THE FIVE FACTORS OF A STRATEGIC ALLIANCE by Jason Wakeam
Strategy | May / June 2003
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“Strategic” may be one of the most over-used words in business today. This observation is especially valid in the world of alliances, where managers must distinguish between those alliances that are merely conventional and those that are truly strategic. This author outlines the five factors that make an alliance “strategic.”
As companies gain experience in building alliances, they often find their portfolios ballooning with partnerships. While these partnerships may contribute value to the firm, not all alliances are in fact strategic to an organization. This is a critical point, since, as this article will explain, those alliances that are truly strategic must be identified clearly and managed differently than more conventional business relationships.
Due to the levels of organizational commitment and investment required, not all partner relationships can be given the same degree of attention as truly strategic alliances. The impact of mismanaging a strategic alliance or permitting it to fall apart can materially impact the firm’s ability to achieve its core business objectives.
THE FIVE CRITERIA OF A “STRATEGIC” ALLIANCE
What is it that makes an alliance truly strategic to a particular company? Is it possible for an alliance to be strategic to only one of the parties in a relationship? Many alliances default to some form of revenue generation—which is certainly important— but revenue alone may not be truly strategic to the objectives of the business. There are five general criteria that differentiate strategic alliances from conventional alliances. An alliance meeting any one of these criteria is strategic and should be managed accordingly.
1. Critical to the success of a core business goal or objective.
2. Critical to the development or maintenance of a core competency or other source of competitive advantage.
3. Blocks a competitive threat.
4. Creates or maintains strategic choices for the firm.
5. Mitigates a significant risk to the business.
The essential issue when developing a strategic alliance is to understand which of these criteria the other party views as strategic. If either partner misunderstands the other’s expectation of the alliance, it is likely to fall apart. For example, if one partner believes the other is looking for revenue generation to achieve a core business goal, when in reality the objective is to keep a strategic option open, the alliance is not likely to survive.
Examining each of the five strategic criteria in depth provides insight into how the strategic value of alliances can be leveraged.
1. Critical to a business objective
While the most common type of alliance generates revenue through a joint go-to-market approach, not every alliance that produces revenue is strategic. For example, consider the impact on revenue objectives if the relationship were terminated? Clearly, a truly strategic relationship would have a great bearing on the prospects for achieving revenue growth targets.
In addition to a single strategic alliance, related groupings of alliances—networks or constellations—may also be critical to a business objective. Sun Microsystems has established a group of integrator alliances that function as an effective marketing channel and drive significant revenues for the company each quarter. (See article, Constellation Strategy, elsewhere in this issue of IBJ Online).
This category also includes alliances with high potential, such as alliances that have large but unrealized revenue opportunity.
Consider the impact of new industry standards that make it possible for products from different manufacturers to work together. This can unlock customer value and boost the