Six Ways to Boost the ROI of Your Strategic Alliance
December 21 2012 by Pamela S. Harper and D. Scott Harper
Since the 1990s, numerous studies have shown that 40% to 60% of strategic alliances do not meet CEO and senior executives’ expectations, despite the widespread sharing of best practices for leading and managing them. Nonetheless, with strategic alliances growing in number, impact, and financial importance for companies of all sizes and industries, it’s critical to understand and resolve this paradox.
To gain insights into why this success gap exists, and what can be done to create a stronger ROI, we recently conducted a study of CEOs and senior executives’ experiences and expectations of these relationships. 89 senior executives responded, including CEOs and senior executives from companies ranging in size from under $1 million to over $1 billion in 15 manufacturing and service industry sectors.
Our study led to surprising new insights about the possible sources of mismatched expectations and assumptions that often start before the relationship is even launched. To overcome these issues and gain increased value from your strategic alliances, here are six foundational recommendations.
1. Distinguish Strategic Alliances from Other External Relationships
The first step in building truly powerful strategic alliances is to determine whether a “strategic alliance,” with all of its implications, is actually the best solution for your business.
In our experience, successful strategic alliances are formed around an objective that is critical to each company’s vision, mission, and strategy. These relationships include elements of mutual consideration; joint decision-making; shared resources, risks, rewards, and outcomes that neither could produce alone.
For example, take the strategic alliance between GlaxoSmithKline and Theravance, Inc., which includes shared equity ownership and collaboration on COPD drugs. This alliance creates value that neither company could create on its own. In contrast, there is the recent agreement in which Vical Inc. granted Bristol-Myers Squibb Co. a non-exclusive license for two of its immunization technologies. This provides considerable value to both companies, but is more transactional in nature.
Reaching internal clarity on whether a strategic alliance or some other type of external relationship is the best approach to meeting your expectations, before reaching out to prospective partners, will allow you to focus your resources and create a more powerful portfolio of external relationships that meet your company’s particular needs.
2. Clarify Mutual Expectations with Prospective Partners
Just as it’s critical for you and your executive team to distinguish strategic alliances from other external relationships, it’s critical that you and your prospective partner have clarified mutual expectations as well. Unfortunately, this is not always the case. In fact, one of the most surprising findings of our study was that the term ‘strategic alliance” defied consistent definition (see sidebar chart).
The question of how to define a strategic alliance goes beyond semantics. If potential alliance partners use the term “strategic alliance” to describe their relationship, but have dramatically different expectations about governance and return on investment, there is substantial risk of clashes down the road.
Bringing up differences in expectations before executing an alliance enables both parties to have a realistic sense of whether the relationship is truly a fit for each company’s strategic objectives, and if necessary, adjust their expectations accordingly.
3. Align Expectations Within and Across Organizations
One of major sources of mismatched expectations may come from the fact that individuals with different levels of seniority, strategic orientation, and accountability often represent opposite sides of an alliance. Over 60% of senior executives in large companies and over 30% in small companies in our study delegated all or most decisions about their alliances.
We often see this in technology development alliances, where a senior executive represents the technology owner, and individuals from middle management represent the potential co-development partner. This often results in one alliance partner primarily focused on transactional or tactical matters while the other partner is focused on strategic issues. This could explain our finding that over 50% of our respondents expressed a “strong” or “very strong” wish that their partners would “adopt a more strategic versus tactical orientation.”
To achieve an alliance’s full potential, it’s critical that both partners ensure everyone accountable for making decisions about the alliance is well-versed in how the alliance will fit with the company’s strategic objectives, and also has the authority, knowledge, skills and abilities to effectively lead and manage it.
Uncover Assumptions about Priority of the Alliance
Assumptions about the priority of the alliance can make or break a successful outcome. Among the key assumptions partners often overlook or underestimate are issues of decision-making, timing and resourcing.
We recently worked with two alliance partners who quickly agreed on the general objectives and outcomes of a marketing alliance. It was only when they started probing the questions of “what could get in the way” and “where will the resources come from” that they discovered that the partner companies placed different levels of priority on the alliance. This discovery triggered additional discussions between the two sides that clarified sticking points and led to a new commitment of resources from the partner who initially had a lower sense of urgency.
Uncovering how well your assumptions about priorities for the alliance are in sync with your partner’s priorities provides a starting point for building and developing the relationship so that it’s set up to meet its full potential.
5. Develop a Relationship of Perceived Reciprocity
Several aspects of our study indicate that when both partners tangibly demonstrate the importance they attach to the relationship, they are far more likely to have alliances meet or exceed expectations.
Strikingly, a substantially larger portion of respondents who reported that more than 60% of their strategic alliances met or exceeded their expectations also strongly agreed that the relationship was “equally as important to both partners.” This is regardless of differences in company size or financial impact of the relationship.
Especially when strategic alliances are developed and managed by company representatives with different levels of strategic accountability, ensure that both partners take action to foster a culture that increases on-going communication and perceived reciprocity in the leadership and governance of the relationship.
6. Demonstrate Mutual Respect of Standards and Requirements
Our study results and experience show that respondents reporting higher levels of alliance success perceived greater transparency, mutual respect of standards, and engagement of senior management from their partners.
Notably, regardless of their level of reported success, over 70% of respondents overall expressed strong or very strong wishes that other companies “have systems, processes, and data in place.” The CEO of a mid-size high tech company summed it up very succinctly: “Great people, process, and technology are required. If it’s just a hobby…it won’t succeed.”
Even when CEOs are not “hands on” in the strategic alliance, you can stay engaged with your alliance partners by establishing and communicating around mutually agreed upon milestones, and agreeing upon the circumstances that would trigger the need for CEOs of both companies to be accessible. This enables you to monitor progress and adjust the relationship to minimize risk and maximize opportunities.
CEO Involvement in Strategic Alliances is Essential
No matter how involved CEOs are in strategic alliances, their perceptions and assumptions strongly impact whether a strategic alliance is truly powerful and capable of reaching its full potential. This is because decisions about strategic direction, culture, resourcing and focus that affect how strategic alliances are formed, governed and executed are profoundly affected by expectations and assumptions at the top.
Uncovering assumptions about your external business relationships provides a starting point for building and developing the relationship so that it’s set up to meet the expectations of both partners. These include determining whether the external business relationship you’re entering into really is a strategic alliance, with all of its implications, how aligned you and your partner really are, and the actual level of reciprocity in the relationship.
Building these often underestimated considerations from our study into your alliance process from the earliest stages on will enable you to create more agile, innovative and truly powerful strategic alliances to dramatically increase top and bottom line growth.
Pamela S. Harper is an internationally known business performance
expert, author, and professional speaker. She is the founding partner
and CEO of Business Advancement Inc. (BAI). Since 1991, BAI has
enabled companies to accelerate their progress toward growth and
D. Scott Harper is an internationally recognized innovation expert
with a unique ability to blend technical and business insights to
achieve outstanding business results. Scott has extensive experience
in moving products to market from concept generation through
development and release.
The authors can be reached at www.businessadvance.com