Strategic Alliance Formation has become important to the way big businesses conduct business- from technology and product development to manufacturing and marketing. The world has become interdependent and all trends indicate cooperation as an essential growing force in running a business. Companies are moving from the classic closed system which is dependent upon its internal capabilities and resources to an open system where dependence on external capabilities and the development of complex relationships with external entities have become popular.
Stages of Strategic Alliance Formation between Companies
Now let us discuss the main steps to form a strategic alliance :
1. Strategy Development: For a business alliance to be successful the first step is for a company to explore the feasibility of partnership, goals and rationale, concentrating on the key problems and issues and development of resource strategies for production, technology, and people. It also calls for aligning alliance objectives with the overall corporate strategy.
2. Selecting a Partner: You must analyze the strengths and weaknesses of the partner before entering into an alliance. You should create strategies for accommodating all partners’ management styles. Prepare a suitable partner selection criteria and find out a partner’s motives for joining the alliance and addressing resource capability gaps which could exist for a partner. When the partner is chosen, the key is to find out if both companies are strategically aligned and culturally compatible. You must also discuss about the alliance governance at the early stage.
3. Negotiation: This step receives a lot of attention. Some businesses have altered strategies to focus on alliances as major revenue generators. Some businesses rehearse their negotiations prior to meeting the alliance partner. You should determine whether the other partner has realistic objectives. Each partner’s contributions and rewards should be defined clearly. Every alliance agreement should include a termination clause.
4. Managing the Alliance: Making a business alliance work on an ongoing basis is a difficult task. It should involve addressing senior management’s commitment. Resources assigned to the alliance, must be known. Budgets and resources should be linked with strategic priorities. Periodic checks are critical. Measuring and rewarding alliance performance is important. Conflict in any alliance is unavoidable so you should have a conflict-management process which is very important.
Figure: Strategic Alliance Process
5. Alliance Termination: Like living systems, relationships evolve. Change should be expected. You should on a regular basis determine if the alliance is achieving its objectives. Alliance termination includes winding down the alliance when its goals have already been met or cannot be met. Towards the end of the life of a partnership it is worth revisiting the alliance strategy.
You should identify the variables involved in the workings of a typical alliance and steps in strategic alliance formation. Successful strategic alliances must discover the main obstacles. Scanning the environment for business opportunities is the starting point in developing a business alliance. It contains the company’s evaluation of its own strong points, weak points, opportunities and risks.
Read Also: Types of Strategic Alliance
Clear idea of strengths and opportunities enables the organization to set the short-term and long-term objectives and goals, while the evaluation of weak points and risks gives direction to consider alliances. These may include rivals, vendors, or other organizations, that may give the required strengths.
The organization should carry out similar analyses of the potential alliance partner. This not only complements your research as to the compatibility of the business and also makes it possible for a business to evaluate the capability, both financial and physical, to form an important and harmonious part of the alliance.