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STRATEGY

Details, Details, Details

Various business people tell what it's like to manage a strategic partnership.
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Alliances

Strategic partnerships sound great. Just try managing one.

In the beginning Ed Kinsella had high hopes. Kinsella, the sales-and-marketing manager at JM Mold Inc., a 35-employee company in Piqua, Ohio, had negotiated a strategic alliance with a longtime customer: JM Mold would be building most of the custom molds the customer required. Kinsella and the other company's chief engineer worked out an agreement, jointly marketed their companies' capabilities, and began reaping the benefits of the partnership.

Sound too good to be true? It was. Pricing disagreements erupted, deliveries were missed, quality suffered, customers defected, and Kinsella's counterpart at the partner company quit. "Every scrape in the relationship became a gaping wound," Kinsella recalls woefully. The alliance was dissolved less than a year after it was formed. The companies, which had once done business quite nicely on a more informal basis, are in what Kinsella describes as a "cooling-off period." What went wrong?

Strategic alliances are a tricky business. The concept--gaining a marketplace advantage by teaming up with another company whose products or services fit well with your own--is not only seductive but also critical for an increasing number of businesses. "There is a proliferation of specialized companies, and the more specialized companies become, the more they need to align themselves with other companies to pick up the skills they don't have," says Jeffrey Stamps, coauthor of The Age of the Network. Increasing your capabilities gives you an edge with customers who are outsourcing more work to a shrinking supplier base. "If the 1980s were about mergers," argues Stamps's coauthor, Jessica Lipnack, "then the 1990s are about alliances."

That's what Kinsella thought, too. Like many managers, he learned the hard way that alliances are much easier to form than to maintain. (He's since applied those lessons to subsequent, much more successful alliances.) Too often, businesspeople get so caught up in the potential benefits of strategic partnerships that they neglect mundane but important management issues. "The first thing people talk about is 'How will we make money? How will we split the pie up?' " says Robert Porter Lynch, president of the Warren Co., a Providence, R.I., consulting firm. "Well, they haven't even made the pie yet." What's more, the pie's recipe is complicated. A trusting relationship, complementary products or services, and similar corporate cultures are important--but they aren't enough to make an alliance succeed. You have to manage the details, too.

Penetrate Your Partner's Organization
In the case of JM Mold's collapsed alliance, Kinsella points to his counterpart's departure as a critical turning point. When the chief engineer quit, Kinsella lost his champion--and problems started to snowball. Kinsella realizes now that a single champion in each company isn't enough. To succeed, alliances must penetrate organizations deeply, so that their goals are agreed upon at all levels. That lesson is especially important when small companies forge alliances with large corporations, where employees change positions often. "You should be dealing with at least two people," says Jana Matthews, coauthor of Winning Combinations. "If someone is enough of a risk taker to start an alliance with a small company, then it's likely they'll rise out of their current position."

Strengthen Your Partner
Whether your partners are large or small, your alliance is only as strong as its weakest link. That's why Harry Brown, CEO of $8-million EBC Industries Corp., in Erie, Pa., seeks out opportunities to help his strategic partners improve their businesses. "The only way you can do a good job for one another is to look at each other's bloomers," says Brown, who more than a decade ago began assembling western Pennsylvania manufacturing companies into an informal network. There are now 50 companies in the group; while many compete with one another, they often share machinery and training, leverage their collective buying power, and market their joint capabilities. "We sometimes even help partner companies set up quality systems or reach ISO 9000 standards," says Brown, whose company manufactures fasteners and forgings. That takes time and effort, but he knows that if his partners can't meet vendors' expectations, his business will eventually suffer.

In return, Brown finds that such intimate contact with his partners yields critical market intelligence. "All these shops are dealing with different customer groups," he says. "So we can find out well ahead of the press about what industries are changing and what's being outsourced."

Control the Information Flow
Sharing information with partners is critical. But if, like Brown, you also compete with them, you'll have to be cautious about how much you divulge. Brown constantly discusses with employees "what information we should share and what we should guard." Similarly, Kathleen Mullinix, CEO of $9.4-million Synaptic Pharmaceutical Corp., in Paramus, N.J., instructs her employees in how to manage the biotechnology company's alliances with large drug companies like Eli Lilly and Merck. "We have separate groups of people working with each partner," she says. "Scientists love to talk about what they're doing, but they're told that the partner should get information only on the specific project we're working on." That policy is critical: the pharmaceutical giants must be confident that their proprietary information isn't finding its way to a competitor.

Manage the Human Side
In any alliance it's all too easy for communication to go awry. "When you create a strategic alliance, you're effectively setting up what looks like another division of your company," explains Wesley Phillips, president of Hunter Barth Inc., a $7-million advertising and marketing firm in Irvine, Calif. That means you'll have to devote as much managerial time to the relationship as you would to any new business within your own company. Two years ago Phillips formed an alliance with a market-research firm. When different word-processing platforms proved to be a major obstacle, Hunter Barth's employees became frustrated; some even questioned the alliance's value. "I learned that I need to pay attention to my staff and my middle managers and immediately deal with the difficulties they're having with the relationship," Phillips says. "Alliances sound great, but it all falls apart in the twinkling of an eye if the performance isn't there."

