During the past decade, strategic partnering has become a more attractive option because of the wide range of benefits, without the risk and burden of paying for them. These benefits include:

Expanded access to markets
Advanced technology
Quicker product development
Broader geographic range

The goal is finding a partner in areas where one or the other company has limited expertise. In a successful alliance, partners gain access to specific strengths -- such as sales, technology, finance, distribution, etc. -- that they don't possess themselves.

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Sharing Benefits and Risks

The synergy generated by two cooperating organizations results in a sum greater than their parts. A successful alliance preserves each business' distinct competitive advantage and allows those advantages and core competencies to grow.

Benefits of partnering also include economies of scale, resulting in:

Increased versatility
Reduced costs through increased production
Enhanced purchasing and financial arrangements
Stronger negotiating position with suppliers, customers and/or regulatory agencies
Greater access to critical resources
Opportunities for large-scale marketing efforts

For the unprepared or uninitiated, a strategic alliance can be a minefield. Two of the most pervasive myths about partnering are:

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The Path to Competitive Advantage

When it comes to identifying a potential partner, a company's vision plays an integral role. Our experts agree that your company's vision should be inextricably linked to the selection process. What major competencies do you need in order to fulfill your goal of being the best in your industry? As you brainstorm your answers, you will identify specific areas and elements. This will help narrow the choices to two or three key partner candidates.

Of course, in the rush to forge a partnership, remember that potential partners need a reason to welcome you into the alliance. Before approaching another business, make sure you have all of your own ducks in a row:

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Finding the Perfect Match

As part of the alliance-building process, answer these fundamental questions to better understand your current and projected strategic position:

What industry factors (capital, technology, human resources, natural resources) have the greatest impact on your business today?
What competitive conditions are influencing your suppliers? Your customers?
Are industry newcomers and/or potential substitutes vying for your products and services?

Seek out a partner whose current and potential development resources fit well with your company's own resources. Look for:

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Closing the Deal

After the partner screening and selection process is complete, the real work of negotiation begins. But while the alliance must be endorsed and supported at both organizations' highest levels, neither company's CEO should be included in actual negotiations. This preserves the option by which the CEO can serve as a "court of appeals" in case of a serious snag in discussions. Also, it eliminates the possibility of loss of face by either side.

The Vistage experts agree: lawyers should not be present during the first round of negotiations. The spirit and intent of the alliance guides the process. The legal nature of the relationship needs to be more of a safety net.

Getting each partner's expectations in written form is an important part of alliance negotiations. These expectations can grow out of in-depth discussion on the following:

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From Competition to Collaboration

Broad-based best practices for alliance implementation and integration include:

Designing a structure that meets the needs of the alliance, not the needs of the individual partners
Appointing high-performing managers to implement the alliance and linking results to pay and investment incentives
Connecting strategic objectives to budgets and resources, with a built-in review process

Defining exit obligations, divorce procedures and penalties
The alliance structure should be agreed upon beforehand, rather than when the time comes to implement. The principals must agree on a shared working vision. Identify key areas of cooperation, then assign respective team members to draft areas of agreement.

As partners advance through alliance implementation, these practices can be used as guidelines:

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Partnering for Success

Well-positioned "alliance champions" are crucial to success. An alliance champion believes deeply in the enterprise and focuses on its acceptance and implementation. Champions -- who can be senior executives, members of the negotiating team, etc. -- are the ones who steer the alliance through the bureaucracies of the parent corporations. They have the credibility to defend its merits and actions.

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Creating an Alliance Culture

Most important, according to our Vistage experts, is trust. Partners in an alliance remain separate entities guided by their own interests; but they must agree to coordinate their actions and willingly participate in joint decision making. They have to learn to not engage in traditionally opportunistic behavior, seeking short-term advantage for themselves alone. Instead, they should do everything possible to maintain an alliance relationship that yields long-term results.

To build trust between partners:

Start with small, simple operations that enable each partner to experience the other's reliability.
Be clear about what information can be disclosed and what cannot.
Look at your own behavior from the other's point of view. Get your partner's feedback on your own strengths and weaknesses, and on how to improve the relationship.

Beware of "large company vs. small company" minefields. Frequently, the cultures of dissimilarly sized companies can generate conflicts and misunderstanding. To avoid this pitfall, our Vistage experts advise the following:

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What Gets Measured, Gets Done

For the alliance to succeed, partner companies must design concrete measures of governance effectiveness. But because each alliance is a unique entity, this performance should be measured against specific, customized standards. Useful performance measures include:

Revenue share
Return on investment
Contribution to fixed costs
Return on sales
Level of market penetration
Speedy response to customer needs
Cost savings
Improved access to markets

Other "soft" indicators –

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Business Strategy for World-Class Organizations

Partnering is a logical response to the globalization of markets, increasingly intense competition, the need for faster innovation and the growing complexity of technology. It makes good business sense to connect people, departments, companies, customers and suppliers.

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