In these times of economic turbulence, the “holy grail” of all small business owners and executives is to minimize risk while maximizing your market leverage. Conceptually, strategic alliances have the potential to deliver this “holy grail.” A strategic alliance is a formal partnership between businesses to combine efforts to execute some aspect of the business together. For example, strategic alliances are established for bulk purchasing to get a better price, joint bidding on projects in a particular market, combining separate products into one offering to enhance customer value, and or utilizing a capability of one company to reduce costs at each company. Strategic alliances have the tantalizing potential to reduce costs, introduce new products or services, enable and accelerate entry into new markets, and provide needed experience and skills.
What is not to like about a strategic alliance? Why aren’t they used more often by small businesses? At a conceptual level most strategic alliances seem like a panacea. The business owners and executives are compatible, the companies have common needs and objectives, complementary capabilities, and there is a strong desire to enter into a strategic alliance. As the strategic alliance goes from concept to execution the traps start to emerge. Most commonly, they are:
• Day-to-day objectives are not aligned leading to frequent questioning of alliance value
• Coordinating business processes between companies is a continual struggle
• Each business maintaining an equal level of commitment to the strategic alliance
While detailed planning, strong management oversight, and periodic resetting of the alliance can minimize these traps, owners and executives need to understand that strategic alliances are imperfect by their very nature. They tend to be a point solution to a point in time opportunity and as time progresses the alliance dissipates or morphs into permanent arrangement. My advice to small business owners is to use them for what they are: a temporary low risk solution to a particular problem or opportunity. They are neither a panacea or trap.
Tobey Choate, Managing Partner
