Launching a Strategic Alliance

While the parties to a strategic business relationship, or “SBR,” should not abandon the customary practice of preparing a business plan for the alliance and carefully negotiating and drafting contract provisions and other formal management procedures, they must also understand and appreciate that plans, contracts and rules are generally of limited or almost no value when the inevitable disagreements crop up once the SBR is under way.  At that point the problem almost certainly lies in a lack of trust between the participants and an inability to communicate.  As a result, the dispute resolution procedures in the SBR documentation are rendered essentially ineffective, the relationship stalls, and the parties begin to look for other options to achieve the goals that they were originally seeking when the choice was made to entering into the SBR in the first place.

 

Disagreements and unforeseen events and problems cannot be avoided; however, the parties can do a better job of preparing for choppy waters by taking the time to learn more about one another before the hard work of launching and operating the SBR begins.  A business plan and the contract documentation bring the participants together “on paper” but they do not provide the tools necessary for their managers and employees to immediately and continuously collaborate as if they were employed by the same company.   In order to realistically aspire to the level of collaboration that is required for a successful SBR everyone involved must have sufficient and truthful information about the following:

  1. What is the organizational structure of the alliance partner?
  2. How are decisions made within the alliance partner regarding the allocation of capital, personnel and other resources?
  3. How is information collected and disseminated within the alliance partner’s organization?
  4. Which business units within the alliance partner’s organization will be closely involved in the delivery of resources that will be needed for the alliance relationship to be successful?
  5. What are the regular reporting channels for the senior managers of the alliance partner who will be overseeing the partner’s activities in relation to the alliance?
  6. What are the dominant cultural values and norms within the alliance partner?

There are no “right” or “wrong” answers to the questions listed above and parties should not sit in judgment of the way the other partner operates or the values that influence the behaviors of individuals representing the other partner.  In fact, one of the main reasons for considering a SBR is to have access to and gain leverage from different ways that the partner conducts its business.  For example, a relatively conservative company may seek an alliance with a partner known for having an entrepreneurial culture in order to accelerate development of new technologies and products.  The primary objective is to lay a foundation for greater mutual understanding.

 

Obviously this type of information is typically not shared in detail during the time that the parties spend on negotiating and finalizing the documentation for the SBR and the business plan that is usually prepared for a SBR tends to focus on quantitative areas such as markets and technical specifications and tactical issues in sales and marketing.  In order for the parties to begin learning how they will actually work together, it is recommended that plans be made earlier on for a “launch period” that would begin soon after the formal documents are signed and before the parties get too heavily involved in specific projects and activities.  The focal point of the interaction during the launch period should be a series of meetings between the key representatives of the parties, which should be hosted by both parties, to explore in detail the challenges that are likely to occur during the SBR due to differences between the parties and to attempt to develop specific guidelines and procedures for managing the potentially harmful effects of those differences on the progress of the SBR.  The goal of these meetings, which typically occur over a period of four to six weeks, is for the parties to work together to define the type of relationship that they want and jointly create the tools that they need for the SBR to play out in the way they anticipate. 

 

These meetings are also a good time to review when and how important decisions regarding the conduct of the SBR will be made.  Identifying key decision points should be occurring hand-in-hand with the discussion and refinement of the business plan for the alliance and the formal process for making decisions should have already been outlined in general in the SBR documentation.  In some cases one of the parties will be given the contractual authority to make a specific decision; however, it is still important to have a dialogue on what criteria will be used to make the decision and how much input the other party will be allowed to have with respect to providing information and offering opinions.  If representatives of a party must obtain approval from others within their organization the parties need to understand how that approval process is likely to work in practice.  For example, if approval must be obtained from a formal review committee information must be provided regarding the timing of committee meetings and the composition of the committee.  Insight should also be obtained regarding the cultural norms that generally govern decision making within each party—are decisions made based on hierarchy or is it necessary to seek and obtain a consensus.  Knowing how each party makes decisions, and planning in advance for managing how key decisions will be made, should reduce uncertainty and frustration and increase the chances that decisions will be made on a timely basis and that the parties will receive sufficient information regarding those decisions to execute them effectively.

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