How to build strategic relationships

Two decades ago, IBM decided to install a new operating system, produced by an obscure software company, on its personal computers. The operating system is like a traffic cop controlling activity inside the computer, which means it is a critical element in a computer system. For this reason, operating system designers and computer designers need to work closely together.

Up until then, IBM had developed its own operating systems. Now, with this new alliance, the giant corporation was free to focus on getting its personal computer into the market - vital, as it was already dragging the chain. Developing its own operating system could have further delayed the release of the PC, and prevented the company from becoming a market leader.

The deal didn’t exactly harm the software company, either - with IBM giving such a vigorous nod of approval to MS -DOS software, Microsoft gained instant credibility. It was immediately perceived as a significant player in the software industry. The rest as they say is history.

IBM formed other partnerships that transformed small, unknown companies into major players. They decided to standardize in Intel’s family of sixteen bit processors, and they struck a deal with Tandon to help in developing floppy disc drives. These alliances gave IBM rapid access to new technology, and brought prestige to smaller companies.

The primary objective of business partnering is to keep the advantage away from the competition- sometimes that is vital to the survival of small business. Indeed, many small businesses have found that partnering is the only way they can remain competitive.

It can allow them to achieve goals that would be impossible to accomplish alone because they lack the resources. Small, high-tech firms have often sought partnerships with larger companies that can offer them powerful marketing muscle. Others have found out that partnering can allow them to expand - without having to increase employee numbers.

Alliances can also help companies enlarge product portfolios, encourage product innovation, provide access to the most sophisticated technology and expertise, and bring stability to cyclical businesses. Companies wanting to tap emerging or global markets have learned that strategic alliances are the most effective tool. To operate globally, an organization must become global in size and character. Alliances encourage this, overcoming the need to make massive investments to create the necessary infrastructure.

Pundits predict that, in the near future, the businesses most likely to find themselves under considerable pressure to form alliances are small firms that supply goods or services to large companies. Budget constraints, expense pruning and tight focus on both departmental or site profitability and over all bottom line performance, will see conglomerates insisting on consolidation as a way to reduce costs.

Firms that don’t explore potential benefits of partnering will find themselves at a great disadvantage.

As a business owner, your antennae should always be constantly tuned to all partnering possibilities.

Whenever you meet a key customer, an important supplier (small or large), a distributor, or even your friends, you should automatically ask what else you can do together that will help both businesses to grow and prosper.

When you are searching for ways to boost sales, think about potential partners that may help you achieve your goals more quickly.

Bear in mind though that if you are a small firm with your sights set on partnering with a large corporation, you need to be a real standout. Mediocrity won’t cut it. If you want the big players to seriously consider hooking up with you, you must have a clearly demonstrated world class vision with characteristics such as commitment to quality, proven reliability of service, a track record of growth, and a clean balance sheet (low debt, creditors paid on time, good collections).

Alliances are forged by two organizations that have looked closely at their core competencies and future paths, and discovered a source of synergy and areas of complementary strengths. The strengths of the partner are used to create more value, and to build more sales, than either company could achieve on their own. The two partners should have greater strength together than when they operated separately - the classic “whole being greater than the sum of the parts” scenario.

How well companies choose partners, and how effectively they work with them, determines the ultimate success - or failure - of the venture. Partnering should never be considered as a free ride to bigger and better things. If the alliance is going to succeed, it requires detailed planning, an abundance of free and open communication, and a lot of maintenance.

The overall success rate of partnering is disappointing, as revealed by a ten year study of fifty strategic alliances conducted by Rutgers University in New Jersey, USA.

Fifty percent of strategic partnerships failed to meet stated objectives.
Twenty five percent of alliances were considered total disasters. Unequal levels of technical and or business competence were cited as being key reasons for the failures, along with the fact that both companies did not consider the project to be a central priority.
A mere twenty-five percent of alliances were rated as successful by both partners. The author of the study attributed the high failure rate in part to the fact that the companies didn’t know how to make alliances work. This assumption was borne out by other research which indicates that the more a company does alliances, the higher return on investment. In other words, they get better with each one. Partners tell the market about the company’s values, so you must be absolutely certain that you are sending the right messages. Look first at the potential partner’s mission statement. Are both companies aligned in their mission? More importantly, does the written mission agree with the one that is actually practiced? The two organizations must have similar ethics: if your company has a documented and firmly entrenched Code of Ethics, but your prospective partner does not - walk away, because the relationship is bound to fail.

Some research suggests that 73 percent of the alliances that fail do so because of incompatible corporate cultural issues, so take time to uncover all areas of incompatibility. Here are some areas to examine:

Good personal chemistry between the top people is mandatory. Don’t even think about forming a relationship when this is absent, as problems will only increase with time. Every successful strategic partnership is built upon a foundation of mutual respect and trust. Sixty-three percent of failed alliances stem from incompatible individual management personalities.
Equal commitment to the partnership is essential, along with clear recognition of common and individual company goals.
Organisational structure needs to be compared. A hierarchical structure may not fit well with the flatter structure driven by self-directed teams.
Are core values similar? These are bound to be falling outs when one company focuses on their customers’ needs while the other concentrates on those of the shareholder.
It is essential to examine how well each organization’s ways of working will fit together on a day - to - day basis: compatibility is a major factor in the success of an alliance. If one firm is prepared to work around the clock to achieve deadlines but the other works an inflexible nine to five, you can expect problems.
Look at the problem solving process: conflict will inevitably occur if one organization has mechanisms that allow problems to be solved on the spot, while the other deals with the problem by sending it through channels, or through layers of hierarchy.
Problems can also arise if one organisation has documented procedural manuals and work instructions in place - properly reflecting the way things are done - while the other has none

Other factors to help ensure a successful alliance:

There must be a clear overall purpose, defined by concrete objectives. Establish specific strategies for attaining those objectives including timetables, lines of responsibility, and measurable results. Both partners must be willing to seek results from everyone involved.
Both partners must agree how conflict will be resolved. The key to effective conflict management is direct and frank communication. However, it is important that everyone involved is prepared to do this.
Address quality issues in advance. Quality standards need to be predetermined, and procedures for quality assurance laid down. Procedures also need to be put in place for addressing critical quality issues: for example, if one partner’s product or service falls below predetermined quality standards, how will this be resolved?
Define how the two partners will link their decision-making processes.
Structure, operations, risks and rewards must be sheared fairly between partners to prevent corrosive internal dissent.
Fair allocation of resources is an important consideration, especially where different sized companies are involved. Each partner must be committed to allocating an appropriate share, which should reflect the benefit each receives from the alliance.
Even the smallest company needs to appoint a relationship manager, someone to co-ordinate activities, provide consistency and be accountable. The ideal person is the one who set up the relationship.
Effective partnering depends on sharing information. You have to talk to your partners openly, honestly - and often.
Networking between the organizations, and between different levels, is essential.
Leaders must balance a partners needs with their own interests. Never be pressured into taking action that would benefit your partner, but could potentially harm your business. As an example: don’t take on employees laid off by a partner company, who you know would not fit in with your company’s culture.
Respect the differences between company cultures.
Be willing to learn from you partners.

The list is long! However, whether you are a brand-new-one-woman business to tender for a $20,000 contract, or an established, highly successful medium sized business forging an alliance with a multi-national to compete for a prestigious international $200 million project, don’t skimp the due diligence process. Never make the mistake of being so driven by your strategic need that you short cut this essential step: your goal is to grow your business - not destroy it.

Author: Rosemary Ann Ogilvie

Originally published in Her Business magazine.