Strategic Alliances

Posted on: March 6th, 2011 by bobmorris


Strategic Alliances: Three Ways to Make Them Work (Memo to the CEO)
Steve Steinhilber
Harvard Business Press (2008)

This is one of the titles in the “Memo to the CEO” series published by Harvard Business Press, each less than 200 pages in length and superbly produced. In fact, none is a “memo” or written solely for a CEO. In this volume, Steve Steinhilber (Vice President of Strategic Alliances at Cisco Systems) explains “five basic criteria to identify and characterize” relationships that will achieve significantly higher and more consistent shareholder returns, enabling a company to grow faster and more profitably by leveraging those relationships rather than going it alone.

The criteria are identified on Pages 2-3. Steinhilber then identifies three reasons why alliances are a “must-do” investment for any company competing in the global marketplace. With regard to the three ways to make strategic alliances work, identified as “essential building blocks,” they are (1) the right framework, (2) the right organization, and (3) the right relationships. A separate chapter is devoted to a remarkably thorough examination of each of the three.

It is worth noting, as Steinhilber does, that more than 2,000 strategic alliances are launched worldwide each year and this number increases about15% annually. More than half fail and only about 9% of the companies “build alliances well.” Of these, Cisco Systems probably has been among the most successful and Steinhilber heads those initiatives so he is well-qualified to explain what to do, what not to do, etc. As I began to read this brief but content-rich book, I wondered why Cisco allowed Steinhilber to reveal so much about what the company does and how it does it; more specifically, to explain in detail the mindsets applied to prospective allies and then to business partners, respectively.

Perhaps there is a parallel with the chairman’s letter that Warren Buffett contributes each year to Berkshire Hathaway’s annual report. By the way, there is a recently published second edition of those essays, selected, organized, and introduced by Lawrence Cunningham. In these essays, Buffett shares everything he has learned about Corporate Governance, Corporate Finance and Investing, Alternatives to Common Stock, Common Stock, Mergers and Acquisitions, Accounting and Valuation, and Accounting Policy and Tax Matters. Of course, knowing what Cisco does and does not do insofar as strategic alliances are concerned by no means ensures the same outstanding results that Steinhilber and his associates have achieved. However, such knowledge will certainly improve the chances fort success.

To me, some of the most valuable material in this book is provided in last chapter in which Steinhilber explains how Cisco manages complexity. He addresses specific issues concerning intellectual property such as those involving jointly developed technology, solutions, residuals, branding. With regard to refining business goals, he recommends that two questions be answered: “How do we achieve our desired global market?” Also, “Which pieces of the value chain are central to sustaining our long-term profitability in a market?” Then, once objectives and the specific market(s) have been analyzed, he suggests taking one of three different approaches: (1) Partner with market leaders, (2) Partner with market leaders/challengers, or (3) Partner with both. Steinhilber acknowledges that there may be times when it makes sense to “spread your bets with dealing with uncertainty.”

To evaluate the breadth of an alliance portfolio within a market space, he identifies five criteria: market share, market segmentation, competitive overlap, potential acquisition strategy, and ability to execute. Steinhilber concludes with these comments: “In a globally linked business world with shortening life cycles and flattening value chains, building alliances capabilities will give you the chance to tilt the competitive playing field in your favor and significantly enhance your company’s or organization’s chance for long-term success.”

Credit Steve Steinhilber with presenting a wealth of rock-solid information and real-world wisdom about an immensely complicated business subject. Even more remarkable, he does so within relatively few pages (only 134 plus an Appendix). This will be an excellent resource for decision-makers in companies that plan to compete — or now do so — in the global marketplace but also for decision-makers in other companies that wish to do business with them.

 


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bobmorris