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Forming a Strategic Business Alliance

Content provided by the Women Presidents' Organization

 


By Marsha Firestone, Ph.D.

President and Founder of Women Presidents' Organization (WPO)

Question:  How do I form a strategic business alliance to accelerate the growth of my company?

 

Answer: 

I recently held a number of one-on-one interviews with members of the Women Presidents' Organization (WPO) to learn the most frequently-utilized business strategies that accounted for their success.  "Strategic alliances" was one of the top strategies. To build a strategic alliance; align your company with a complementary business.  This concept of teaming can help maintain a small staff while generating substantial rewards. 

 

 

Types of Alliances

There are several different kinds of business alliances.  In a formal business alliance, you sign a contract that spells out the legal ramifications, accounting and management issues of a project.  Complex alliances may encompass equity investment or even merger and acquisition.  

Many alliances are formed without a formal contract, however; these informal alliances are based on verbal agreements and function as business relationships.  An example would be an event coordinator that refers the graphic design piece of every event to a specific company.  Sometimes a referral fee is involved in an informal alliance. 

Between the two extremes of formal and informal alliances exist any number of written agreements into which two or more companies may enter.  Often the written agreement will split the profits of a business venture.  In women-owned business circles, we regularly see groups of smaller companies banding together to deliver products and services.

The advantage of these alliances is that other corporations are looking to do business with substantial companies, preferably with global reach, and the banded companies can accomplish collectively what none could accomplish individually.  As with any business strategy, there are certain parameters to keep in mind when you are considering an alliance. 

 

Both Parties Must Benefit From a Strategic Alliance

The alliance must have a specific strategic purpose from which both parties benefit equally.  Even major corporations enter into inefficient alliances with  muddy strategic purposes and suffer setbacks as a result. 

In beneficial alliances, two companies leverage each other's products or services within the same target market.  If your company has consistently worked together on projects with another company, it may be time to take the partnership to a formal level.  For instance, do you need to locate distribution partners in other countries such as Canada or Mexico?  Would your customers benefit from post-implementation consulting that your company does not provide?  Can you deliver additional products or services seamlessly to your customers through a strategic alliance?

Sometimes sharing the marketing and advertising costs, and splitting the profits of a business venture can be worth it.  However, it is imperative that the expectations of the partnering companies are aligned and clearly expressed.

 

Agree on Specific Goals and Objectives

In broad terms, an alliance can have an objective ranging from expanding into new markets, to making new scientific discoveries, to developing new products, to commercializing those products.  When it comes down to specifics, however, alliance negotiations can involve complex legal and business elements.   Formal agreements must outline specifically what each party hopes to achieve from the alliance in terms of earnings and what each intends to contribute in the way of capital, services and products. 

Decide how the alliance will be managed and who will have decision-making authority.  Consult an accountant about tax and accounting issues, such as whether the alliance will have its own tax identification number.  Decide how joint expenses, such as insurance, will be paid.  Outline who may request a dissolution of the alliance and how it should be accomplished, including the specifics of liquidation of assets. 

 

Be Aware of the Potential Risks

The risks of a strategic business alliance range from financial to operational, including cultures that fail to mesh, results that disappoint and time schedules that are not met.  You will be sharing intellectual property, trade secrets and other sensitive information.  Organizational structures and business processes may have to undergo change to accommodate the goals and objectives of the alliance.

Establish early on any collaborative operating procedures.  And do not neglect to address differences in company cultures. 

Your company will gain knowledge and expertise through a strategic alliance, learning new ways to market your products or services and to improve customer service.  A well-chosen strategic alliance can provide your company with a greater number of sales people, as well as an expanded customer base.  In today's marketplace, you can become a multimillion-dollar company with the right strategic alliances.

Content copyrighted by the Women Presidents' Organization

 

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