by Kenneth Rudich
The realities of a quirky economy and a cluttered marketplace have made it smarter than ever for small businesses to form strategic alliances.
Such arrangements can produce the benefits of a portfolio effect. The rationale is similar to the one used for creating a stock portfolio; only in this case you’re gaining access to desirable resources through a series of collaborations with others. Those resources may be in the form of expertise or knowledge; physical assets; technological assets; financial assets; or something else.
To be as effective as possible, a business must first understand the basic characteristics of a sound strategic alliance. There are several matters to consider when answering this question, but probably none more important than three in particular. They are synergy, vitality, and an agreed upon set of ground rules.
the synergy of a strategic business alliance
Synergy is defined as the joining together of distinct business interests for mutual advantage. It’s a carefully thought out plan that aims to achieve a complementary union. The ideal outcome is to have the whole become stronger than the sum of the parts. In other words, the goals and objectives of the alliance should enhance the interests of all the participants in a way that could not otherwise be individually achieved without it.
Another view of synergy suggests that each participant gains added value along their value chain as a result of entering into the alliance. For instance, a joint promotion (possibly a joint social media marketing effort) among several small complementary businesses could increase the pool of potential customers for all of them. Or possibly expand the reach of the promotion for all of them while reducing individual costs for implementation.
the vitality of a strategic business alliance
Another factor to consider for a strategic alliance revolves around its potential vitality. This is the strength and scope of how much value it adds to your value chain. Strength and scope are two different considerations.
Strength is based on whether your investment in the alliance currently produces or has the potential to produce enough of a yield to make it worthwhile for you. It is, after all, an investment of sorts, and it will be competing against other potential investments you could make in lieu of it.
It does not mean the contributions from or benefits to the members of the alliance must be equal across the board. It’s conceivable you could be getting less from the alliance than one or more of its other members, but yet enough of a yield to still make it worthwhile for you to remain in the alliance.
Scope evaluates whether the alliance is being tapped to full advantage. To what extent are all the possible joint interests being served within the context of the alliance? For instance, can a joint promotion be combined with joint distribution or joint production to further expand the benefits of the alliance?
the agreed upon ground rules
The ground rules should represent a meeting of the participants’ minds. Matters like who will share what, how those investments can be expected to complement one another, what it will take to keep the alliance operational, or what determines whether it should be dissolved, must be fleshed out.
In addition to a shared set of interests, it should also consider a shared set of values to help bind the participants together.
forging strategic alliances is smart strategy
Forging strategic alliances may well represent one of the better options available for small businesses looking to stay afloat amid the ebb and flow of today’s rapidly changing business environment.