Last Updated May 2, 2007 7:18 PM EDT
Web alliances are partnerships forged between organizations in order to achieve online business objectives more effectively.
It is often faster and cheaper to set up an alliance than to build something from scratch to achieve a particular objective. But you need to know exactly what you want to achieve from an alliance, how you will measure the objectives, and how to exit the alliance at the appropriate time. About half of alliances end in failure because of unwarranted expectations, lack of commitment of assets and resources, and unworkable management structures.
Internet technologies create a common platform where organizations and people can communicate and share information much more easily than with traditional structures. At the same time, organizations have had to become more flexible because technology makes the world run faster. Online alliances can allow an organization to react quickly to an opportunity or threat. In addition, technology has made the individual more independent of the organization, and many people are leaving their companies to become service providers, including forming alliances with their former employers.
All the signs are that alliances and partnerships will continue to be important, as Internet use continues to grow and organizations use the Internet to respond flexibly to change.
Instead of managing something fixed, like a department or factory floor, you are now managing objectives, and your work will be evaluated on how well you reach them. If your organization lacks certain resources to reach your objectives, you need to look for alliances to fill the gap and manage those alliances effectively.
If you approach alliance building merely because you think it's a good thing, you may end up having some bad experiences. You need to be clear about what you want to achieve from any alliance as well as what your potential partner wants. If you both want more sales but the other party wants faster sales growth than you do, for example, you may have difficulty working together. The better the alignment between the desires of both parties, the greater the chances of success.
As an example, Siebel Systems produces sales and customer relationship management software. From day one it sought partners, such as Accenture and PricewaterhouseCoopers, to implement its solutions. For every $1 Siebel was paid for software, a consulting firm would receive $5–$7 for implementing it. This partnership program has helped make Siebel one of the fastest-growing companies in the world.
Partnership is a two-way process and has to be attractive to both partners, or the relationship will go nowhere. You don't have to be best buddies to make partnerships work, though a good personal relationship helps. Partnerships don't have to be with absolute equals. What is important is that the right people are involved and that they can make good consensus decisions that keep the business momentum going.
Alliances are a key way by which organizations expand globally. Setting up alliances with established players in particular markets can be a much faster way of achieving market share than setting up a large physical presence in a new market.
Competitors may form an alliance in order to promote a particular industry standard, gain greater purchasing power, or accomplish some other mutual objective. However, in such situations you must be very clear about what the alliance is intended to achieve and manage the relationship carefully.
Many start-ups seek to form alliances with larger organizations in order to gain more rapid access to markets, funding, and the credibility of being associated with a particular brand. The larger organization gets innovative products and services in return. One caution for the start-up is that it may become too dependent on one major customer.
One major study found that partnerships between traditional offline companies and online business entities were most successful, such as that between Amazon.com and Toys R Us. Toys R Us had the physical infrastructure and brand, while Amazon.com had the online infrastructure and experience in making e-commerce work.
It generally makes sense to have a network of alliances, some very involved, some more casual, but all pushing forward your e-business strategy. Two keys are judging correctly whether a potential alliance will add value and managing the entire network effectively without spreading yourself too thin.
Because it is so easy to establish alliances, many managers focus on the public relations gained in announcing a new partnership and forget about the need for ongoing management. Such alliances are usually dead in the water quickly.
Where do alliances and partnerships fit in the organizational chart? Who is responsible for them? Where is the strategy? What happens in the case of disputes? What is the value expected from each partner? How will value be measured? Unless these questions are addressed directly and thoroughly, the alliance will not achieve its objectives.
Because a great many alliances fail to deliver on their promises, it is not advisable to enter into long-term contractual arrangements. Instead, make short-term arrangements with very defined goals. Once these goals have been achieved, a longer-term agreement can be considered.
Similarly, you need to be confident that a partnership will deliver substantial value before going into an exclusive relationship. If your industry is subject to a lot of change, exclusivity is even more risky. If your potential partner wants exclusivity, one option is to create a short-term agreement with very specific objectives; if these are achieved, an exclusive contract can be signed. Another option is to build triggers into the contract. If certain objectives—sales figures, for example—are met within a defined period, the relationship remains exclusive. If not, it is no longer exclusive.
Too often, organizations have focused on forming an e-alliance just so they could issue a press release and place the partner's logo on their Web site. As the technology field has matured, such Internet buzz is no longer very meaningful. Similarly, smaller start-ups have believed that an alliance with a large brand will solve all their problems. But big brands are very aware of their status and usually charge a heavy price for such associations.
The real work of partnership begins after the contract is signed. Making the alliance work takes sustained effort, and it may well develop very differently from what was originally envisaged. Make sure you plan for the longer term, and that your plan is flexible.
Where the decision-making process is overly focused on achieving consensus, to the point that decisions are never made, the partnership loses what should be a key attribute—speed.
Part of knowing what you want to achieve from an alliance is knowing when it has fulfilled its objectives and how to close it down. Both partners should agree on a clear exit strategy, which will include such things as how assets and intellectual capital are to be shared.
Segil, Larraine D.
Ernst, David, Tammy Halevy, Jean-Hugues J. Monier, and Hugo Sarrazin. "A Future for E-alliances."McKinsey Quarterly, 2001, #2.