The five invisible inherent tensions in a strategic alliance
by Megan Arnold
Underneath every conversation, every negotiation, every activity in a business alliance, between the two companies there are fundamental opposing forces that constitute and define the playing field of the partnership – the boundaries that define how and to what extent to which you can achieve your company’s objectives. Most alliances are based on the expectation that two companies’ combined strengths and weaknesses can complement each other to the benefit of both companies. This strategic impetus is necessary to form the alliance, but the ability to execute and exploit those strategic advantages over several years and multiple financial cycles is where value is realized.
Unlike in a joint venture – where a new legal, financial, and operational entity is formed (an entirely new company) – a strategic alliance relies on the continuous combination and cooperation of every stitch of the partnership between two companies. As a result, one of the biggest challenges in the implementation and active management of a strategic alliance is that the negotiation between the two companies is perpetual: the conversation about how your partner invests in the partnership and each company’s accountability to the joint business never ends, and given the expansive and holistic nature of strategic alliances, every piece of the business is subject to those ongoing negotiations. Nothing is ever settled; very little about your partnership becomes the normal course of business.
Day to day in an alliance, conversations can center around product roadmap priorities, the number of sales headcount funded on each side, CRM integrations, marketing investment, and so on. The tangible, well-defined components of a partnership are critical to execution. However, all these investments occur in a partnership environment defined by subtle, almost invisible partnership dynamics. These dynamics define the playing field – the boundaries, the goals, the rules of the game. When partnership managers and executive leaders focus on expanding and influencing the playing field, it expands the potential for a successful partnership.
Flexibility vs. commitment
Many strategic alliances start with contracts. The negotiation of these initial contracts is often more important than the final contract itself, as that’s when the primary stakeholders at both companies work towards alignment on strategy and mutual commitment to the partnership’s success. Specific investments from both companies can be defined, certain legal issues committed to (like ownership of intellectual property), and often issues like pricing, margins, and so on are agreed upon.
These contracts can quickly go out of date. They can be unenforceable to the extent they are impractical. Further to that, there are other vehicles in a strategic partnership that can be far more binding than a contract, like the integration of systems that share financial and sales data or the transfer of funding from one company to another to support partnership activities, for example.
Hard, contractual commitments can ensure cooperation and investment from your partner for a defined period of time, but they can also lock you into certain investment expectations as well. In a business environment where markets are changing faster than ever, long-term commitments can also prevent a company from pursuing new, more lucrative opportunities both within the partnership and outside of it.
Flexible commitments, in the form of annual business plans, executive handshakes, one-off projects, allow both partners to be agile and to continually revisit their expectations for the partnership based on their changing priorities. This can also present challenges around committing to long-term, multi-year goals and maintaining focus in executing on the business.
Every hard commitment a partner makes is a brick in the foundation of the alliance that becomes a step to increased collaboration and cooperation long term, until it becomes an anchor holding you back from new opportunity. Every soft commitment a partner makes allows for the agility required to pursue different opportunities together, but the impacts are rarely sustained.
When partner managers wield hard and soft commitments in right places, the business not only builds endurance through those hard commitments, but uses flexibility in ways that don’t undermine long-term business execution.
Imbalance of power
There is almost always a more powerful partner in a strategic alliance. This imbalance is usually rooted in which company wields more power in the marketplace due its size and market cap, the competitiveness of its product offering, the scale of its customer base, or its brand value. It can also be based on how much or how little the company depends on the partnership. As abstract as the imbalance of power sounds, it shows up in everyday interactions between people at the two companies, like whose availability takes priority for scheduling meetings, whose office hosts business reviews, who is expected to contribute the majority of funding and headcount to joint initiatives.
The more powerful partner can often be inaccessible, more difficult to influence, and more expectant that the less powerful partner adapt to their ways of doing business, like which metrics are used to measure and report on performance.
One of the ways to expand or change the environment of your partnership is to understand the levers of power, in particular what your partner wants to achieve from the alliance that your company is specifically positioned to provide. In some cases that can feel like capitulating to the more powerful partner, but when managed accordingly, it turns into a strong foundation to exert increased influence on that partner. It can be frustrating to feel pressure from your partner to focus on parts of the business that you don’t value as highly, but if you were to over deliver, it becomes a source of power for you in conversations with your partner.
In sprawling enterprise partnerships in which multiple business units at each company collaborate with each other - and sometimes not in a centrally coordinated way - the imbalance of power can be localized to specific components of the partnership, like the balance of power between two product innovation groups or between geographies.
Centralization vs. distributed management
Long-term strategic alliances grow as more products are added to the partnership, more geographies, more use cases, more teams involved to support the joint business. In large enterprises, sometimes hundreds, if not thousands, of people at a company are dedicated to a specific partner across multiple organizations and business units. This proves challenging to alliance managers and partner leaders to protect and grow the partnership itself when so many people are engaged with the partner every day.
Distributed management can scale the joint business with more productivity, and it can also damage focus and strategic alignment, both internally and with the partner. Centralized management can bottleneck the running of the business, but it can also support a very focused approach to partnership development and ensuring that your company maintains its position of power and leverage.
One of the biggest challenges facing strategic partnerships is how to scale the partnership itself. Partnership development is often overlooked in pursuit of business development, but without a partnership development strategy, the playing field for the partnership remains either static, controlled disproportionately by your partner, or subject to external, unpredictable influence.
Partnership development and management is best scaled in the same way most enterprise businesses are managed: through a clear partnership development roadmap with milestones identified and agreed upon by internal stakeholders as the most likely to improve pipeline potential. Employees involved in the partnership should be briefed and trained on strategic objectives for the partnership as well as a consistent message to deliver and adhere to when engaging with the partner.
