Overview  

Business alliances have become an increasingly powerful weapon in the war to gain and sustain a competitive edge. When two companies align themselves, their synergistic strengths seem more apparent, their individual weaknesses somehow less noticeable. Joining forces with another business can give your company deeper pockets and greater access to new technologies. It can also increase brand awareness, enlarge your customer base, and enhance your product or service offering. Yet, in spite of all of these wonderful benefits, if you aren't careful, there can be some major bumps and pitfalls along the way.

Choosing the right company to partner with can be as important to your professional life as choosing the right husband or wife is to your personal life. So how do you know if forming an alliance is right for you? The following is a step-by-step guide specifically designed to help you understand if your company could in fact benefit from an alliance and how to make the relationship work, once you have both said your "I do's."

Outline:

1. Types of Alliances
2. How to Determine if Alliances Are Right for Your Company
3. How to Approach Potential Partners
4. Legal Considerations
5. Making Alliances Work
6. What to Do When Alliances Don't Work
7. Alliance Case Study: PeopleSoft
8. Resources

I. Types of Alliances

In today's competitive market, there are many reasons for forming alliances. Some of the most common include a need for increased cash, a need to keep up with ever-changing technological advances, a need to find viable solutions for tough problems, a need to fend off a competitor, and a need to gain market share — to name a few. Each of these reasons, on its own, is cause enough to form an alliance.

For as many reasons as there might be for forming an alliance, there are as many different types of alliances and, of course, an array of benefits to be reaped from each. Partnerships vary, too, from the extremely complex relationships between huge corporations to simpler arrangements, where the small corner store partners with a supplier on a small scale promotion. Likewise, the duration of business alliances varies from one situation to the next. Some partnerships are formed on a long term basis while others are for one product, service or project only.

In sniffing around for a potential alliance, you may find yourself subconsciously disregarding various companies without giving any consideration to their worth as a partner. In your mind, you don't want to partner with a small company that has little to offer you, nor are you interested in a really large corporation that will take away your power and swallow you whole. You may also steer away from companies or people whose politics and values don't mesh with yours.

Knocking potential alliances off your list before you even investigate the possibilities, however, is foolish. The rule today is that you can form an alliance with just about anybody, and that includes even your staunchest competitors. The following is a list of assorted partnership possibilities, including some that probably seem very unlikely, but deserve consideration nonetheless:

Suppliers - Forming partnerships with suppliers is a strategy that's been around for many years. By forming partnerships with suppliers, you increase your chances of always having the product you want — when you want it. For example, Walt Disney  relied heavily on alliances with suppliers. When he first built Disneyland, he formed alliances with companies like Coca-Cola and Eastman Kodak, giving them exclusive rights to sell their goods at the park. It was a decision neither he nor his financial advisers ever regretted.

A more contemporary example of this is the extremely successful Bristol Myers and Wal-Mart alliance. When a Wal-Mart store sells a lot of Bristol Myers' products, company representatives inform the manufacturer, which sends out replacements within 24 hours. This insures that Wal-Mart's shelves are always stocked with Bristol Myers' products, whereas other stores may have to wait longer, and thus disappoint customers and miss potential sales.

Employees -- Odd as it may seem, some employees make wonderful partners. You may use employees to build stronger relationships with customers, vendors and distributors, or to perform special projects or promotions. By offering bonuses or stock options, you can motivate your current staff to take on added responsibilities, and they in turn will feel more ownership for your organization. And, best of all, you already have a business relationship with them and they're familiar with your products, services and goals, so there shouldn't be many surprises in this type of alliance.

Some companies who have taken advantage of alliances with employees are 3M, IBM, Sony and Hewlett Packard.

Competitors -- You may consider competitors to be your enemies, but have you ever imagined the possibilities if your organizations got together and pooled your resources? Still reluctant to explore the idea? Take some lessons from giant corporations that are hooking up with rivals and achieving phenomenal results. Paramount Pictures teamed up with 20th Century Fox to produce the blockbuster movie "Titanic." Due to the film's exorbitant costs, the picture probably wouldn't have been made had there not been two major players involved. After the film won numerous awards and accolades, along with hefty box-office receipts, both partners were glad they'd made the alliance.

Two other rival companies that have joined forces are MCI and AT&T. Not only are these two mega-companies lobbying arm in arm for new telecommunications legislation, they've also banded together to offer customers more products and services. By pooling their energy and resources, these two companies have discovered that they can each better meet their customers' needs.

Customers -- Though this is a liaison that happens much more rarely, you should not overlook a chance to partner with a customer. They have been on the buying end of the stick and can, most likely, provide extremely useful information and feedback about your company.

