As companies grow, they often fail to consider strategic alliances as a source for intellectual and financial capital. By definition, a strategic alliance is a formal agreement between two businesses as an alternative to forming a legal partnership, agency, or corporate affiliate relationship (merger or acquisition).
Strategic alliances gained increased popularity in the 1990s. From 1987 to 1992 more than 20,000 new alliances were formed in the U.S, up from 5100 between 1980 and 1987. By 1999, U.S. corporations were involved in over 2,000 alliances with companies in Europe alone.
The primary benefits of a strategic alliance is the opportunity it creates to combine resources or share expertise in order to quickly build or expand market opportunities or gain some other competitive advantage. Some of these include:
• Shared manufacturing and marketing expenses and R&D costs to gain economies of scale
• Expanding a customer base through a partner’s relationships or geographical footprint
• Gaining access to intellectual talent and/or protected technology
• Co-branding or capitalizing on another company’s brand or market position
• Access to capital
Strategic alliances force companies to share revenues and profits, but they also share the risk of loss and failure. As a result, their popularity increases as projected risk increases, thus companies enter into alliances when other options are too risky or too costly.
One common misconception is that large companies only partner with large companies. This has never been the case and is less so these days when change can come quickly, business needs to respond, and where new niches are created every day.
Some recent examples of successful alliances:
Starbucks – Starbucks partnered with Barnes and Nobles bookstores in 1993 to provide in-house coffee shops, benefiting both retailers. In 1996, Starbucks partnered with Pepsico to bottle, distribute and sell the popular coffee-based drink, Frappacino. A Starbucks-United Airlines alliance has resulted in their coffee being offered on flights with the Starbucks logo on the cups and a partnership with Kraft foods has resulted in Starbucks coffee being marketed in grocery stores.
Apple- Apple has a long history of strategic alliances having partnered in the past with Sony, Motorola, Phillips, and AT&T. Recently it partnered with Clearwell in order to jointly develop Clearwell’s E-Discovery platform for the Apple iPad. E-Discovery is used by enterprises and legal entities to obtain documents and information in a “legally defensible” manner.
Hewlett Packard/Disney – HP and Disney have a long-standing alliance dating to 1938, when Disney purchased eight oscillators to use in the sound design of Fantasia. When Disney wanted to develop a virtual attraction called Mission: SPACE, Disney Imagineers and HP engineers relied on HP’s IT architecture, servers and workstations to create Disney’s most technologically advanced attraction.
Eli Lilly – This pharmaceutical giant has been forming alliances for nearly a century, and was the first in big pharma to establish an office devoted entirely to alliance management. It currently has over one hundred partnerships around the world devoted to discovery, development, and marketing.
Some alliances are geography centric. Others focus on specific customers, products, or technology. Vendors, suppliers and even potential competitors can be potential partners. Often the strategic partner eventually becomes a buyer or a seller.
Keep in mind that there must always be “consideration”— value gained by both parties. Often the alliance fails due to one party or the other gaining too much from the relationship. The best alliances are often completely voluntary, where either party can walk on short notice.
The Inman Company and its consultants have years of experience in designing, managing, and monitoring strategic alliances