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Strategic Alliances – Crafting Successful Partnerships

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Strategic Alliances – Crafting Successful Partnerships

Strategic alliances are integral to meeting mission-critical business goals. They help reduce risk by opening up new market opportunities and offering access to technology and expertise.

Alliances may serve as an expeditious alternative to costly acquisitions or internal development; however, forming successful partnerships is never simple.

1. Know Your Partner’s Goals

Understanding each partner’s goals when entering into strategic alliances is of utmost importance, often discussed during initial negotiations and should continue being an ongoing discussion topic throughout their partnership lifecycle.

One of the primary drivers behind businesses forming strategic alliances is to meet specific business goals. This may involve eliminating threats or entering new markets; or it may simply involve improving short-term financial performance. No matter its goal, a successful strategic alliance will depend on all partners sharing in its pursuit.

Misunderstanding one partner’s expectations could spell doom for their partnership. For instance, if two teams think they are joining forces to generate revenue when in fact they each have separate objectives, their alliance is likely doomed.

One common form of strategic alliance is a non-equity joint venture (JV). A JV is an arrangement in which two companies share ownership and resources for a specific project or period of time, each contributing their unique expertise to complete it with shared profits and losses shared between both entities.

Senior line executives play an essential role in overseeing strategic partnerships. By staying involved, senior leaders can keep operations leaders and alliance managers on task with priorities, advocate for necessary resources when required, and generally facilitate a smooth partnership experience. Harappa’s High Performing Leaders program equips leaders with tools and skills needed to nurture and sustain strategic relationships such as Prudent Risk-Taking, Instinctive Adaptability and Win-Win Negotiation which allow them to navigate ambiguity more easily while decoding strategic big picture.

2. Create a Shared Vision

One of the key aspects of any strategic alliance is making sure both businesses have an understanding of what their respective roles will be and the goals they are working toward together. This could involve setting tangible mutually beneficial goals or developing new products tailored specifically for customers’ specific needs. Setting clear goals is essential, but also crucial is making sure both businesses fully comprehend their agreements regarding financial and legal obligations; failing to do this may compromise control over an alliance and affect its bottom line negatively.

Strategic alliances offer businesses looking to break into new markets without the huge expense and commitment required of an M&A deal an ideal way of working there without taking on massive debts. Partnering with an established company in that new market helps companies learn its culture and ways of doing business while still remaining independent outside of any specific project scope.

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Strategic alliances provide businesses with another method for mitigating risk in the marketplace. By joining forces with other businesses to collaborate on projects or enter new markets, risk can be spread more evenly among multiple sources of revenue.

Strategic partnerships are a critical element of business success. But it’s essential to remember that they require just as much thought, planning, communication and collaboration – the things DealRoom was created for – as any corporate transaction. When used effectively though, strategic partnerships can serve as invaluable assets that help your company expand.

3. Create a Shared Value Statement

As with any business relationship, finding a strategic partner who shares your values and vision is of paramount importance. When selecting your prospective strategic ally, consider their size, market presence, capabilities, technology capabilities, commitment level, top management buy-in and shared goals of the alliance as criteria for selection.

As soon as you have identified a potential partner, set up a meeting to discuss how the strategic alliance will operate. Be sure to clearly outline its objectives, milestones and responsibilities; determine what value you will offer your partner in return for their time and resources investment; and establish what value will be returned on both ends.

Strategic partnerships provide businesses with an economical means to explore new markets without incurring M&A deal costs. If a company wants to enter Japan’s market, for instance, teaming up with an existing local player can give insight into what to expect in that marketplace and save costs associated with trial-and-error methods.

Strategic partnerships offer companies another advantage in that they can help overcome competitive threats. For instance, if a product cannot easily be copied by competitors, companies working together could collaborate on developing an alternative version and thus protect the original company’s customer base from being lost to competition.

Joint ventures are among the most prevalent forms of strategic alliance, where two or more businesses come together to form an additional legal business entity known as a “child company.” To be effective, this form of cooperation requires significant mutual trust. Sometimes companies misrepresent their intentions when entering into these agreements, leading to mistrust among members as well as failure.

4. Create a Shared Action Plan

Strategic alliances enable businesses to achieve goals they are unable to accomplish on their own by pooling resources, such as money, physical property (production facilities, desks and offices), intellectual property such as patents or expertise, distribution channels or research capabilities. An agreement typically details each partner’s contribution at the outset and throughout its lifespan.

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Companies that fail to outline and communicate clear goals, objectives and outcomes run the risk of creating an alliance that does not satisfy their business needs – possibly leading to early termination. To avoid such an outcome, companies should first evaluate their goals and then look for partners who share them.

Additionally, companies should carefully discuss how the alliance will be administered and decided whether it will be an equity or non-equity strategic alliance based on what terms the relationship will hold.

Finally, partners should establish a governance structure to manage their alliance. The structure should be tailored specifically for this alliance and include regular meetings between executives from each partner company to build trust and continue the relationships begun during formation of an alliance and negotiations of its terms. In many instances, these meetings also serve as an opportunity to review and reassess alliance performance – essential given how business environments and assumptions about future trends shift rapidly – often necessitating revision of original objectives or restructuring.

5. Create a Shared Governance Structure

Strategic alliances provide businesses with an effective means of entering new markets while complementing each other’s capabilities by sharing resources and collaborating on projects. Furthermore, these partnerships can also help businesses establish stronger public perception by taking advantage of another business’s market presence.

At the core of any successful strategic alliance lies its definition: to define its business objective and ensure all parties align around this goal. Step two involves identifying assets among partners that can help reach that objective; once identified, partners need to agree how these will be utilized. A partnership must be built on mutual benefit and respect; otherwise it should be reconsidered immediately.

Setting up a shared governance structure will set the tone for how issues and decisions will be managed and made. From formal committees to informal councils, clear guidelines should exist on how members present issues to the group, when these will be resolved and when decisions will be announced.

Create a strategic alliance is possible in various ways, including:

Non-Equity Strategic Alliances

A non-equity strategic alliance occurs when two entities recognize that mutual benefit exists between them without needing to transfer equity between themselves. This type of arrangement typically arises when companies launch new initiatives or enter new markets. An example would be for book sellers and music companies to collaborate in creating special events in new markets, providing access to new audiences while decreasing the risk of failure in said new market. An industry-wide alliance can also serve to develop standards or new technologies. For example, Panasonic/Tesla’s non-equity strategic alliance helped both companies develop electric car battery technology beyond their individual capabilities by working alongside experts from each field.

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