Strategic Alliances--What’s In It for Me?
1 from, Developing Strategic Alliances)
By Ed Rigsbee, CSP
all of our relationships begin and most of them continue as forms of mutual
exploitation, a mental or physical barter, to be terminated when one or both
parties run out of goods.” -W.H.
Benefits of Developing Strategic Alliances
The reasons for strategic
alliances become apparent when you understand the benefits. This applies to businesses and organizations of all sizes.
Your reason for developing an alliance could be for research,
production, marketing, distribution, or management. Your increased capability for success through alliance relationships
will encourage your continued embracing of the practice.
The same holds true, regardless of whether you enter strategic
alliances as an individual or organization. Many of the benefits create high value for different segments of the
distribution chain rather than all the segments.
I’m not going to specifically
tell you which benefits relate to manufacturers, wholesale distributors,
retailers and service organizations. The
reason is that I do not want you to limit yourself.
As I regularly share in my seminars, innovation can be creating a new
wheel or adapting another’s idea to your situation. What’s in it for you? Maybe everything listed below or maybe only a few benefits. How much benefit you receive will be a function of your
self-imposed limits, or hopefully a lack them.
In developing your strategic
alliances, you are only limited to the quality of your alliance relationships
and your imagination—be limitless! There
are seven general areas in which you can profit from building alliances.
They are as follows:
- Strategic Growth
Your core strengths may lend you to develop alliances in
only a few areas, and that is just fine. Or, you may desire to develop alliances in many areas over time. Work hard to develop Outrageously Successful Relationships (OSRs) in all your alliances.
Following, you will discover what’s in
it for you, if you develop the right alliance, with the right people.
- An exchange of technology to compliment your core strengths
shores up your core weakness and improves production capabilities to better
serve customers. An example of
this type of alliance is the alliance of Kinko’s Service Corp. of Ventura
(copy centers) and Xerox Engineering Systems to establish a nationwide network
for faxing large-format documents. This service is especially valuable to
architects, contractors and advertising agencies. Kinko’s gets a revenue
boost and Xerox gets additional placement and unit sales.
- Technical hotlines and on-site technical support are
regularly available from suppliers with whom you’ve developed alliances.
- To receive a technological contribution or possibly a
technological edge in your industry like the alliance between IBM and Apple to
develop a new computer operating system that allows both hardware formats to
communicate, or like Nynex Corp. and Philips Electronics who joined to develop
screen telephones for residential use.
- Learning curve commitment.
Cost savings are passed along as experience is gained in producing a
new product, and discounts are available on start-up products to encourage
- Better sales and technical training for your employees
is an important benefit in partnering with your suppliers. More manufacturers and distributors are developing training
programs for dealers. Guggenheim
Dental, a dental supply distributor in Hawthorne, CA is now regularly offering
training programs for their top customers. Recently, at a seminar I delivered for the National Nutritional Foods
Association, I suggested to the retailers that they only buy their nutritional
supplements from suppliers that offer training videos. This is an added benefit in the seller/buyer relationship.
- Co-branding such as snack manufacturers who are now
mixing two nationally known names and logos on a single product. Examples of this are Betty Crockers' Soda-Licious, soda pop
fruit snacks, made with 7UP and 7UP Cherry.
Also, is the popular milk chocolate-covered Pretzel Flipz by Nestlé
featuring Rold Gold pretzels.
- Access to new markets both domestic and international. Copeland Corporation joined with the largest compressor manufacturer in
India, Kirloskar, to bring air conditioning to a growing middle class.
- You will find that partnering can provide the benefit
of positioning for future needs not yet known to you or your industry.
An example, a lead-user firm is one whose present needs will reflect
its segment's needs in future months or years. Through partnering, one company can assist another in leapfrogging
current industry leaders. Cooperating with newer firms more willing to pursue a riskier
development strategy to gain market shares does this. This strategy can aid companies, large and small, in more
rapidly and efficiently reaching their collective goals.
- Additional business to justify operating a production
facility. In developing strategic
alliances with competitors, you might do the production for both.
This is similar to retailers that have a store brand developed by the
recognized national brand manufacturer.
- Opportunity to develop a private labeling or branding
identity. American Dental
Cooperative in Nashville has been successful in this area as has Power
Heavy Duty in the heavy-duty truck repair industry.
