Strategic Alliances

The goal is to combine the resources of America's industrial giants with the speed and agility of its fastest-growing companies -- and it's happening in the most unlikely places.

Tweet

In the spring of 1983, Richard Sebastian, armed with a PhD in physics, dreaming entrepreneurial dreams of lucrative contracts with the Pentagon, journeyed to Cleveland to see how he might be useful to a venerable machine-tool manufacturer, founded in 1916, called Acme-Cleveland Corp. It was a speculative trip, to put it mildly. Sebastian, after all, had little in common with his hosts. He was a James Bond outfitter from outside Washington, D.C., who could sell you a gizmo that could detect a security guard nodding off to sleep, or the presence of passengers hidden in the trunk of a car.So what was he doing in Cleveland, talking up his wares to a roomful of Rust Bowl managers and engineers who, for all he knew, were one step from the scrap heap of history?

As it happened, he was there precisely because Acme-Cleveland, like so many other machinery companies, was in very serious trouble. The company needed to retool its manufacturing operation, and its executives thought that Sebastian's spy devices might help. They wondered, for example, whether the sensor signal-processing technology that could alert you to a body in a car trunk might not also be able to tell you whether metal tools were cutting correctly, and when the blades were wearing out. The meeting lasted for around two hours. When it was over, the Acme-Cleveland executives invited Sebastian to come back soon, this time bringing a business plan with him.

Over the next few weeks, the discussions grew earnest, focusing on just what sort of deal was most beneficial to both parties. Sebastian wanted money -- to get his new company off the ground, to do research -- but he also wanted to retain his independence. His ambition encompassed more than a lifelong devotion to refurbishing the Rust Bowl. He remembers being somewhat surprised that Acme-Cleveland appeared to understand this. "It seemed enough to them that we were interested in their problems," he says. "They said they didn't want to control us; they didn't want to be our Sugar Daddy." So a deal was struck: Acme-Cleveland put up $250,000 in seed money, and another $100,000 for a research and development contract to be spent during the following year; Sebastian agreed to help the company apply sensor technology to factory processes.

It was not the first such deal between a high-technology start-up and an old-line manufacturer, but the idea was new enough that both entered into the arrangement with a sense of experimentation. It was a venture that offered something to both companies -- a partnership, really, based on mutual needs. For lack of a better term, it was called a "strategic alliance."

All across the heartland of American industry, such antique companies as Acme-Cleveland are scouring the countryside for business innovators that can help them bring technological changes to their markets and retool their factories for the future. Their motive -- survival -- is as basic as their industries. The pulse of the heartland, pressed by low-cost foreign competition, is slowing down. Plants are out of date; products are being rejected as irrelevant or inferior; layers of management, once thought indispensable, now stand revealed as so much cotton batting. Competition has turned the gaze of these giants outward and downward -- to the world of small companies, sometimes to copy their procedures, sometimes to harness their genius, always to find the spark that will enable the large companies to live and grow.

The effort takes many forms. One of the most talked-about is intrapreneurship, as when such industrial behemoths as IBM Corp. and 3M Co. discover that product innovation thrives best when employees are turned loose to function like independent entrepreneurs. Another is the corporate start-up, as when such companies as Control Data Corp. and Tektronix Inc. offer capital and support to restless employees eager to go out on their own. The trend can be seen as well in the changing relationships between large manufacturing companies and their small suppliers. And even General Motors Corp. is rejiggering its legendary bureaucracy in hopes of fashioning a more nimble, decentralized operating system. Indeed, GM chairman Roger B. Smith himself has appeared on "The Phil Donahue Show," explaining to the nation's housewives why executives of the new Saturn subsidiary will have total freedom to invent new ways of manufacturing automobiles.

All these maneuvers reflect an apparent change in big-company attitudes toward small enterprise. The giants, to be sure, have long recognized that smaller companies offered things they wanted. Historically, however, their approach has resembled that of a sultan in search of a new favorite for his harem. Acquisition was the goal, whether in the short run or the long, and as often as not the acquired company didn't protest. But funny things happened on the way to the seraglio. For one thing, the small company founders tended to take their money and run, leaving little more than the shell of a business behind. Then there were the cultural conflicts -- notably the attempts by large companies to impose highly developed management systems on entrepreneurial ventures. A case in point was Exxon Corp., which bought or spawned several new businesses in the late 1960s and early '70s, smothered them with management, then watched them expire one by one. Other big companies learned similar hard lessons, which put a temporary halt to their search for small company "windows on technology."

 1 | 2 | 3 | 4 | 5  NEXT