In a previous post, I introduced the concept of Cooperative Strategy .I discussed how the unique dynamic between competition and cooperation could effect a potential alliances. As I wrote, by working together small and medium size businesses could maximize resources and minimize risk, thus gaining competitive advantage.
Partnerships between businesses come in many shapes and forms: Joint Ventures, Equity investments, Cooperatives etc; but they are all based on the idea of mutual value. All business partnerships are based on the principal that two – once independent companies – are now becoming interdependent. No matter what is the constellation of the partnership, its members are committing to continuously bring new benefits to their partners.
When companies look for a partner many factors are taken into account: economic benefits, market condition, regulatory issues, internal and external organizational problems to name only few. Toveda and Knoke, two researchers from the US and the UK, discuss the different models of collaboration between companies. They devide the motives to engage in a strategic alliance into four categories:
1. Organizational – Some companies decide to partner with another company because they are looking to learn new skills, improve performance, and expand supply links and distribution channels.
2. Economic – Many companies are willing to share their resources in order to also share financial risks with their ally. Obtaining economies of scale is another incentive for businesses to partner.
3. Strategic – Researching and developing a new product may require the sharing of strategic knowledge. Companies also look for strategic partners in order to gain competitive advantage or preempting potential competitors.
4. Political – Overcoming political requirements, such as government policies and regulations or technical standards, may push two companies to partner.
After defining the motivation for creating an alliance, the next step is forming it. Forming a successful alliance is not an easy task. It requires two once autonomous entities to now pool resources together and aspire towards a mutual goal. One of the biggest issues when forming an alliance is clarifying who is in control and possesses final decision making authority. Also, choosing the right people as liaison managers could also have crucial effect on the creation of a fruitful alliance. With that in mind, creating inter-organizational trust, reciprocity and confidence is essential to daily operations, even if the partnership was formed meticulously.
The possible termination of an alliance is also a matter that requires companies’ attention. Both companies taking part in the alliance “should sleep with one eye open”. The reported termination rates suggest that close attention should be given to performance measurement. That way businesses can make sure their objectives are being achieved and also avoid unexpected changes, such as partner intention to terminate the alliance or possibly takeover.
Based on: Todeva E. & Knoke D. (2005). Strategic alliances & models of collaboration. Management Decision, 43.