Strategic Alliances - More now than ever

Posted: 10/13/2008 by Norma Watenpaugh

Strategic alliances are often viewed as a strategy for growth and perhaps not always a strategy for economically challenging times. But many of the reasons that make strategic alliances a good idea in good times make them an even better strategy for uncertain times. What are these reasons to partner?

Create greater value for customers. With businesses and consumers becoming more careful with spending, products and services must provide compelling value and solve real problems. Well crafted strategic alliances are built around customer needs and are differentiated from offers from the competitors. Cisco Systems maintained their investment in alliances during the economic downturn earlier in this decade and refocused those alliances to create differentiated go-to-market solutions for joint customers. They consequently saw an increase of 12% revenue in their alliance related revenues, while revenues across the company over the same period of time remained flat.

Leverage new sources of innovation.

Innovative new products or services that serve unmet customer needs create new sources of revenue often at lower costs and shared risks with your partner. Proctor and Gamble is an example of a company that was struggling in 2001 with a dearth of new products in the pipeline. They adopted an innovation strategy that sourced 50% of their new products from external sources. While the business press touted this as a break through innovation strategy, an alliance professional readily sees this as a partnering strategy as well.

Shared risks and costs. This kind of leverage is critical when resources are dear. One small, startup decided during the last downturn, to leverage all their marketing efforts through partners, thus sharing the costs of marketing and sharing their prospect and lead lists to generate sales for both companies.

Harnessing economies of scale, reducing costs of production and distribution are also benefits of strategic alliances and also a great strategy to economize in uncertain times. Recently, United Airlines was actively searching for a merger partner to help create these economies in reaction to rising fuel costs and industry restructuring. They courted Continental Airlines and US Airways, but ultimately decided to partner with both in order to gain many of the same benefits of a merger but to avoid the high costs of acquisition and integration.

A white paper describing the Cisco case study is available on the PhoenixCG website: download PDF.

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