Alliance Governance; Embrace the Diversity

I like to call alliance success, Partnering for Profits. Unfortunately, a frequent alliance success pitfall is attempting to make your partner in your image—do things the way you do, think the way you think, and follow the same methodology. While it may appear in the short-term, to ease the rocky road of alliance governance, what it really does is minimize the value your partner delivers in the alliance relationship. What it was that attracted you to your alliance partner in the first place were their core competencies and the belief that together, value added synergies would be created and deliver benefit to both; and now you want them to change? How much sense does that make?

First the Process of Working Together

When you set up your alliance expectations in your alliance agreement, the first success should be successful organizational alliance integration—a strategy to collaborate in developing a cooperative process with which both organizations can successfully implement and integrate into their current processes and methodology. First you have to successfully cooperate and collaborate before you can implement the actual stated alliance function.

Cultural, Strategic, and Operational Fit

For any alliance to be successful there is the need for a reasonable cultural, strategic, and operational fit. However, there is not a need for exact cultural, strategic, and operational duplication. The cultural fit is about how compatible the management teams and corporate cultures overlap. The important question is can they successfully work together? The strategic fit is determining how well aligned are the objectives of the participating partners. Opposing corporate strategies can greatly handicap, even a well implemented alliance. Operational fit is the tricky one. How complementary are the business models, processes, and methodology? Notice I stated aligned, and not, the same? With alignment there can be differences, yet cooperation and collaboration.

Partner Due Diligence

I truly believe that due diligence is the Achilles heal for most organizations in the alliance development process. During this very important alliance development step, you really do need to be honest with yourself and your potential partner(s) as to your partnering expectations, your own capabilities, and the partner capabilities you seek. For years I have been saying, “People do not change after marriage.” What I mean by this in the partnering arena is the, all too frequent, misguided belief that one’s partner will get better after the alliance is implemented. How wrong can a person, committee, or organization be? Pick the correct alliance partner from the beginning. Trying to change them after is a fool’s errand.

New Alliance Tools for Smaller Organizations

When I first started writing about alliance development, many of the tools were financially only available to the larger corporations. However, with the preponderance of today’s social networking capabilities, many savvy smaller companies are using Facebook and Linkedin for alliance success, especially in the areas of governance and implementation capabilities. As the social networking sites are now allowing greater control over privacy, they become even better alliance tools for smaller business alliance success. You will find that with a small amount of creativity, social networking sites can truly be a boon to alliance governance, implementation, and success.

Should I Start a Strategic Alliance or Joint Venture?

You are looking to gain that competitive edge over your competition. Many smart business leaders look to collaboration for expedient advantages. Might a mutually-beneficial relationship with another organization be in your future? If you answered in the affirmative, your next question will be, “Should I start a strategic alliance or a joint venture? This is a question that I’m frequently asked and the answer could be complicated?

More than Just Words

Actually, there is a huge difference between a strategic alliances and joint ventures; culturally, operationally, strategically, and legally. A little bit of strategy and pre-planning can, and will, make a dramatic difference for your organization as your new collaboration is developed and implemented. Let’s get it right from the beginning.

Strategic Alliance

Your reason for developing a strategic alliance relationship with one or more other companies is to take strategic advantage of their core strengths; proprietary processes, intellectual capital, research, market penetration, manufacturing and/or distribution capabilities, and a number of other reasons. You will share your core strengths with them too. You will have an open door relationship with another entity. You will mostly retain control. The length of agreement could have a sunset date or could be open-ended with regular performance reviews. However, you simply want to work with the other organizations on a contractual basis, and not as a legal partnership.

Joint Venture

Your reason for creating a joint venture is to take advantage of a fitting or convenient connection or overlap. A joint venture is a legal partnership between two or more entities. With a joint venture you will have something more than simple governance; you’ll have a completely new entity with a board, officers, and an executive team. Effectively a joint venture is a completely new organization, but owned by the founding participants. The board of directors generally is constructed with representatives of the founding organizations. This new company will “do business” with the founding entities—usually as suppliers.

Important Differences

1. Your strategic alliance is a contractual or handshake agreement while the joint venture is a legal partnership, LLC, or corporation.

2. Your strategic alliance summons the core strengths and differences of another organization to deliver value to your organization while the joint venture becomes a blending of cultures and creates a new organizational culture and path.

3. Your strategic alliance requires continued relationship maintenance while the joint venture has its own leadership team.

4. Your strategic alliance allows you to remain in control of your own company but the joint venture chooses its own direction; with the guidance of its board.

