For starters, potential sellers should look for partners who would later be the best buyers. These partners are potential competitors rather than complementary partners, as direct competitors are best placed to maximize synergies. You should have enough cash for investments and acquisitions. In the Siemens/Allis-Chalmers division (Siemens Allis Power Engineering), Siemens saw the business as a central strategic area, had solid technology, was ready to invest and wanted to expand in the United States. Allis-Chalmers had sales, distribution and manufacturing capabilities, but limited capital to invest in the development of new technologies and products. Given this combination, says a Siemens executive, it was not surprising that “in everyone`s mind was the idea that if and when the company ends, Siemens would be the likely buyer.” By 1982, four years after the alliance was founded, Siemens had increased its stake to 85 percent. The full recovery took place in 1985. Subsequently, Siemens made further acquisitions to build a company with revenues of more than $1 billion. Strategic alliances can be flexible and some of the burdens that a joint venture could bring. The two companies do not need to merge their capital and can remain independent of each other. The two brands then formed a long-term strategic alliance for Red Bull extreme sporting events such as the Red Bull Rampage.
Only GoPro cameras are used to capture images from an athlete`s perspective at these events. Other factors also contribute to power shifts. On the one hand, partners who place the most executives in key roles in an alliance are likely to increase their strength, even if they start as shareholders with a minority stake. On the other hand, the ability to invest in an alliance over time often becomes increasingly important after the deal is concluded. The parent company that invests the most generally obtains greater decision-making power and equity participation. The relative ability (and appetite) of the parent company to invest is particularly important, as alliances typically require more capital than expected: if the alliance is successful, capital is needed to grow; If it underperforms, capital is needed to compensate for cash shortages. The reason executives may not take the time to think about developing a planned alliance is that they may already believe that they have a good handle on their company`s long-term interests. They may think that their reasons for forging an alliance are based on the strongest strategies. But trapped in the thrill of hunting or the intensity of negotiations, many managers are fooling themselves. If you make any of the following statements, be careful! Your alliance can lead your business to an unexpected divestiture.
Strategic alliances are formed to accelerate the development of new goods or services, share R&D expenditures, streamline market penetration and overcome uncertainties. Ultimately, the challenge in all alliances is whether to seek to balance forces and contributions, or accept that the balance of power will inevitably change, and plan accordingly. Not asking the right questions before closing a deal can lead to one of the worst decisions a manager can make: engaging in an unexpected sale of the company – often without prior board approval and for far less than the company would get in an open auction. In the heat of negotiations, it may seem a distraction to advance an alliance to examine its evolution. But considering the high stakes, it`s worth it. At Walt Disney World`s EPCOT, Disney and Chevrolet teamed up to create Test Track – not just a thrilling ride, but an in-depth experience of the Chevrolet brand. In this example of a strategic alliance, innovators from both brands worked together to create a unique driving experience that leverages the capabilities of both brands. These alliances are based on genuine cooperation, where both partners rely on each other`s qualities rather than trying to fill in the gaps. Often, partners have different product-related, geographical, or functional assets. (See the exhibition “The combination of complementary forces creates value.”) A company can form a strategic alliance to expand into a new market, improve its product line, or develop an advantage over a competitor. The agreement allows two companies to work towards a common goal that benefits both. In the real world, alliances are often sought after as a second-rate strategy when management is unwilling to sell a weak company.
But shareholders would generally be better off if the company was sold in the first place. If weak companies believe they need to merge with a strong company, they need to recognize the risk that the alliance will end up with an acquisition. Such awareness requires “divestment thinking,” not “covenant thinking.” Forming a strategic alliance with a nonprofit can also be a great marketing strategy, as long as the partnership is authentic and relevant to your audience. Just ask BuzzFeed and Best Friends Animal Society, two brands that have formed a simple but effective strategic alliance to produce content. Second, partners should structure the Alliance in such a way that contributions made and value received are regularly reviewed and an appropriate balance is maintained. For example, Honeywell typically incorporates sunset clauses to force a renegotiation of its alliances every five years. Flexibility can be increased if the partners agree on the underlying principles of dispute resolution and agree to abide by them if the technical or legal provisions prove unfair. Flexibility is also needed to allow partners to expand or limit the scope of the alliance to meet market demands or resolve any conflicts that may arise.
In alliances of complementary equals, governance is crucial. While the initial contract needs to be solid for the company to get off to a good start, it`s not the key to success, as the terms of the deal tend to change so much over time. The real challenges are to increase flexibility, maintain balance of contributions and ensure clarity of leadership. If governance is well planned and managed, the Alliance will foster independence, fairness and trust. Each partner will prosper on an equal footing. And, as with all types of alliances, withdrawal arrangements need to be carefully thought out – just in case. Managers need to focus on assessing the future value of involving each company and the alliance as a whole: if the partnership is successful, the original values will soon be obsolete. The agreement between Starbucks and Barnes & Noble is a classic example of a strategic alliance.
Starbucks makes coffee. Barnes & Noble keeps the books. Both companies do what they do best while sharing space costs to the benefit of both companies. Each of these types of alliances is selected based on the reach and needs of the target. Just as choosing partnership organizations is essential for the business, choosing the right type of partnership can mean the success or failure of a project. As people move through the test track queue, they can watch videos about Chevrolet`s design process and see current and futuristic Chevrolet models. Then, they are asked to design a custom Chevrolet vehicle in an interactive branding game. The trip itself is a “test drive” of the vehicle they designed. According to the Ivey Business Journal, a strategic business alliance needs five key elements to succeed. According to Accenture, 76% of executives surveyed agree that current business models will become unrecognizable in the next 5 years. Ecosystems and strategic alliances will be the most important agent of change. On the other hand, an alliance can be a good vehicle for acquisition or divestment if its development is planned.
That`s why it`s important to consider whether an alliance could lead to a sale. Such an assessment can help companies avoid disastrous partnerships and unexpected sales of large companies. It can help managers select business partners who will drive their organization`s long-term strategic plan. And it can help uncover opportunities where an alliance can be used as a low-risk, low-cost option for future acquisition. More and more leaders are turning to alliances as a strategic vehicle of choice when looking to expand the reach of their organization`s products, geographies or customer base. Over the past five years, the number of national and cross-border alliances has increased by more than 25% per year. But the term alliance can be misleading; In many cases, an alliance actually means a possible transfer of ownership. The median life of alliances is only about seven years, and nearly 80% of joint ventures – one of the most common alliance structures – eventually end with a sale by one of the partners.
Indeed, the first two types – clashes between competitors and alliances of the weak – almost always fail and must be avoided. The next two – stealth distribution and bootstrap alliances – bring together strong and weak companies, and although they are risky and usually lead to a sale, they can benefit both partners if properly structured and managed. The last two – developments towards complementary sales and alliances of equals – bring together strong companies and strong companies, but only the latter usually lead to successful and sustainable companies. We will describe the six types in detail. As you have seen in these 10 successful examples of strategic alliances, partnering with another brand can be very fruitful as long as both brands benefit from the partnership.
