At the dawn of the 21st century globalisation has become more than a buzzword – it is now a real headache for organisations of all sizes. Specifically companies are facing two important life threatening issues. One is the relentless search by consumers for ever cheaper and more quality products and services and the other is how to grow effectively on the world stage without the expansion costing a prohibitive amount of resources.
The answer could just be a collaboration model which has been rapidly developing over the last 10-15 years.
Typically most firms have experimented with the first two generations of business growth model;
- Build – Recruiting staff and building factories and plants with their own money. This is the so called organic growth option.
- Buy – Through mergers and acquisitions. This is the so called non organic growth option.
But both models have significant drawbacks. The first is slow and the returns can usually be measured in single digit figures. Whilst this is fine for risk averse owner managed small businesses it is a major drawback to growing companies who are stock market listed and have to satisfy shareholders desire for ‘double digit’ growth year after year.
The second produces a healthy injection of growth but it comes at the cost of integrating the newly formed organisation into ‘business as usual’. Most organisations researched identified a corporate ‘indigestion’ after a relatively short period of time (less than 3 years) as organisations struggled to accommodate the significant stresses and strains of integrating newly acquired assets and people into their core businesses.
The answer may just lie in the third generation model;
- Ally – Through strategic alliances and collaborations.
In this model, companies leverage resources that they don’t own to develop new business. A good example would be a wine glass manufacturer in the West Midlands. His plant and machinery are fixed costs and can produce 10,000 high quality glasses per month. The Managing Director has been given the task by his Chairman and Board to ‘expand the business’ and take advantage of the rapidly expanding American market. (Americans love traditional European Crystal particularly at a cost effective price!).
So the choices available to our MD are;
- Build a factory in the US and hire local labour to staff it.
- Buy an existing factory or merge with another company who is also looking to get into the US market and share the costs.
But both options are costly and time consuming. How much more effective would it be to instigate a collaboration with an American distributor who has retail outlets in the US. The retailer has fixed costs in the stores that he already runs and has plenty of shelf space available so the two CEOs agree to a simple experiment. The West Country manufacturer will produce 10,500 glasses a month and ship 500 a month out to the US. The US distributor will clear a small amount of shelf space and put the glasses on them and then both will see what happens. If the glasses don’t sell then no harm done they simply shut down the exercise and neither has lost very much. However, if the glasses start to sell well then they will share the profits between them and increase the volume.
If it goes well the experiment is a win / win. Both organisations are using fixed costs resources that they already have (thus very little additional cost) and leveraging what they don’t have (thus high net margins).
In theory the model is perfect but in reality problems start to arise before our mythical MD is back on the aeroplane to Birmingham! Which partners should you choose? How will you develop an equitable working model between you? What impact will organisational cultures have? How will the operational staff from both organisations interact? The problems appear endless.
But here again help could be at hand. The Association of Strategic Alliance Professionals is a not for profit association which was formed in 1999 in the US and launched in Europe in 2003. It was so successful in its first two years that there are now 5 separate ‘chapters’ operating in Europe (UK, Netherlands, Scandinavia, France, and Germany). In each case professionals who have managed these types of relationships share best practice with each other to avoid making costly mistakes.
The Association has 1800 members worldwide on three continents and the membership list is impressive including global sponsors like; Accenture, Boehringer Ingleheim Pharmaceuticals, CA, Cisco Systems, The Dow Chemical Company, Eli Lilly and Company, GlaxoSmithKline, Hewlett-Packard Company, IBM, Microsoft Corporation, Oracle Corporation, Procter and Gamble, SAP, Siemens, Starbucks Coffee Company, Symantec, The Warren Company and Unisys Corporation.
If you would like further information about strategic alliances or if you would like to join ASAP please contact Mike Nevin (European Founding Chairman) at mike.nevin@alliancebestpractice.com or visit the ASAP website at www.strategic-alliances.org
