages you want from it.

Communication should be your foremost consideration. While it isn’t necessary that each member of a strategic alliance have exactly the same objectives, each should still be committed to a common outcome. To make sure that you and your alliance partner share similar goals it is important to be honest from the outset. That is, be frank about what you hope to achieve from the alliance and what you can provide to make sure your partner’s needs are met.

One of the most common mistakes is a failure to clearly lay out the details of the alliance from the beginning. The result of this failure can be significant – mismatched goals, insufficient commitment, and an inability to alter the alliance easily at a later stage. Especially important is defining where the alliance ends and competition begins.

When considering an alliance look for situations that will deliver strong benefits to both members. Only take part in an alliance when you think it will improve your business relationship with the other party overall, not just during the term of the arrangement. Alliances are only worthwhile if they represent a win/win situation for all parties involved.

For the business entering into an alliance with a bigger firm there are other challenges. Try to establish connections with several of the company’s members. This is important because, in a large firm, it is more likely that if one department is dealing with you others will be unaware of, or at least unfamiliar with, the alliance. It could destroy the value of the alliance to you if your key contact suddenly leaves or is moved to a different office.

Don’t get too locked into an alliance. The benefits deriving from an alliance can decline over the longer period as each organisation develops along its own strategic pathway or outside factors alter the situation. One type of alliance may have suited your goals at an earlier stage of the business’ development but have since lost relevance. Others may have proved to be too narrow and need to be widened to meet your continuing business needs.

Forming a strategic alliance is becoming a more and more common tactic for expanding the reach of an enterprise without committing to expensive internal expansions beyond its core business. For small businesses a strategic alliance may consist of no more than ‘bartering’ with customers, suppliers and even competitors. But the terms can go way beyond that and open up the possibility of allowing your business to share expertise, assets, expenses and risk with another business without necessarily incurring cash debt or trading away too much of your equity.

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