This also prevents the pursuit of partner development activities that are low impact or divergent from the top priorities, or activities with your partner that put the partnership at risk.
Visibility / information access
Many large organizations have systems in place to allow partners controlled access to proprietary data - like org charts and employee contact information - that allow the business to run smoothly. However, that access doesn’t typically include strategic information, like sales comp plans, marketing campaign priorities, budget information, product roadmaps, pipeline data, etc. There will always be blind spots in your ability to see into your partner, which is often why the most effective strategic alliance managers are former employees of the partner.
For companies in a strategic alliance, managing a line of business together requires the sharing of business critical information, like pipeline, revenue, product roadmaps, or customer information. Access to this information is dependent on the level of human cooperation between organizations, and the operational infrastructure put in place to manage the business jointly.
Working towards joint business management is incredibly challenging - scheduling executive alignment meetings, quarterly business reviews, monthly pipeline reviews and forecasting all require agreement on what metrics to report, whose data should be used, and what format the report takes. It requires calendar coordination, determining the right parties to have at the table, and how to facilitate productive strategic conversations between two companies whose corporate objectives and ability to execute are only occasionally aligned.
With the right relationships and executive sponsorship, many partners can achieve joint business management on some level. Strategic partners are able to reach partnership milestones that further entrench themselves in the partner’s rhythm of the business. These milestones are hard commitments more effective than contracts - like CRM integration and shared dashboards for reporting. That level of technical integration is hard to unwind, whereas quarterly business reviews can always be canceled.
When a company can identify the most critical business information and establish ways to entrench their access to it from a partner, they establish barriers to competition that haven’t achieved that level of joint business management.
Intent vs. ability to execute
Often, strategic alliances are forged between parts of companies whose intentions require other teams to assist in their fulfillment. This gap between those accountable for a strategic alliance and the resources required to achieve the joint objectives present numerous roadblocks in partners’ ability to execute on their joint business plan. For example, product teams could find it advantageous to build a new offering together, but marketing teams could see that product as a low priority to support. Orchestrating resource alignment within a company and across two companies is a continuous effort as organizations restructure and corporate priorities for shared resource teams evolve over time.
Establishing hard commitments are an effective way to insure against resources being allocated away from partnerships. One example would be establishing a marketing development funds program in which two companies agree contractually on joint marketing initiatives and then funds are disbursed from one company to another to execute on those plans, but these agreements often have to be renewed on a yearly basis.
When working within the framework of a strategic alliance - like with most things - a good strategy has no value if it can’t be executed. If you have resources lined up in the United Kingdom to drive joint business, but it’s not a high priority country, that has more value every day than a high priority country without any resources. Your total available market is only as valuable as your ability to capture it. It can be hard to recognize that reality when confronted with it, and often endless cycles are spent lining up resources in order to execute on business, and then the business opportunity is missed.
Symmetrical vs. complementary alignment
It’s human nature to expect symmetrical alignment in a partnership - that your partner has the same number of headcount dedicated to the joint business that you do, that there’s a marketing or sales leader at both companies that work together in the same capacity, that both companies are pursuing the joint opportunity in the same way against the same product, the same geographies, the same customers, the same use cases, and that what makes them partners is that business is being done together. Symmetrical alignment would certainly make it easier to do business together.
Not only is this unrealistic - as both companies have different investment models, different approaches to doing business, and are starting from different organizational structures at the start of a partnership - but it can also leave money on the table. If two companies were exactly the same and decided to partner, that would be a 1+1=2 equation - the same strengths, same weaknesses, just double.
The best strategic alliances exploit complementary strengths and compensate for different weaknesses, which means that direct alignment in managing the partnership is counterproductive. If Company A excels in financial services, Company B does not need to invest in financial services. Ideally, Company B is strong in another area, say, manufacturing, in a way that Company A is weak. The partnership management task is jointly managing complementary businesses in order for 1+1 to equal 3.
It’s a trap to expect 1:1 functional alignment across the partnership - for sales at Company A to have a mirror image sales team at Company B and across all functions from marketing to product to services. In some cases it’s appropriate, but when partner managers can clearly identify the complementary strengths of each company, there is also much less tension around the ways your partner might not be meeting expectations.
These invisible conditions are running your business
Managing pipeline and business results with a partner is often the primary focus of a partnership, with partnership development seen as second priority. But often, most of the limitations on achieving the full potential of a strategic alliance come down to the two companies’ ability to execute on the partnership through clear alignment, mutual investment, and operations.
The conditions of strategic alliances - like flexibility vs. commitment, imbalance of power, visibility vs. information access, centralized vs. distributed management, and symmetrical vs. complementary alignment, are invisible but powerful forces that define the potential of your joint business. With a clear strategic approach to managing these conditions, partners can expand their playing field intentionally to increase their ability to execute against their business goals.
Knowing where you want a hard commitment from your partner and where you want flexible commitment helps you navigate changing market dynamics while resting on a solid partnership foundation. Understanding the positions of power you wield in the partnership helps you capitulate to your partner in ways that increase your value to them. Increasing your programmatic and systematic access to business critical information from your partner gives you a competitive edge. Finding ways to scale the management of your partnership across large organizations ensures focus and reduces risk to the partnership. Exploiting complementary strengths makes mutual investment efficient and best captures the value of the alliance in the first place.
Organizations too overlook partnership management, often conflating partnership development as business development or revenue growth. Partnership growth expands the boundaries of what’s possible for how two companies work together efficiently and effectively, and raises the ceiling on true revenue potential.