Whiteboard: A Guide to Forming Strategic Alliances

Companies are forging strategic alliances at a fast clip: according to Booz Allen & Hamilton, more than 20,000 alliances were formed worldwide in 1998 and 1999. Increasingly, forming strategic alliances is becoming an important part of the CIO’s job.

Unlike contracts with vendors, outsourcers and systems integrators, a true strategic alliance is a mutually beneficial cooperative relationship where decision-making is shared between the partners, and the parties achieve strategic goals and value that they could not accomplish on their own. According to a recent Arthur Andersen study, such alliances are the most favored form of combining companies for improving corporate performances, winning out over acquisitions, mergers or outsourcing. The potential benefits are enormous: Booz Allen found that alliances have consistently produced an ROI of 17 percent for the top 2,000 companies in the world. In the aviation field, alliances have improved the bottom line between 2 and 6 percent—a big advantage in a thin-margin industry.

Technology is often a vital part of these alliances: IT lies at the heart of the online retail partnership between Amazon.com and Toys”R”Us; the Star Alliance network among United Airlines, Lufthansa and other carriers; and the Big Three automakers’ tightly integrated relationships with their suppliers. This increasing reliance on technology is propelling the CIO to a pivotal role. Not only are CIOs enabling information to flow between the partners and evaluating the technology capabilities of potential allies, but they are also becoming part of the team that develops strategy and looks for opportunities to develop new products, services and markets.

Creating a business alliance is still unfamiliar territory for many CIOs. It takes more than finding the right partner—CIOs need to clearly understand the goals, benefits and risks of an alliance, as well as the alternatives, before going down that path. Much can go astray, from choosing the wrong partner to underestimating the effort needed to maintain the alliance and obtain its full potential value. No wonder about 50 percent of all alliance relationships fail to deliver the value that CIOs and business executives were hoping to see, according to academic studies.

The following whiteboard (Adobe Acrobat PDF) by Professor Douglas A. Reid can help CIOs and other business executives avoid these pitfalls. It provides four worksheets that can assess your organizations’ motivations and readiness to pursue an alliance, estimate the benefits and the risks, and help select the right partner.

Douglas A. Reid is Assistant Professor of Business Strategy at Queen’s University School of Business in Kingston, Ontario.