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II. How to Determine if Alliances Are Right for Your Company

How do you know if forming an alliance is the right thing to do for your company? Unfortunately, the answer isn't always clear. While many alliances are hugely successful, there are also those that flop. However, when examining your own company, if you find yourself lagging behind the market in sales, growth and/or technological advances, forming an alliance may be your best hope to forge ahead. Similarly, you might want to look at alliances if you find a close competitor breathing down your neck.

Once you have decided that an alliance is right for you, it's important to move slowly and choose the right partner, since choosing the wrong partner could make your situation deteriorate substantially. The first step  is to find a company you're compatible with. How do you do this? You should be able to obtain the information you need from the Internet, from annual reports, and by talking directly with customers and suppliers and the company itself. Remember, you are not only attempting to determine if the potential partner is financially sound, but also if it shares the same core values as you do, and if it can fill the holes that you're looking to fill.

The following are some areas  to examine closely before entering into an agreement with any potential partner:

Financial Situation -- You want to be fairly certain that a company isn't going to face serious financial problems after you enter into a deal with them. If possible, find out what their annual sales are. How about their annual growth? How much of their revenue is profit? What are their financial goals, and more importantly, are these goals compatible with your own?

Operations -- Ideally, you want to find out how well the company is managed. How many employees does it have? How does this number compare to last year and the year before? Who are the people in charge? What is their background and experience?

Market Presence -- You should check to see where the company does the majority of its business. How much of the market share does this company control? What are its plans for the future, and do those goals meet yours? Could you garner a larger collective share of the market if you joined forces?

Quality of Product or Service -- This is an area you will want to approach with extreme caution. Does a potential partner take quality as seriously as you do? Do they offer the same warrantees and service hours that you do? If a company's standards do not live up to your own, cross them off your list immediately. You have likely built a reputation by providing quality to your customers. If you tarnish that image through an alliance, you may well lose the customers you have fought so hard to get.

Views on Customers and Service -- It is imperative that your potential partner share your views on customers and service. The easiest way to see exactly where your potential partner stands is by talking directly to this company's customers and briefly surveying them about your potential partner's customer service practices. Ask if they are satisfied with the company. Are there any things they would like to see changed? Does the company deal well with customer complaints? If they were in your shoes, would they form an alliance with this company?

Marketing -- You will want to see how your new potential partner markets its product or service. You should find out specifically how much money is in their budget for marketing and how many people they have to do the job. Keep in mind, in addition to marketing your products and services, you will also need to think in terms of marketing the new alliance to the public.

Desire -- This information may be tougher to obtain, but you'll want to figure out if your potential partner shares your level of enthusiasm for forming an alliance. If not, this could be a sign of potential problems.

If your new potential partner seems inflexible on many issues, it should be taken as a sign for you to move on. You may also want to check into whether or not your potential partner has ever been in an alliance before. If possible, talk with the company they were aligned with and see what the results were.

Quiz

The following quiz is designed to help you determine whether or not the alliance you are considering is right for you:

If you have answered true to at least 12 of the 15 questions, you can be reasonably sure that you are well prepared to enter into an alliance with your potential partner. Though you should consider all of the factors listed above, you should give the heaviest weight to those areas that are most important to you and your company values.

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III. How to Approach Potential Partners

Once the above questions have been answered to your satisfaction, it's time to get the partnership show on the road. The first thing you will want to do before approaching another company is to make sure that the deal you are proposing is equally as beneficial to them as it is for your company. Going to a potential partner and explaining everything they can do for you but nothing you can do for them will not entice the company to join forces.

Once you have a potential partner's interest, discuss all of the details of the alliance — even those you would rather not bring up for fear of putting your partner off or because you are afraid of the answer. Remember, it's  important that you both lay all of your cards out on the table. In these situations, it's always best to identify potential issues up front and try to work through them rather than to wait until you're already involved in an alliance.

Be sure to discuss all possible partnership opportunities with your potential partner. You will also want to talk about resources and your plans for turning each opportunity into an advantage. Additionally, you will want to talk specifically about how you will get your new alliance up and running, and come to some definitive terms on exactly what needs to happen in order to bring this product or service to the market. This is also an ideal time to discuss future goals of the alliance, including future product or service offerings.

Be Sure to Remember …

The following is a checklist that should be formally discussed with a potential partner or alliance before you enter into any agreement:

What is the business opportunity at hand?
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What are the financial resources and responsibilities of each company?
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What specific steps need to be taken in order to get the alliance up and running?
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If you are jointly developing a new product or service, what specific steps need to be taken in order to get it off the ground?
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Which company will supply which employees to the project?
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