Strategic Partnerships: Reasons They Work and Why They Don't

Companies are increasingly looking at strategic partnerships, alliances and joint ventures as avenues to enter new markets, establish new business offerings, access new distribution channels or pursue new areas of growth. Corporate alliances can help mitigate risks of new initiatives and they can also leverage skills and resources provided by others. However, a recent survey by McKinsey of strategic partnerships in larger public firms shows a success rate of only about 50%; for smaller companies, in our experience, the success rate is even lower. In this CEO Topic, we will shed light on why some firms are successful and others are unable to derive benefit from strategic partnerships.

Strategic partnerships may take a variety of forms and may involve product/service development (e.g. technology licensing, R&D contracts, design collaborations or production arrangements), sales, marketing and delivery (e.g. joint marketing/promotion, joint selling/distribution, entry into new geographic markets domestically or abroad) and operations and processing (e.g. outsourcing of a functional area). These strategic partnerships can become significant competitive differentiators by increasing time to market in developing product/services, accessing new clients in current or new geographies and improving internal operations.

In successful corporate alliances, the motivations for engaging in a relationship are clearly defined, articulated and communicated among the relevant parties. No hidden agendas or rationales should exist whereby a potential conflict for one or both of the participants might arise. Many joint ventures run afoul when m&a is the unstated motive and the joint venture results in an ill-fated test run. It is important to define success upfront so that the ultimate goal is clear. Both parties should outline their own objectives so that each firm has desired benefits and complementary value creation. Clearly defined objectives directly impact the success of strategic partnerships.

Creating the appropriate structure for strategic partnerships is also essential. Successful partnerships have economic structures that are carefully outlined and mutually beneficial. Such structures can range from revenue and cost sharing arrangements to equity investments and/or the creation of jointly owned entities. In constructing deals for joint ventures, however, it is critical to think of the long term and what might occur both in very successful or unsuccessful scenarios. Complicated cross equity arrangements and onerous obligations serve to cause issues down the road especially if the agreements have to be unraveled. It is important to recognize what occurs if objectives are not met and when/if the ventures may have to be altered and/or discontinued.

Identifying a champion for the relationship within each organization also helps to ensure success, not only in launching the partnership but also in maintaining the proper relationship going forward. Inevitably issues will arise, so it is necessary to have an individual or group who can rapidly and easily resolve such problems. Moreover, these individuals should be charged not only with creating and maintaining the relationship but also with the important task of measuring and assessing the benefits of the partnership over time.

Finally, ongoing assessment to determine whether or not a strategic partnership is meeting agreed upon objectives is key. Measurement is critical to the assessment process and it is important to clearly outline the criteria for evaluation. Such measurement should reveal that in successful alliances both parties accrue clear and tangible benefits.

With clear guidelines, careful planning and management oversight, strategic partnerships can defy the odds and be successful. For more thoughts and guidance with respect to strategic partnerships, please contact your GA team.