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.