Strategic Alliances and why do We Need Them

Introduction

Every industry sees a breakthrough in technology, market share and value creation backed by strategic partnerships. Be it manufacturing, IT or FMCGs, the creation of something new that can change the status quo has come with firms working together for their mutual benefit.

A strategic alliance is when company A and company B combine their respective resources, capabilities and core competencies to generate mutual interests in the form of creating value, efficiency in operations or gaining market share. Business level corporate strategies for alliances, allow companies to obtain knowledge (by means of R&D, complementary technology, intellectual property), gain markets (gathering data on market research, customer base), fill value gaps (offering one stop solution for expressed customer needs) and obtain efficiency (achieving scalability and outsourcing non-core functions).

Market factors

A key determinant in forming alliances is the life cycle of a product in a particular industry. The product life cycle is determined by the need to innovate and continually create new products in an industry. New product development is predominately relevant in fast cycle markets. IT and software industries, operating in this cycle, are constantly trying to build new capabilities to stay ahead of the curve. The competitive advantage is determined by developing new products and services to survive. Companies try to speed up development and market entry of new products and share risky R&D expenses to overcome uncertainty.

Managing cooperative strategies

Cooperative strategies are managed either to minimize cost or to maximize opportunity. Using the opportunity maximization approach, companies set the main objective of learning from each other. In such cases, there are less formal contracts in place. For example, Apple, Motorola and Cingular Wireless collaborated to launch the world’s first mobile phone with iTunes in 2005. This is a classic case of competition through collaboration. The successful partner, in this case Apple, had the clear objective of learning from the other partners to bridge the value gap in its current capability. Apple succeeded by learning to incorporate music into mobile phones from Motorola. The rest is history.

Typology of Alliance

The typology of an alliance is based on the potential of conflict and the extent of interaction of partnering organizations. Non-competitive alliances, where the organizational interaction is high and the potential of conflict between the partnering organizations is low, occurs when companies of different sizes from the same industry partner with each other. Here the players do not consider each other to be their rivals. Usually in such cases, partnerships are at different levels and in multiple functions. A typical example would be partners teaming up to offer end-to-end services to the same customer.

Conclusion

Overall, alliances can be the pathway to one of the fastest modes of inorganic growth for a company. It not only reduces the risk that comes with an acquisition, but also helps in expanding capabilities and value that an organization has to offer. By identifying synergies, organizations can achieve greater success together, than the sum of its individual efforts.

About the author

blog
Sri Priya Vardhini N, Global Alliance Manager - BPS

She currently looks after retail and supply chain partners for BPS alliances and is also responsible for the marketing function within alliances.