Strategic alliances: the silver bullet to recover and thrive in the new normal

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:

1. Prioritise collaboration on matters that drive value for all partners
2. Clearly define the responsibilities of all partners and put the right people in charge
3. Ensure that the alliance connects with and contributes to ‘business as usual’
4. Design the governance as much for effectiveness as for adaptability
5. Invest time to define a roadmap, performance metrics and rigorous tracking mechanisms

Observing these success factors will help Corporate Strategy and M&A departments to use strategic alliances as a versatile tool.

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.

• Aligning investment and commercial terms in the negotiations: often the investment agreement (for example for taking an equity position) needs to be negotiated in parallel to the commercial agreement.
• Defining a common vision: the partners’ motives for entering into the alliance are often different. One of them may be looking for access to technology, while the other wants access to customers. With differing priorities, defining a common vision and setting objectives that satisfy both can be difficult.
• Managing trust: building trust takes time, and without it the strategic alliance is unlikely to succeed. This can be particularly tricky where partners are also competitors. In such cases, collaboration between organisations may be constraint by fear of over-sharing sensitive information.
• Defining an effective governance model: over-complex governance structures, set up out of fear of losing control, can suffocate a strategic alliance, while an entirely hands-off approach can lead to a lack of clear responsibilities and weak decision-making. Additionally, partners need to agree on ownership structures and voting rights.
• Anticipating the required evolution: strategic alliances are not static partnerships. As market demand and partners’ priorities change, so must the alliance as well; otherwise, it will soon lose its raison d’être.

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

Conclusion

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:

1. Prioritise collaboration on matters that drive value for both partners
2. Clearly define the responsibilities of all partners and put the right people in charge
3. Ensure the alliance connects with and contributes to the ‘business as usual’
4. Design the governance as much for effectiveness as for adaptability
5. Invest time to define a roadmap, performance metrics and rigorous tracking mechanisms

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.