- Sales lead and help in procuring new business. Brian Potts, a VP at 3M recently made this offer to his strategic
building service contractor customers at their CEO retreat in Mexico. He detailed how other 3M divisions are most likely are selling the
customers that the contractors seek and how they could take advantage of those
already established relationships.
- Opportunity to expand business with new or related
product innovations and service offerings. Later in the book I’ll tell you about how Helen Chavez at La Tapatia
Tortilleria did this.
- Preferred supplier status as Steelcase in Grand
Rapids, MI, awards to suppliers that have proven their performance abilities.
- Reduce direct competition as the Sun/IBM alliance has
attempted in creating the Java operating system to keep Microsoft at bay.
- To gain market share, Lexus and
Coach, the New York-headquartered manufacturer of fine leather products teamed
up in an exclusive partnership to produce the Limited Lexus ES 300 Coach
- Geographic expansion is what happened to Ronald
Fink’s West Palm Beach, FL company, RGF Environmental Group, following a
trip to Asia with other local CEOs and Ray Reddish, a senior management
analyst at Florida’s commerce department. Within 18 months of his trip he had hired 14 new employees just to
handle his Pacific Rim business. Some
states aggressively partner with local manufacturers to expand exporting there
by increasing state revenue.
- Create marketing synergism to the consumer through
cross promotion like Blockbuster and Dominos did. Blockbuster held a promotion that required a customer to rent three
movies and in return receive a $10 savings book for Dominos Pizza.
Both partners received increased traffic through the joint promotion.
This can easily be done at the local level between, as an example, the
drug store and the dry cleaners.
- Barriers to market entry by a new player. This protects the current players as with GTE and Pacific Bell in Los
Angeles. They partnered to serve
UCLA in a method that closed an opportunity to a new provider attempting to
enter their market.
- Marketing assistance to support order volume for
products as when a small company develops an alliance with a large company.
- Improved attitude toward customer service. This starts from top management on down the chain of command. Many manufacturers are partnering with their dealers and retailers. When the dealer makes a long-term buying commitment to the
manufacturer, the manufacturer helps the dealer in customer service tools and
- Improved customer loyalty was developed by United
Airlines through their alliance with Starbucks. United now serves Starbucks gourmet coffee to their passengers at 30,
000 feet. And they do it in cups
bearing the logos of both companies.
- Improved product offering becomes possible through
alliance buying cooperatives. Additional
product lines become available to the members because of the cooperative’s
- Barnett Gershen, CEO of Associated Building Services in
Houston builds alliances with his customers through his quarterly review
method. Once a quarter he sits
down with his customers and asks for a grade or score as to the quality of
service his company delivered. He
then looks for tactics and strategies to improve his service.
- Through alliance relationships, many businesses have
found strategies to provide better and quicker customer service while keeping
their costs manageable. Look for
companies that have a similar customer base to yours and enter into a
discussion about how to work together.
- The computer and electronics industries have profited greatly
from alliance relationships. Innovation has become commonplace for firms that
have chosen to work together. The
University of Toronto’s Innovations Foundation signed an agreement with
Northway Explorations Ltd. and Polyphalt, a private Ontario, Canada company,
to deliver polymer-modified asphalt materials technology for longer lasting
roads to the commercial market.
- To differentiate oneself from the competition. Steelcase's alliance with Peerless Lighting, located in Berkeley,
California, offers state-of-the-art office lighting. The relationship has brought Steelcase an additional $15 to $35 million
in annual furniture sales. Also,
they received additional dollars from the light fixture billings.
- In manufacturing elements of your product or entire product that could be
built in plants (owned by others or in joint venture) with up to date
technology, cost savings can be great. Sharing
resources, or outsourcing, rather than owning and operating a manufacturing
plant, will allow a synergistic partnering agreement allows you concentrate on
your core strengths. This is the
idea behind the Donnelly Corporation and their venture with Applied Films
Laboratory, Inc. for manufacturing and supplying the world market in display
coated glass for liquid crystal displays (LCDs).
- In distribution, access to orders that can be economically and efficiently
produced also that generates reasonable profit through alliance relationships.
- Shared locations such as Bank of America and many other banks across the
country are that are locating branch offices in suburban supermarkets. They are saving resources while simplifying the lives of their
consumers by reducing the amount of their consumers— daily running around.
