June 8, 2016
By Greg McGahan, PwC Deals Partner and US Alliances Services Leader
As we mentioned in a recent blog post, JVs and Alliances: an increasingly attractive path to growth, strategic alliances are definitely on the rise. Access to new and emerging technologies and the need to strengthen innovation capabilities are at the forefront of this momentum. Truth is, many companies can’t achieve the growth they want without the complementary capabilities of partners.
But even as the significance of alliances grows, the challenge of managing these arrangements is mounting. Alliances are complex and the need for trust, collaboration, and equitable risk-sharing make them harder to navigate than traditional M&A.
Alliances are often likened to marriages, where both parties need to work together, respect one another and be willing to compromise. Both parties need to work collaboratively toward a common goal. If your strategic agendas, cultures, and expectations are mismatched, there can be a breakdown in trust that spells disaster for the alliance. Our experience shows that addressing the common challenges upfront can dramatically improve success rates.
Common challenges that can derail alliances include:
- Flawed strategy
- Weak execution of business plans
- Poorly crafted legal and financial terms and conditions
- Damaged working relationships
Good news – experience also shows that if you approach your alliance in a thoughtful and methodical way, you can improve your chances of success and ROI. Despite the fact that there is no silver bullet, there are several things that can help facilitate a successful alliance.
In fact, we believe there are seven factors or steps that can help position your alliance or joint venture for success:
- Put strategy first: Start with a strategy, not a partner. A solid strategy will help determine if an alliance is the best approach versus organic growth or traditional M&A. And, it can clarify the best alliance structure.
- Invest in joint upfront planning: Upfront planning helps create the foundation for successful execution, reduces surprises and builds trust.
- Plan the end: Considering that many alliances have a limited life and need to be unwound or dissolved, agree on a formal process including what will happen to any shared assets and people.
- Create trust: Make and live up to small, ongoing commitments; facilitate equity (each party proportionately rewarded based on what they put in); cooperate with one another; be open and transparent; be willing to adapt; celebrate successes; adopt a ‘win-win’ mind-set; focus on growing the whole pie, not securing the biggest slice.
- Start small: Begin with a narrow, achievable shared objective; manage expectations, focus, and aim for early success; expand your joint ambitions as trust and confidence grows.
- Keep track: Agree on metrics that will reflect success at achieving the alliance’s objectives; adjust metrics as alliance evolves.
- Build enterprise-wide capability: Establish a dedicated corporate alliance management function, and use this to codify and share leading practices, drive collaboration, provide expertise, coordinate relationships with key partners, and ultimately create an enterprise-wide ‘alliance culture’.
For further discussion of these success factors and a whole lot more, check out our new paper, Joint Ventures and Strategic Alliances: Examining the keys to success>
Greg McGahan is a Partner with PwC’s US Deals practice and the US Leader of Alliances Services. Connect with Greg on LinkedIn.