The highlights of 20 years of analysis of partnerships and collaborations by Lynn Hinderaker, NEWbraska Principle and Innovation Trainer for Nebraska's 45,000 businesses
Why should you form an alliance?
Ø Quick access to people, expertise or markets previously difficult to acquire.
Ø Build critical mass.
Ø Achieve combined purchasing power or operating efficiencies.
Ø Desire to move away from a certain brand image by blending it with some other brand image.
Ø Differentiate oneself (through association) in a pack of me-too brands.
Ø Add value to one’s brand by bundling it with others.
Ø Increase sales while lowering marketing costs.
Strategic alliances begin by thinking about your world as an ecosystem. The result is an emphasis on "NURTURING MARKETS."
Remember: Alliances are not about money. Everybody has money. You have to answer these questions:
How do you add value to each other?
How do you play fair?
How do you interface with many different people?
How to disrupt a high potential strategic alliance:
Not enough autonomy and resources to act like a real business
Partners have competing projects in-house
People focusing on control issues
Partners don’t put their best people on the alliance project
Decisions slow to come by
Inconsistent feedback, no consensus
People won't work for the good of the entire team.
What’s good about alliances?
Incentives, responsiveness, speed-to-market.
Fast development of technology from a wide variety of sources
What’s bad about alliances?
No established way to settle conflict and coordinate all the activities necessary for innovation.
Each company wants the other to do more, while each is also looking for ways to realize the most gain from the innovation.
Information sharing can be reduced or biased, as each seeks to get the most at the other’s expense.
The open approach required to get along with each other can prevent partners from creating proprietary technical standards; instead, technical partnerships sometimes create a generic category that enable all competitors to ‘enter the arena.’
"We're ready to innovate. Should we be looking for a partner?"
When innovation is autonomous – and can be pursued independent of the rest of the operation - it’s wise to outsource, forming a partnership/alliances.
When innovation is systemic – requiring sharing of information, control and tight coordination – it’s better to avoid alliances and outsourcing.
Examples of successful strategic alliances:
1. Microsoft’s CEO Satya Nadella is partnering with Verily Life Sciences and Broad Institute of MIT and Harvard to help researchers around the world use the power of its cloud technology and ecosystem to interpret biomedical data – and advance the treatment of disease.
2. The Business Journals, the nation’s largest publisher of local business news, and Esri, the leader in GIS mapping software, spatial analytics and location technology, have partnered to launch Crane Watch in 40 markets across the United States.
3. Hortonworks, a leading provider of the increasingly important open-source database software called Hadoop, has signed strategic partnership deal with Teradata, an established, and large, data analysis company with strong ties to traditional corporations. Teradata and its customers will work on new ways to use Hadoop, including developing new algorithms to mine data. The arrangement will give Hortonworks more credibility and open a broader customer base to which it can offer its services.
“We want to support the market for Hadoop,” Scott Gnau, president of Teradata’s labs division, said. “There is a flurry of interest in Big Data, and it’s all about bringing in new data types and analytics.”
4. Rivals (!) Proctor and Gamble and Clorox will establish a joint venture in food and trash bags, containers and food wraps under the Glad, GladWare and related trademarks. Proctor and Gamble will own 10% of the joint venture and would have an option to increase its ownership by another 10%. Clorox would own the rest and own the assets of the business. The relationship is subject to regulatory approval.
5. Amazon and Toys R Us are joining forces, TRU will provide toys for Amazon to sell on its site, enabling TRU to keep most of the profit, though Amazon will get a single digit percentage of sales. Arrangement exploits complementary strengths. Could portend more relationships between online retailers and brick and mortar retailers.
Example of unsuccessful strategic alliances
In 2007, Nokia was the undisputed leader in mobile phone handsets, with strong revenue and profits and an enviable 49% market share, according to analysts. By 2013, Nokia had just 3% market share and exited the market selling the remnants of the handset business to Microsoft. It was a startling fall from grace in just six years.
Steve Elop was hired in 2010 to turn things around. He had great ambitions to build a third ecosystem by partnering with Microsoft. This should have been a golden egg for Nokia. Microsoft had an enormous ecosystem of apps, developers and users eager to have a seamless experience between phones, PCs and tablets.
However, that was not to be. Nokia wasn't able to 1) collaborate effectively with Microsoft. 2 Nor was it able to get aligned on key objectives. 3) They weren't comfortable making compromises when necessary or 4) orchestrating application developers.
Lesson: In order to succeed in a platform ecosystem, you need the right culture.
NEWbraska's Lynn Hinderaker can educate your business group about the pros and cons of partnerships and alliances - a key part of the NEWbraska Network business ecosystem. Learn more about his speaking background at growthdynamix.com/social-proof.