- Wal-Mart has a partnering alliance with Ronald McDonald, in their recently
completed Wal-Mart store in Oxnard, California. Proudly displayed, are signs on the store's entrance doors announcing, McDonald's inside and a life-size plastic Ronald, who sits inside on
a bench to greet customers. Stores
within stores have become commonplace through alliance relationships.
- Partnering in a poor economy or recession makes good sense
especially, when sales are flat and prices are deflating.
Continental Airlines accessed optical industry consumers by partnering
with Swan Optical, Inc., an industry supplier, to increase business through an
air travel discount certificate program for purchasers of optical frames
supplied by Swan.
- Access to capital is a primary reason for smaller
organizations developing alliances with larger ones.
An example on a huge scale was when Chrysler went to the U.S.
Government seeking loan guarantees. On
a smaller scale, Bruce Bendoff, CEO of Craftsman Custom Fabricators, Inc.,
Schiller Park, IL, a 275-employee sheet-metal bending company learned how to
grow through trusting a corporate behemoth—Motorola.
- Achieving economies of scale is possible in alliance
relationships when partners share facilities, equipment and employees.
- Prompt payment per agreed terms is a standard in
customer/supplier alliance relationships.
- More potential profit is generally the outcropping of shared
- Alliance relationships allow partners to share the financial
risks associated with developing new products and entering into new markets.
Buying Parity with
- Working together, American Dental Cooperative members, dental
distributors are successfully purchasing goods in parity with the two giants
in their industry.
- Additional discounts and services for in depth marketing and
technical expertise. Win/win
pricing becomes possible in long-term buyer/seller alliance relationships.
- Just-in-time inventory purchasing and supplying as
exemplified by the famous relationship between Wal-Mart and Procter &
Gamble. Home Depot and Dell
Computers have also built powerful alliances with their suppliers for cost
saving just-in-time inventory.
Additional supply chain improvement areas available
through strategic alliance relationships:
- Productivity increases are also achieved through partnering alliances. In a three-year study of Brown & Root/Braun’s alliance
with Union Carbide Corp., Danbury, Conn., B&R/B concluded from 18 projects
that productivity on partnering jobs was about 16% to 17% better than previous
- The Arizona and California Departments of Transportation have so successfully
discovered that the partnering approach benefits many industries' experience,
especially, the construction industry, by eliminating the tangle of claims,
litigation, and adversarial relationships through a concept of cooperation
throughout the life of a project. Identifying
potential relationship hazards early was another benefit. Bench marking (companies sharing information on what they do
best), especially in the aerospace industry, has shown increased productivity
and decreased costs across the board.
- Putting some pleasure and fun back into business. Jim
Eisenhart, president of Ventura Consulting Group, Inc., Ventura,
California, says that the big benefit of partnering is it puts pleasure and
fun back into the construction business.
He says people are now open to partnering because they recognize the
limits of old adversarial paradigms.
Some additional productivity increases that are available
through strategic alliance relationships:
- Market intelligence relating to new products, processes, and competitive
technologies and markets.
- Market forecasts for large orders to allow intelligent production schedules
- Improved product quality
- Improved working relationships
- Improved communications through structure to promote operating efficiencies
- Improvement of products/services
- Sharing of information
- Improved culture and business philosophy
- Recognition, award and/or reward system for meeting and/or exceeding
- Reduced Paperwork
Ultimately the benefit to developing strategic alliances with
others is for solutions through mutually beneficial efforts.
Together you can solve your problems, those of your customers’
suppliers’ and employees’. Be
sure you know what it is that you are want to get out of each of your alliance
efforts! It's rare that a company
can be all things to all people. Working
in cooperation with others is the solution.
Adopting the paradigm of strategic alliances will get you much closer
to your goals than without these valuable relationships.
Finally, and decisively important, when a company embraces the
philosophy of strategic alliances, the result will be improvement in quality,
productivity and profitability. And
yes, this is done through cooperation and collaboration.
for me, means teamwork. It makes us
reflect how completely dependent we are upon one another in our social and
commercial life. The more
diversified our labors and interests have become in the modern world, the more
surely need to integrate our efforts to justify our individual selves and our
civilization.” -Walt Disney
© 2008, Ed Rigsbee
Reprinted with permission
by Ed Rigsbee, CSP and published by Crisp Learning. Ed
Rigsbee is also the author of PartnerShift-How to Profit from
the Partnering Trend and The Art of Partnering.
Rigsbee has over 1,500 published articles to his credit and is a
regular keynote presenter at corporate and trade association conferences
across North America.