Donna Fenn (incfenn@aol.com) is a contributing editor at Inc.


Ask the experts
When Is an Alliance Illegal?

Strategic alliances, especially with competitors, can raise sticky antitrust issues. Everyone knows you can't convene with rivals to set prices for your industry; that's collusion. But what about the following real-life scenario, reported to us by the CEO of a $5-million company? A group of small-company competitors, faced with an expensive bidding process, decided to pool their resources and put in one bid, winning the contract and saving everyone in the group time and money. Did they also unwittingly break the law?

"The laws around temporary joint ventures and alliances are murky," replies Yale University law professor Ian Ayres. "The issue is whether it increased or decreased competition. Was it anticompetitive by decreasing the number of bidders? You're safe if you can prove you couldn't bid by yourself. You're in more difficult waters if you could have competed independently." There is a middle ground, he says. "If you were able to put in a more competitive bid together and can offer a product that's cheaper or better, that's the murky water in between." But a rationale such as "we should stop beating up on one another" is not a good-enough reason to join forces, Ayres adds.

Phoebe Morse, regional director of the Boston office of the Federal Trade Commission, says the big question is whether the competitors exchanged pricing information while putting this bid together. "If so, they're in very dangerous waters," she warns, particularly if that exchange impaired competition. One key question, Morse notes, is how much power these companies had in their product market and their geographic market. --Susan Greco


Resources

If you're a glutton for punishment and faithfully follow every management trend--total quality, reengineering, the learning organization, teams--chances are, you're now striving to be "agile" and "networked." You're not alone. And that's the idea, really--that companies should reexamine their relationships with their customers, suppliers, peers, and competitors, and devise ways to cooperate and compete to bring about mutual benefits. It's the 1990s way of thinking about strategic alliances. So how do you do it? Check out these books:

Jessica Lipnack and Jeffrey Stamps have written a trilogy of books about networking (defined here as the process of crossing traditional boundaries to share information and link people and organizations). They are The TeamNet Factor: Bringing the Power of Boundary Crossing into the Heart of Your Business (1993, $29.95); The Age of the Network: Organizing Principles for the 21st Century (1994, $16.95); and Virtual Teams: Reaching Across Space, Time and Organizations with Technology (1997, $28). All are available from John Wiley & Sons (800-225-5945). Entrepreneurs will get the most from the first book, which offers plenty of specific information for small companies.

Cooperate to Compete: Building Agile Business Relationships, by Kenneth Preiss, Steven L. Goldman, and Roger N. Nagel (Van Nostrand Reinhold, 212-254-3232, 1996, $24.95), is rich with examples of large and small companies that put the concept of "agility" to use. It's a good read, by credible authors who have spent time in the trenches. (It was their work that first inspired Ed Kinsella to form strategic alliances.) All three authors are associated with the Agility Forum (800-923-2445), in Bethlehem, Pa., a nonprofit consulting, research, education, and training organization; the forum's Web site (www.agilityforum.org) is well worth a visit.

Getting Partnering Right: How Market Leaders Are Creating Long-Term Competitive Advantage, by Neil Rackham, Lawrence Friedman, and Richard Ruff (McGraw-Hill, 800-338-3987, 1995, $22.95), includes a particularly informative chapter on partnering with other suppliers. The book's suggested guidelines for suppliers--including tips on defining real market value around customer needs--will also help partners stay on the right side of antitrust laws. The authors don't dodge the disadvantages of supplier partnerships, either: namely, that many salespeople hate them. The book may also be ordered on-line (www.huthwaite.com).

Interested in a network like Harry Brown's? If you want to find out how Brown got his started, check out the August 1988 issue of Inc. "Make Love, Not War: How Competitors Are Joining Forces to Create Opportunities They Wouldn't Get on Their Own," by Tom Richman, details the then-fledgling alliance. Later, Lipnack and Stamps included Brown in The TeamNet Factor.

EBC INDUSTRIES, Harry Brown, 1325 Liberty St., Erie, PA 16502; 814-456-4287 107

HUNTER BARTH, Wesley Phillips, 30 Corporate Park, 2nd Floor, Irvine, CA 92606; 714-852-9800 107

JM MOLD, Ed Kinsella, 1707 Commerce Dr., Piqua, OH 45356; 513-778-0077 107

JANA MATTHEWS, Center for Entrepreneurship, Ewing Marion Kauffman Foundation, 4900 Oak, Kansas City, MO 64112; 816-932-1100 107

SYNAPTIC PHARMACEUTICAL, Kathleen Mullinix, 215 College Rd., Paramus, NJ 07652-1410; 291-261-1331 107

WARREN CO., Robert Porter Lynch, 1 Richmond Sq., Providence, RI 02906; 401-273-0010 107




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