By Andrew Brown and Phil Hogg
In this series, we have outlined the steps required to effectively establish, sustain and optimize successful strategic alliances. C-suite executives from Aeroplan, American Express, IBM, LinkedIn, The Product Accelerators, Reebok, Sony, Visa and Xerox, have been among those who have shared their insights. Given that 70% of alliances fail within three years, we turn our attention now to addressing how to terminate an alliance while protecting your company’s assets, reputation, employees and ability to further innovate.
Why Alliances End
At their core, strategic alliances are mutually beneficial business relationships. Alliances are therefore terminated when the effort and resources required to continue such relationships are not producing the expected benefits. Having said that, astute and committed partners can implement a series of specific actions to turn around alliances when they are under-performing.
Alliances are often by their very nature destined to terminate. The five most common reasons that alliances cease to deliver upon expectations and therefore come to a close include:
- The inability of partners to effectively manage alliance because of misalignment between operations, strategies or company cultures
- The lack of required structures, procedures and resources required to manage the alliance or measure alliance results
- The acquisition of another company or competencies thereby reducing the value of an alliance partner
- The introduction of a disruptive, but affordable, new technology that renders an alliance partner’s existing technology obsolete
- A shift in company strategy in response to changes in new regulations, laws or emerging competition
In light of these reasons, alliance terminations fall into one of two categories: planned terminations and unexpected terminations. But, says Sue Britton, D+H’s VP Strategic Alliances & Partnerships, “Regardless of which type of alliance termination you may find yourself involved with, senior leadership needs to allocate time and resources to ensure that the winding down of the alliance is managed to minimize exposures.”
Three Key Activities for Effectively Winding Down an Alliance
Engage relevant stakeholders. In establishing an alliance, partner companies have created expectations around innovation, growth, cost-savings and competitive positioning. Furthermore, reporting structures and processes have been introduced to sustain the alliance. As a result, the dissolution of an alliance ripples through day-to-day operations, department budgets, meetings, product development plans, staffing and training plans and the delivery of service to customers. Mark Walsh, Microsoft’s National Alliances Manager says, “That means it is absolutely vital to identify the range of stakeholders who will be affected by the conclusion of the alliance.” To begin with, each participating member company should share with their employees why the alliance is winding down – along with identifying specific roles and reallocation of responsibilities that had previously been shared by an alliance member. At the same time, suppliers, industry analysts, other alliance partners, the media, and customers often experience some type of negative impact of an alliance being wound down. Walsh concludes, “When possible, work with your soon-to-be ex-alliance partner to plan and share the news and implications of the alliance ending with as many relevant external stakeholders as possible.”
Use the alliance agreement as a guide. When alliances are established, there is often an abundance of optimism – particularly for those alliances that are seen as open-ended versus those which are in part, defined by a specific event or time period. The result is that alliance agreements may be lacking important specifics around dealing with key aspects of a wind-down such as costs, asset allocation, protection of intellectual property and conflict resolution procedures. This means that depending on the alliance members, such ambiguity can lead to inventive problem solving or lengthy litigation. Because the potential of future alliances is heavily influenced by the ease with which previous alliances are terminated, it is worth looking upon alliance agreements as a set of guidelines rather than as a set of rules set in stone.
Incorporate the terminated alliance into your culture. Depending on the nature of the alliance and the complexity of the data, it may be several months before a partner can have a truly complete picture of how and why an alliance worked and failed. Rob Buckles, Director Healthcare Alliances at OnX Enterprise Solutions has found that “Because organizations and leaders often want to distance themselves from perceived failures, such alliances and the lessons they yield can be relegated to being part of an unspoken or ignored company history.” That risks painting alliances or similar forays into exploring new business relationships as ineffective. In reality, it is very rare for an alliance not to lead to some worthwhile practices from which a company can learn and become more successful. As a result, when an alliance is terminated, the lessons – good and bad – that emerge from it need to be captured, documented, analyzed and shared. Buckles concludes, “Terminated alliances should be discussed extensively at future planning sessions and inform the process and criteria for establishing future alliances, channels and partnerships.”
Next Month: The most painful alliance hiccups
For more than 15 years, Andrew Brown has helped senior executives develop marketing strategies for increasing revenues and enhancing reputations. He has brought to market more than 150 products in a dozen industries, established long-term alliances and has written more than 300 articles on product innovation, c-suite communications, social media, and strategic alliances.
Phil Hogg is the President of the Association of Strategic Alliance Professionals (Toronto Chapter). He is also the VP, North American Strategic Partners, at Moneris Solutions. For more than 15 years, he has helped some of Canada’s most recognized companies develop and optimize profitable strategic partnerships.