A strategic alliance is a relationship between two or more parties to pursue a set of agreed-upon goals or to meet a critical business need while remaining independent organizations. This form of cooperation lies between M&A and organic growth. The alliance is a cooperation or collaboration that aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property. The alliance often involves technology transfer (access to knowledge and expertise), economic specialization, [David C. Mowery, Joanne E. Oxley, Brian S. Silverman, Strategic Alliances and Interfirm Knowledge Transfer (1996) Strategic Management Journal, Vol. 17, Special Issue: Knowledge and the Firm (Winter, 1996), pp. 77-91] shared expenses and shared risk. Military alliances are a non-business example: Figure 1.
Cooperative sourcing is a collaboration or negotiation of different companies, which have similar business processes. To save costs, the competitor with the best production function can insource the business process of the other competitors. This is especially common in IT-oriented industries due to low to no variable costs, e.g. banking. Since all of the negotiating parties can be outsourcers or insourcers the main challenge in this collaboration is to find a stable coalition and the company with the best production function. High switching costs, costs for searching potential cooperative sourcers, and negotiating may result in inefficient solutions.
Forming a Strategic Alliance:
- Strategy Development: Strategy development involves studying the alliance’s feasibility, objectives and rationale, focusing on the major issues and challenges and development of resource strategies for production, technology, and people. It requires aligning alliance objectives with the overall corporate strategy.
- Partner Assessment: Partner assessment involves analyzing a potential partner’s strengths and weaknesses, creating strategies for accommodating all partners’ management styles, preparing appropriate partner selection criteria, understanding a partner’s motives for joining the alliance, and addressing resource capability gaps that may exist for a partner.
- Contract Negotiation: Contract negotiation involves determining whether all parties have realistic objectives, forming high caliber negotiating teams, defining each partner’s contributions and rewards as well as protecting any proprietary information, addressing termination clauses, penalties for poor performance, and highlighting the degree to which arbitration procedures are clearly stated and understood.
- Alliance Operation: Alliance operations involve addressing senior management’s commitment, finding the caliber of resources devoted to the alliance, linking of budgets and resources with strategic priorities, measuring and rewarding alliance performance, and assessing the performance and results of the alliance.
- Alliance Termination: Alliance termination involves winding down the alliance--for instance, when its objectives have been met or cannot be met, or when a partner adjusts priorities or re-allocates resources elsewhere.
- With other manufacturers: to pool expensive resources and share development or R & D costs on new products.
- With suppliers: to lock in supply chains.
- To build credibility with customers ("Our strategic partners include...").
- Allowing each partner to concentrate on activities that best match its capabilities.
- Learning from partners & developing competences that may be more widely exploited elsewhere.
- Adequate suitability of resources and competencies for an organization to survive.