Phase 1: Establish Alliance Strategy
Firms start their strategic alliance plan with an establishment of alliance strategy. An alliance strategy is a part of the business strategy. Once a business decides to build a partnership with other firms, it must develop an alliance strategy.
Some firms may make a costly mistake of finding a partner or having a potential partner find them, before establishing a proper alliance strategy. When firms create alliances for the wrong reasons, it is difficult to keep the business healthy and successful.
Firms develop their alliance strategies similar to the way they create business strategies. For an alliance strategy, a firm can combine its business management team with external consultants and experts. The management team to develop an alliance strategy may include the CEO, senior executives, department heads, and senior specialists.
Before the establishment of an alliance strategy, firms must decide on their mission, vision, goals, and objectives for the partnership. An assessment of opportunities and threats from the external environment, as well as strengths and weaknesses from the internal environment, would be critical to forming a sound alliance strategy.
Phase 2: Analyze & Select Partners
After firms have established their alliance strategy, they can use different methods to select a list of potential partners.
There are several common methods to identify and evaluate potential partners:
- Outreach using internal or external databases
- Find Person to person contact based on personal relationships
- Find Person to person contact through meetings, conferences, or associations
- Dedicate scouting people to find partnership opportunities
- Advertise through websites, proposal solicitations, and meetings
- Evaluate unsolicited opportunities received from potential partners
The key in this phase of the process is to determine whether the firm and its partners are strategically aligned. The degree of strategic alignment between the firms is the main factor that decides whether they enter a strategic alliance.
Besides assessing strategic alignment, firms also look for (1) culture compatibility, (2) strategic gaps, and (3) unanticipated opportunities.
At this phase, the firms have not yet worked on due diligence. This happens because in general, no positive results from due diligence can offset the lack of strategic alignment.
The activity of selecting a partner may include a sub-process of creating a long list of potential allies. Firms then filter it down to a shortlist for selection. Smaller firms may only have a few, or even a single partner, to work with.
Firms should establish a process to understand the need for partnerships, select the right partners, and operate in the alliance effectively.
Phase 3: Structure the Alliance
Firms enter negotiation at this point in the process. They discuss and agree on the alliance structure (joint venture, equity, or non-equity.)
Firms must be clear on how the partnership is financially and legally structured. The joint venture may be a particularly good choice with one partner, but not the others. Ideally, firms should follow their alliance strategy while deciding on the optimal structure.
There are two other important aspects at this phase: (1) alliance governance, and (2) exit strategy.
The mechanism for alliance governance must be discussed and agreed upon by all partners. Firms should only sign the alliance agreement after successfully establish a governance system.
Firms can discuss an exit strategy before concluding the definitive agreement. In general, all alliances have a finite lifespan of several years. It is important to understand that all partnerships have a limited, impermanent life. Thus, planning for an exit should be a natural move.
Trust building and negotiation skills are two significant factors affecting the results at this phase.
Phase 4: Plan Operations
Firms start to develop an implementation plan after the agreement has been signed.
Sometimes, the firms may discuss the plan even before the deal is finalized. An implementation plan must define specific action plans and allocate resources to the alliance. It will lead the day-to-day operation of the alliance.
Firms also create governance structures, based on the work done in the previous phases.
Phase 5: Manage the Alliance
One important aspect of strategic alliance management is to maintain the strategic alignment between the firms. This must be an ongoing activity because misalignment can occur anytime during the lifecycle of an alliance.
If there is a shift in the strategic direction of a partner, firms must investigate and evaluate this risk. There is a chance that the alliance may no longer stay on the priority list of the partner and receive commitment and support from the partners’ executives.
Phase 6: Re-evaluate the Alliance
Firms must maintain their ongoing evaluation activity to determine whether the alliance is achieving its goals and objectives.
The evaluation metrics must be tailored to each partnership and include both qualitative and quantitative criteria. These criteria should be clear and in alignment with the organizational performance standards. Some of the important criteria are (1) the level of trust and (2) the willingness for cooperation.
One critical aspect of the alliance evaluation is to determine whether firms can and should prolong the alliance lifespan. Even though partnerships are impermanent, firms should revisit their alliance strategy to see if the established goals and objectives have been achieved and if the partnership can be extended to serve new goals. When the alliance lifespan is extended as firms seek new goals, this is called alliance transition.
In general, alliances based on long relationships usually are more desirable. Thus, the firms should maintain their deep relationship and renew the partnership.
It is important to note that reevaluation happens at all phases of the alliance life cycle. The measurement of progress and the check on continuous alignment between partners are tasks that firms need to do on an ongoing basis, while the alliance is in operation.
Resources
Further Reading
- Strategic Alliances: The Right Way to Compete in the 21st Century (iveybusinessjournal.com)
- The Alliance Lifecycle to Enhance Alliance Success Rate (petersimoons.com)
Related Concepts
References
- Hitt, M. A., Ireland, D. R., & Hoskisson, R. E. (2016). Strategic Management: Concepts: Competitiveness and Globalization (12th ed.). Cengage Learning.
- Hill, C. W. L., & Jones, G. R. (2011). Essentials of Strategic Management (Available Titles CourseMate) (3rd ed.). Cengage Learning.
- Wheelen, T. L. (2021). Strategic Management and Business Policy: Toward Global Sustainability 13th (thirteenth) edition Text Only. Prentice-Hall.