5. You can retain control of your proprietary creations while involved in a strategic alliance but in a joint venture, these creations are the property of the joint venture. If the joint venture fails, dividing the spoils can be a challenge.

Which Is Right for You?

There are numerous reasons, benefits, and pitfalls available to you whichever path you select. The key is to have an understanding of both your and your partner’s long-term desires. You can jump into and out of a strategic alliance quickly but the joint venture takes much more time to start and could be difficult to end. The joint venture takes less necessary attention form stakeholders once launched because of its own leadership team. If you are not willing to devote your time and resources to the health and maintenance of your strategic alliance, perhaps the joint venture is the better path for you? If control is important to you, the strategic alliance would be the better course of action.

Loyalty Alliance Style

You want loyalty from your customers, employees, and suppliers. Every imaginable supplier, B2B and B2C, is desperately looking for customer loyalty too. But what about those that want the last ounce of advantage on both the sell side and also the buy side? Do you know who I talking about?

See It with Your Own Eyes

I’ll never forget an experience I had while visiting an ice manufacturing plant in Southern California. I was visiting the plant in preparation for a multi-day marketing workshop I was to conduct at that industry’s annual convention. I wanted to get a feel for the industry first hand.

I set up an appointment to visit the plant but the owner was out. So, his second in command gave me a factory tour. Over the course of the tour, and to my amazement, my guide was bemoaning what he considered poor loyalty from their customers—stating that many would buy from another company if his drivers were late with deliveries. I listened intently and empathetically to him. Toward the end of the tour he was showing me the ice bagging machinery so I asked my guide about his company’s bag supplier. Holy cow! This guy’s facial expression turned sheepish. He then told me, “We like to play one supplier against another for the best possible price.” Excuse me!

What’s In Your DNA?

Apparently supplier loyalty was not in the DNA of this particular ice manufacturer. However, they expected loyalty from their customers. Is it just me? Or, can you see the cosmic humor in this situation? This organization wanted it both ways. It’s kind of like the folks that regularly shop at Wal-Mart and then complain that all the American jobs are being sent overseas. Duh!

Looking at a 180 degree difference in business philosophy is Universal Electrical Contractors in Flint, Michigan. President, Gene Dennis, successfully shifted his buying from several electrical distributors to giving Graybar an exclusive agreement. A decade later the alliance is still going strong and highly profitable for both.

What’s a Business Leader to Do?

1. If you want loyalty from your customers, practice the concept of loyalty in your dealings with suppliers.

2. If you discover that adversary relationships are in your organizational DNA, put new policies into place to mitigate the situation.

3. If you want collaborative DNA at the core of your organization, review how your key people are being compensated.

4. Reward the behavior you want repeated—meaning, do not reward the procurement department only for squeezing an additional dime out of your suppliers. Rather, build strategic sourcing relationships.

Now the Getting Gets Good

After you do a major overhaul in the area of supplier alliance development, you can use your newly found strategic sourcing understanding to develop better relationships with your customers. This is also a great time to review your employee partnering policies. Trust me on this; you do want your employees to have an emotional ownership in the success of your business. In difficult economic times—sure, everyone is looking for a deal. But, when you and I have a vested interest in our relationship, we’ll bend over backwards to help one another. That is the basis for real customer, and seller, loyalty. It’s never too late to start building the new era of loyal relationships.

Conflict Management in Alliance Development

There will always be conflict in strategic alliance development--it is inevitable. During this time of conflict you can take one of two positions. The first and frequently employed position is that of having your heels dug in. You believe you are right and that's it! The second position, and more difficult to employ, is where you care enough about your partner and the success of the alliance to understand what is motivating their behavior. Needless to say, my recommendation is the second.

Think Back

Just to make a point, I’d like you to think back to the last argument you had with your spouse, parent, child, a friend or in a business situation. Do you see yourself in the argument? Now, I ask you which position did you take?“ The first,” you say? I thought so. If you had taken the position of trying to understand the other’s position, there most likely would not have been an argument. We humans are not perfect. As such, we sometimes we fall into our stuff. At these times we are not the best people we could be. But, it is the person who recognizes that they are in their stuff and makes a new behavior decision that makes a good partner.

You might be thinking, “Thanks for the info, Ed, but why do I have to always be the person who makes the change, the person who makes it works? Why can’t it be the other guy once in a while?” My answer to you is simply that you are the one who figured it out first. Get out of your stuff and, as Nike says, JUST DO IT^®.Listed below are some additional tactics to help you resolve conflict.

• Evaluate your, and your partner’s, conflict management styles. Understanding each other is a great start.

