Strategic Alliances

MYOB 2008-09-01
Show #88
Release date: 01 Sep 2008

Notes

How important is it to develop alliances and partnerships with other businesses? Is this the ‘great missed opportunity’ in the small business world? Is it wise or is it folly to form such relationships with people and business who are also your competitors?

Responding to a listener request, Guy Kingston and John Richards explore what opportunities might present themselves, how to explore them and how to exploit them.

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Building a Winning Alliance

Like so many business terms, the expression “strategic alliances” reveals the military origins of management theory.

Although the term has come to be used to describe an almost limitless range of arrangements between independent businesses, all share the same basic organisational challenge with the original military strategic alliances.

A single organisation, be it a business or an army, can enforce its will on its employees through sanctions and rewards.

However, that is not an option for a strategic alliance of independent organisations. The power to sanction or reward remains within the individual organisations. That makes operational control of a strategic alliance very difficult.

Of course, most commercial strategic alliances are governed by contract. A well-drafted contract based on mutual understanding prevents a great many disputes.

Yet no contract can account for every possible circumstance that might arise in a complex situation. Where differences do occur, to have to rely on legal arbitration or litigation to sort them out is an expensive waste of time.

It is also an admission of management failure.

Making strategic alliances work depends on management skill. Indeed, to manage allies rather than subordinates may be said to be among the highest tests of management.

It helps if one partner in the alliance is dominant. If there is no doubt where power ultimately lies, then there is no doubt where leadership belongs. The dominant partner can basically dictate. In modern military alliances, the Supreme Commander in the field is simply appointed by the dominant state.

The greater test comes where there is no dominant partner. One partner may still be considerably more powerful, but if that power is not absolute, the management challenge is as great as if the partners were equal.

In that event, it all comes down to the personality of the manager appointed to make the strategic alliance work.

In military alliances, or at least in the ones that worked, the allies agreed on the appointment of a Supreme Commander. Each of the allies retained their own permanent military hierarchies, and the relationship between the Supreme Commander and those hierarchies was crucial.

Some Supreme Commanders, like the Duke of Marlborough, in the War of the Spanish Succession, were able to establish their authority over those hierarchies by sheer force of character and on the basis of their military reputation. Others, lacking those qualities, relied on diplomatic skill: General Eisenhower, in the Second World War, was not a great soldier like Marlborough but proved adept at forging compromises.

For a strategic alliance to work in business, there needs to be a position analogous to the military Supreme Commander, and it must be clear who is in that position.

The Supreme Commander-equivalent must then work out a clear relationship with all the partners in the alliance.

Most managers who find themselves in this position wish they had the dictatorial powers of their military equivalents, but they do not.

Instead, it all comes down to personal – as opposed to official – status, to the ability to persuade, to a willingness to compromise, and to the extent to which the manager impresses his partners with his superior competence and knowledge.

That, not threats of sanctions and promises of reward, is the essence of leadership at its most refined.