Change the Future with a Strategic Alliance
July 19, 2018
Today's business world is competitive and complex. For many small businesses and SMEs, this means that they can’t "go it alone." It's not that they don't want to, but most don't have the internal resources to do everything in-house. As competition increases, the skills necessary to compete, succeed, and grow a business may mandate that businesses team up with each providing certain functions and different products and services to achieve common goals. Alliance partners complement each other rather than competing. This is what provides significant benefits to both businesses.
When a business forms a strategic alliance with another business, the goal is to add some type of dimension that each individual business lacks. Since small businesses operate on a smaller scale than their larger counterparts, they may not have all the skills and resources required to be successful and grow independently. A winning situation is created for both partners when the alliance fit is right and works as intended.
Increase Customer Base
Aligning with the right partner gives a small business the opportunity to significantly increase its customer base, thereby increasing revenue. Rather than only selling to its original target market, strategically aligning with another business allows the marketing reach to be much greater.
Suitable Alliance Partner
Finding a suitable alliance partner, however, is many times easier said than done. It requires determination and proper due diligence to find the right partner and develop an operational framework to ensure the alliance remains “on track.”
The following 5-step process is a useful guide to find the right alliance partner that will provide value to the relationship over the long-term:
1) Assess Your Business – You must understand the strengths and weaknesses of your own business, so you know what skills to look for in an alliance partner. Before starting your search, perform a SWOT analysis (strengths, weaknesses, opportunities, and threats) of your business. By understanding these critical factors, you will be able to focus on finding the right partner to “fill the gap” and strengthen the missing links needed to take your business to a greater level of success.
2) Understand Criteria – The "fit" must be right for a strategic alliance to work. Make a list and review important factors in your business such as the culture, management philosophy, financial profile, customer base, technologies, and employee skills. These factors must complement the skills and resources of another business and vice versa. A square peg can't fit into a round hole.
3) Identify Alliance Candidates – Although you've made a list of important criteria you're looking for in an alliance partner, now the works begins in trying to find the right strategic partner. Compile a list of candidates and then narrow it down to a final few potential partners that meet the criteria.
4) Negotiate the Agreement – This is the time when a "handshake" agreement is not the best way to conduct business. Numerous issues must be discussed and agreed upon before formalizing and starting the new alliance. The agreement should address issues such as the structure, possible cash investments, timing, revenue sharing, or intellectual property rights. Every strategic alliance will be different and must take into consideration what each partner is striving to achieve and the give and take of each.
5) Establish Governance – Issues will undoubtedly arise as the alliance begins to work and evolve. Since it is almost impossible to cover every aspect of an alliance in detail when negotiating the agreement, it is important to establish a governance plan for the strategic alliance to succeed. Although company philosophies and interests might be aligned, a solid governance plan will help solve potentially troubling issues in an amicable manner if and when they do materialize.
A Common Bond
When strategic alliances work as designed, efficiency improves and profits increase for each business. Alliances help build core competencies, reduce external threats, and allow for market access that might otherwise be inaccessible. The synergistic effect of a strategic alliance is greater than the individual alliance partners working alone and potentially can be a game changer for a small business.