This is the second part of a two part series on ‘Strategic alliances: the silver bullet to recover and thrive in the new normal?’ In part one, we discussed how today’s business context influences the attractiveness of strategic alliances. In this second part we are going to introduce our five success factors to harvest value from strategic alliances by following Laura, a senior M&A manager in a financial services company, as she negotiates, signs and successfully delivers a digital marketplace alliance.
In today’s business context, strategic alliances offer attractive possibilities. Executives responsible for M&A and Corporate Strategy in Swiss-based financial services companies see strategic alliances as an important tool for acquiring the capabilities to thrive in a world of marketplaces, platforms and ecosystems.
However, what looks good on paper is often not so easy to put into practice. Delivering the promised benefits of an alliance can be difficult and calls for specific skills, including a relationship management and people element. The “lack of a common vision” is mentioned as an obstacle in 60% of alliances.
In this second part of our series on ‘Strategic alliances: the silver bullet to recover and thrive in the new normal?’ we look at the challenges and complexities involved in creating value through strategic alliances and how these can be overcome. For this purpose, we have identified five success factors to help strategic alliances achieve their objectives:
Observing these success factors will help Corporate Strategy and M&A departments to use strategic alliances as a versatile tool.
Getting partnerships right requires time and effort to evaluate and negotiate with potential partners; tackle challenges in strategy and prioritisation; and to stay on top of managing the strategic alliance over the long term.
However, strategic alliances depend not only on the collaboration between partners and executives; they also need the support of the staff. Specific attention should be paid to ensuring that culture and incentives support collaboration.
Companies that put in the effort to master strategic alliances are rewarded with a versatile tool in their corporate strategy.
In theory, strategic partnerships are attractive, but experience shows that delivering the promised benefits can be complex. Compared to traditional M&A, where the roles of Target, Buyer and Seller are usually clearly defined, the dynamics in an alliance are more multi-faceted and can evolve throughout the lifetime of an alliance. Understanding the sources of complexity (see below) and addressing them head on are therefore crucial requirements for any company intending to use strategic alliances as a corporate strategy tool.
In our experience, negotiations for a strategic partnership often take between 12-18 months. For us it is important not to rush through the negotiations, but to get the things right. We only sign when the commercial elements and the governance are agreed in detail. Also, for financial services in particular, one should not underestimate the time required to fulfil regulatory requirements for launching new products or entering new markets.
– Financial services executive
Entering into a strategic alliance, is not simply a financial investment but a strategic choice. Each alliance we enter needs to either create advantages for our existing customers or help us access new markets.
For this reason, when entering negotiations we always start with the commercial agreement – if it does not make commercially sense there is no point in entering the legal discussions. Therefore, M&A and Corporate Strategy teams should work hand in hand when exploring opportunities and negotiating with prospective partners. Having business sponsorship and buy-in at the early stage is key for making it successful.
– Financial services executive
The past 18 months have been unprecedented in many ways. It is therefore not surprising that company leaders are looking for solutions to help them stay ahead of the curve, and for many strategic alliances are on top of the agenda.
Indeed, strategic alliances offer characteristics that make them an attractive option in today’s world. For companies operating in an industry undergoing rapid digitisation, like the financial services industry, strategic alliances can offer a fast and sometimes less risky access to assets and intellectual property compared to ‘build’ or ‘buy’ strategies. In financial services, two specific use cases for strategic alliances are co-investing with existing suppliers in new / improved technology solutions, or forming a strategic alliance with other industry players to build a marketplace or ecosystem of service offerings.
Importantly, Corporate Strategy and M&A departments that have a track record of successful alliances, use this as a convincing argument to win over new potential alliance partners.
But harvesting value from alliances is no simple task. When entering into an alliance, partners need to be aware that delivering the ambition and achieving the benefits does not happen on auto-pilot.
At Deloitte, we have identified five factors that companies should consider when entering an alliance:
While strategic alliances are not the ‘silver bullet’ for all the strategic challenges companies are facing in today’s world, they offer specific opportunities in certain circumstances. Strategic alliances have therefore an important place in the toolbox of each Corporate Strategy and M&A department.
Difficulties in harvesting value from your strategic alliances? We offer you a ‘strategic alliance health check’ to help you understand how you can achieve the full potential.
At Deloitte, our team advises organisations on maximising the value potential of strategic alliances. We can help you along the full strategic alliance life cycle: from identifying suitable partners, to defining the alliance principles, through to designing the target operating model and helping you achieving tangible value.