How to Strike Effective Alliances and Partnerships
Chrysler has received an Obama administration ultimatum: Finalize a strategic alliance with Fiat or else risk going out of business. Indeed, having lost a Nissan alliance, which was part of Chrysler's bailout proposal submission in November, Chrysler might find partnering with Fiat its last hope for viability. Expected benefits include economies of scale from using common platforms for non-competing products, access for Chrysler to new global markets, and additional brands for Chrysler's U.S. dealerships. To get all this without selling Chrysler again to a foreign owner makes an alliance rather than a merger an attractive proposition.
Easier said than done.
Alliances are the corporate equivalent of "friends with benefits." The partners combine forces to achieve strategic goals of their own without getting married, being engaged, or dating exclusively. The commitment is slightly more than a roommate to share the rent, but not much. For example, airline alliances permit some linkages — frequent flyer programs, code-sharing — but also continuing competition — e.g., American Airlines and British Airways compete across the Atlantic, while they partner in the OneWorld Alliance globally. The smart ones take advantage of the chance to peek inside a partner's operations to learn new skills. That was one goal of NUMMI, a former alliance between General Motors and Toyota to make small cars. Toyota walked away with most of the learning benefits, you won't be surprised to hear.
Alliances must be part of everyone's thinking as the recession continues. For startups and smaller organizations, alliances can reduce costs of duplicative activities while enabling parties to pursue their own paths. Smaller organizations can ride a network wave into places they could not reach on their own. Non-profit organizations can form strategic alliances to market to prospective donors or share back-office functions.
It sounds so tempting. But alliances are notoriously fragile and hardly built to last.
My "Eight I's That Make We" concept below identifies the factors that make alliances and partnerships likely to succeed at bringing benefits to all parties. I base these on many years of experience working with companies before, during, and after their partnership efforts. (I'm told that these principles work for marriages too).
Individual excellence. Both parties must have strengths on their own, because weak players cannot prop each other up.
Importance. The relationship must have strategic significance. If it is just casual, don't bother.
Interdependence. The strongest and most enduring alliances occur when the parties are different in some respects and need each other to carry out an activity they would not otherwise do.
Investment. One sign of commitment is a willingness to invest something in the partner's success, such as equities or personnel swaps (business "hostages for peace").
Information. Transparency aids relationship formation. If you don't want a partner to know too much about you, why are you in the alliance?
Integration. There must be many points of contact that tie the organizations together in joint activities.
Institutionalization. A formal structure and governing board ensures objectivity, and that alliance interests are considered, not just each company's interests.
Integrity. Trust is essential. Alliances fall apart in conflict and lawsuits when partners do not act ethically toward one another nor strive to contribute to the other's success.
By these criteria, Chrysler has a long way to go to take advantage of a Fiat relationship.
Alliances seem a way out for organizations that want to remain independent but need lower costs, greater scale, or broader market scope quickly. It seems easy, and yet execution is difficult. Before rushing into another company's arms out of desperation, remember why strategic alliances are fragile, and think carefully.
April 14, 2009; 9:30 AM ET
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