REVENUE
GROWTH THROUGH ALLIANCES
By Steven Mednick, President, Plenum Revenue Group, LLC
Any company
in today's global economy must eventually face the issue that
if it is not growing, it will be expiring. For most companies,
mergers and acquisitions are too risky to be a revenue growth
option. Organic growth, though low risk, may have some considerable
limitations. A third option - alliances - just may be the right
blend of risk and reward to accelerate your company's revenue
engine.
Over the past 15 years, the successful formation of alliances
has emerged not only as a critical management competency but a
revenue weapon as well. The top 500 global companies average 60
major alliances each. In 1999 Andersen Consulting Global Alliance
Survey stated that alliances account for an average 26 percent
of Fortune 500 companies' revenues, up from 11 percent just five
years earlier. What is more, companies estimate that alliances
contribute 35% to market value with an expectation that alliances
will contribute 48% to market value by 2007. Clearly, being a
good business partner, regardless of the duration and objective
of the alliance, has become a key corporate asset and competency.
If your firm has not successfully engaged in collaborate alliances,
or if it has tried and failed, this article is for you. We will
first briefly outline the advantages of deploying an alliance
strategy to grow revenues. We'll then take a look at the perils,
goals, and principles of alliance management in hopes of encouraging
you to engage professionals (such as Plenum Revenue Group) to
seek out and manage your alliances.
Alliance
Overview
Alliances are a fast and flexible way to access complementary
resources and skills that reside in other companies and have become
an important tool for achieving a sustainable competitive advantage.
Alliances require leveraging valuable internal resources and current
competitive advantages in new and innovative ways. Alliance formation
requires a minimum amount of cash and can be formed with a number
of alliance partners horizontally or vertically in numerous markets.
However, as
alliance formation is a fairly new growth option for most companies,
they tend to bring some increased risk to the inexperienced. Regardless,
growth through alliance formation has seen an almost explosive
energy in the past fifteen years as a vital secret and silent
competitive weapon by many companies. Most alliances formed between
companies are not made public, either because the companies choose
not to publicize the collaboration, they want to keep the deal
confidential for competitive reasons, or because business journalists
do not see them as "sexy" as mergers and acquisitions.
Finally, many companies have learned that an alliance strategy
is a good preliminary step prior to an acquisition. If an alliance
will not work, it's more likely an acquisition would not have
worked as well. But the lesson costs are far less with an alliance
- typically 25% - 35% of the cost of a doomed acquisition.
Alliance
Management
With all of the upside potential associated with collaborative
alliances why do almost half fail? Is it possible management devotes
more time to seeking out and screening potential partners in financial
terms than to managing the partnership in human terms? Is it possible
management promotes the future benefits of the announced alliance
to their shareholders but fails to help managers create those
benefits? Our long experience in alliance formation and management
confirms such, because we have seen too often that management
fails to provide a clear long-term objective for the alliance.
Too often the goals and objectives for the alliance are not clearly
communicated to the rank and file so that they may contribute
to its success. Too often, the alliance dies a silent death from
neglect.
The critical
skill . . . will be that of coordinating units that cannot be
commanded but which have to work together. Peter Drucker
Managing an
alliance can be frustrating: coordination must be the rule; diplomacy
is a necessity; and the internal politics of allies are often
confounding.
The process
of managing an alliance is one of the best-kept business secrets.
It truly has been a mystery because it is not taught in any business
school. Neither has it been effectively written down in any books
or magazine articles.
The Shift
From Strategy to Execution
Once an alliance has been initiated, responsibility for its success
shifts from the strategists, deal makers, and top executives to
the champions, alliance managers, and liaisons who seldom received
any training to accomplish their task. It is amazing how innovative
and adaptable some alliance managers have been to make their alliances
"work." However, for those alliance managers who lack
such skills, the result has often been alliance failure, frequently
with severe repercussions on their companies or to their careers.
Each alliance
begins with a stated mission and purpose. As time moves along,
alliance leaders are asked to answer for the alliance, to guide
its course and to energize its people. Each new challenge creates
an opportunity and presents a problem to solve.
The Ultimate
Goals
The ultimate goals in alliance management are achieving the desired
strategic returns and maintaining a win/win relationship. To successfully
attain these two goals, the alliance manager must be aware of
several critical factors that distinguish the management of cooperative
ventures from usual corporate experience:
- Managing
the extended company requires new and different set of skills
and control systems;
- The role
of the middle manager in alliances changes significantly from
tactician to strategist;
- Flexibility
will be vital in adapting to change and maintaining a win/win
condition;
- The differences
among the partners' strengths, goals and styles will create
conflicts as well as opportunities for success;
- Surrounding
all actions must be a spirit of cooperation, constantly built
and reinforced by the alliance team; and
- The process
of governance for the mutual interests of all alliance partners
is as critical as achieving the desired results.
Successful
alliance management requires the mastery of these factors by knowing
the time-tested principles and processes on which they are based.
Critical
Alliance Management Principles
The architecture of the alliance can be founded on two essential
management principles:
1. Integration
2. Interface Management
The application of these two principles will be required on virtually
a daily basis.
Integration
Integration empowers the alliance. Without it, the alliance will
never hold together. Integration cannot be ignored. The alliance
partners develop linkages and shared ways of operating so that
can work together smoothly. They build broad connections between
many people at many organizational levels. Partners become both
teachers and learners.
Without getting
into detail in this brief article, integration can be accomplished
through:
- Leadership
(champion, alliance manager, management)
- Teamwork
(cross-functional task forces and teams)
- Control
by coordination (cross-functional decision making and problem-solving)
- Policies
and values (establishing and maintaining trust)
- Consensus
decision making (formal decision making)
- Resource
commitments (technology, personnel, capital, etc.) and
- Lateral
liaison (effective and timely communication and decision making)
Interface
Management
Interface management involves the point of contact between two
internal departments or any differentiated groups. Problems and
complexities, whether organizational or technological, lie at
the interfaces.
The role of
the alliance integrator is to manage the interface to maximize
people's ability to get the job done. Prior to alliance commencement,
interfaces should be identified so that the potential points of
conflict can be isolated beforehand and personnel assigned to
head off potential problems.
All Alliance
Partners Must Be Winners
The two basic objectives of management are to adapt the changing
needs of the alliance and to get results. Maintaining the win/win
condition is essential; with the presence of this condition, no
strategic plan, no legal structure, no formal agreement and operational
schedule will overcome such a fundamental deficiency. An alliance
partner who perceives a losing condition will not perform well
and may eventually undermine the alliance itself.
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Steven
Mednick is President and Founder of Plenum Revenue Group,
LLC. Based in Newport Beach, Calif., Plenum is a revenue development
company for emerging and medium sized businesses. Working
shoulder-to-shoulder with its clients, Plenum actively seeks
out and delivers tangible business opportunities for its clients
that drive incremental top-line growth and bottom-line results.
For more information about Plenum, please call 1.949.218.8657
or visit www.plenumrevenuegroup.com.
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