• Deloitte’s Advice for Successful Strategic Alliances

    Some strategic alliances work out, some don’t.  Case-in-point is the Cisco Systems, EMC and VMware cloud venture announced in November 2009 that is gaining momentum under the name Acacia.  On the not-so-much side are Cisco’s alliances with Dell and HP where acquisitions have turned partners into competitors.  In a white paper entitled “Opening Up: The Promise and Pitfalls of Alliances,” Deloitte Consulting offers insight into the complexities of strategic alliances and steps to help ensure success.  

     According to the paper, one study suggests alliances fail between 60 to 70 percent of the time.  Most failed alliances appear to share one of two problems:  resource limitation and management of the alliance.  Many failed alliances lack specific routines, capabilities and structures, leaving company leaders to base alliances on previous one-off efforts that are not sustainable.

    Moreover, alliances are fraught with relationship risks that can hinder development such as mismatched capabilities, cultures, internal processes and a general lack of trust between partnering companies.  Other problems include inappropriate governance systems and a lack of flexible knowledge exchange.  The threat of opportunistic behavior is nearly always a threat in the formation of alliances.

    What can companies do to lessen the risks associated with open business models?  The authors of “Opening Up” suggest that many of the obvious vulnerabilities associated with this model are based on partners making decisions on incomplete information.  Companies can remedy this by assessing the relational quality of potential alliance partners very closely, basing these assessments on the following criteria:

    • Company trustworthiness based on past experiences collaborating with the potential partner
    • The nature of the negotiation process, including assessments of the potential partner’s organizational and technical capabilities, as well as ethical fortitude
    • A company’s behavior once a partnership has been established
    • The company’s behavior outside the context of the alliance.

    Once a partnership has been established, there are four principles that generally govern the outcome:

    1. Alignment on strategy and scope
    2. Appropriate governance mechanisms
    3. Managing and balancing the learning dynamic between companies
    4. Fostering trust and confidence between partners

    Clearly, alliances can be very appealing to companies seeking to supercharge innovation and achieve mutually beneficial strategic business goals.  But to succeed, such an alliance requires careful structuring and collaboration between firms to reduce risks and amplify the opportunities of an open business model.

    Source: “Opening Up: The Promise and Pitfalls of Alliances” by Scott Wilson and Doug Tuttle, with Ryan Alvanos. Deloitte Review.  http://www.deloitte.com/view/en_US/us/Insights/Browse-by-Content-Type/deloitte-review/b36aa1b5171fb110VgnVCM100000ba42f00aRCRD.htm

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