• Identify and plan strategies to deal with non-productive behaviors before they crop up.

• Give positive feedback as often as possible so the relationship does not take on a negative tone through only fire fighting interactions.

• Confront problem situations at once rather than waiting for the situation to escalate.

• Invite comments from all stakeholders early in every project, especially your alliance partners.

• Consider using humor and maybe even humility in certain situations.

• Encourage dissent at a time and place that serves all involved.

• Review the value of the alliance relationship. Determine how much your circles of interest overlap. Ask if winning this battle will get you closer to an OSR, or further away from it.

• When you hear something you don’t like, repeat it back in an informational way. See if the message you received was the same as it was intended. Misunderstanding is the root of much conflict.

• Know your buttons and don’t allow them to be pushed. You have control in this area.

• Completely listen to what the other guy has to say before you open your mouth. Remember the adage, Listen twice before speaking once. That’s why God gave you two ears and only one mouth.

• Remember the principle of saving face. In some societies, it is a matter of life or death. Fortunately, or unfortunately, depending on how you look at it, this is not usually the situation in North America.

• Keep your ego in check. Be clear on the difference between high self-esteem and high ego. One serves and one does not. Need I say more?

• Appoint a devil’s advocate and allow them to be involved in projects from the start, all the way through completion. Their job is to be a pain in the neck. It’s not that they are just picking on a certain person or position. This keeps people from taking a dissenting opinion personally.

• Keep the consequences of your decisions in mind.

• Value the opinion of others. Focus on the clarity of the water, not the spring from which it flows.

I understand that building Outrageously Successful Relationships can be difficult at times. My best advise for you: Know the value of your relationships. Know where you want the relationships to go and stay on course. Accept that quality Partnering just takes time and effort. Accept that there isn’t any magic--just dedicated implementation.

Acquisitions vs Alliances: the Basics

In your effort to decide between acquisitions vs alliances there are several important considerations. While the benefits to your organization might greatly differ between the two, so goes for the cost of failure. To help you succeed, first defining the terms might prove extremely helpful to you in your decision process.

Acquisitions

Acquisitions and mergers are effectively the same thing. Most mergers are really one company acquiring the other. In this acquisition process, the acquiring company receives the good and bad, the positive and the negative resources, liabilities, and reputation. The acquiring organization receives all assets and liabilities of the acquired organization.

Alliances

Alliances, generally strategic to an organization’s short or long-term plans, are contractual relationships wherein both organizations remain independent while collaborating to develop a mutually-beneficial result within a specific scope outlined in the contractual agreement. A very simple example would be the cross promotion efforts that are regularly employed by Hollywood’s movie producers and various companies that sell their products or services directly to consumers.

Value in Acquisition

Value can come to an acquiring company through: intellectual capital, real estate, equipment, resources, market share and an extensive list of other considerations. However, the reverse is also possible (think Daimler-Benz & Chrysler). One of the insidious pitfalls of acquisitions is when the company being acquired successfully, and deceptively, hides liabilities from their suitor. Generally the strategy of acquiring organizations is to somewhat dismantle an acquired organization, keeping the targeted valuable components and assimilating them into the acquiring organization while disposing of the unwanted, underperforming, or potentially damaging elements. If the acquiring company has a bad reputation (think Cingular) as an example, and the company they acquired has a good one (think AT&T), then value is delivered.

Value in Alliances

Value can come from alliances in a myriad of ways: immediate market penetration, immediate distribution of a product or service, cost sharing, new product development and the list continues. The down side might be: loss of complete control, divulging of proprietary information, ownership conflict of mutually developed products or services, time and resource distraction, and underperforming partners—just to mention a few possible negative elements.

Alliance Benefit

The important alliance benefit in the area of determining acquisitions vs alliances is the ability that alliance first provides in looking before leaping. While there are countless stories of failed alliances, there are more of failed mergers and acquisitions. The price of a failed acquisition is almost always multiplied many times as compared to the price of a failed alliance. An alliance first, gives you the opportunity to “closely study your prey before the actual hunt is under way.”

My Advice

From my two decades of helping companies to develop mutually beneficial collaborative relationships, I would advise any organization or groups of organizations that are considering acquisition or merger to first develop a strategic alliance, or a few alliances, with one another to better understand the core strengths, weakness, capabilities, and cultures of all organizations involved. This process will assist in developing a working knowledge of the other, the process will help in identifying under which rocks company secrets are buried, and will expand the vision of possibilities. Remember, you deserve the partner you select; synergistic or antagonistic.