Periodically, the popular business press reports on very successful high-profile strategic partnerships and joint ventures – or a large consortium that was a ‘win-win’ for everyone involved. The appeal of such business alliances comes from the potential for significant benefits to all partners across complementary functional capabilities. There are both strategic and operational values targeted – the result of well-planned cooperation in branding, research, marketing and sales, proprietary technologies, distribution channels, information systems, and finances. Forbes [April 11, 2017] reported that in a global survey of more than 250 joint ventures, 80% of the participants reported the deal met or exceeded expectations, while the Harvard Business Review [February 2004] found in two separate studies, 10 years apart, success rates in global joint ventures consistently hovered around the 50% mark.
Google invests in Uber and then embeds that transportation function within GoogleMaps. Hermes and Apple team up to merge eye-catching aesthetics with leading technology in their smartwatch. Dreamworks produces short films to help Ikea promote a new line of furniture. Twitter partners with European museums to promote #museumweek that drives traffic, photo-postings, comments, and real-time customer-facing social interaction. Adidas and Spotify launch a website to connect amateur runners with running events, insider-preferred routes, and curated playlists to run to. Spotify also partners with Starbucks to bring its playlists to thousands of coffee shops. Eddie Bauer and Ford put their brand-logos into each other’s products. For decades, Disney and HP partnered on imaging displays and audio technologies for theme parks and movie productions. And Airbus not only delivers planes to the flagship carriers of its French, British, and German consortium, but also finds plenty of buyers among non-consortium airlines.
On the flip side, does Taiwan’s EVA-Air really need Hello-Kitty branded Boeing-777s in its fleet? Will Star Wars themed “Dark-Side” and “The Light” contrasting make-up from Covergirl truly catch on? Tiffany and Swatch are in court battles over damages from their failed joint venture. Verizon shut down its deal with Redbox after just 12 months. The BP Rusia-Petroleum oil partnership went bankrupt. And who can forget the infamous Iridium satellite phone partnership involving 19 firms – completely out of capital and cash flow just nine months after its highly touted launch.
The expectation is typically that two or more companies with complementary products and services should be able to perform at some multiple much higher than the sum of their parts. One firm’s massive distribution network should be the ideal conduit for another firm’s product portfolio. Loyal customers of a global IT platform should quickly embrace, from several firms, new applications that run on this platform. A large systems-service provider should be the perfect match for a partner that buys and sells reconditioned networking hardware. A bank that brought cutting-edge account management to billion-dollar global corporations should be able to deliver similar solutions to millions of retail banking customers. Leading B2B encryption protocols for industrial networks can open up a brand new B2C market with versions specifically tailored for home and personal use. Bain and Company [January 2017] noted that the value of joint ventures from 1995-2015 grew at a 20% annual rate – double that of M+A deals for the same period.
There are dozens of questions that have to be addressed for any proposed business alliance:
- Are strategic partnerships, joint ventures, and consortium easily coordinated and executed?
- How do execution and management happen from the initial vision of the proposed alliance?
- Can every facet of the alliance be quantified?
- Does each component of the deal structure exhibit clear pecuniary value?
- How will the parties share and manage tangible costs and benefits?
- Is there a “best practices” approach to ensure legal, organizational, and financial matters?
- Will intellectual property origination, ownership, and use be clearly delineated among the allies?
- What happens if one or more of the firms fail to deliver on its requisite contractual terms?
- Who bears risk and capital allocation burdens when actual results end up far below forecasts?
- What are the key differences between these formations and processes?
There are well-defined models, concepts, structures, and processes that could improve the upside potential of a partnership, joint venture, or consortium arrangement. Financial Management [April 2015] noted that Grant Thornton identified: agreement, alignment, development, and flexibility as the primary drivers of successful joint ventures – while the UK’s NI-Business promotes planning, communication, trust, flexibility, problem intervention, and monitoring performance as the keys to successful alliances.
Strategic mapping of the external competitive environment paired with potential alliance members’ functional capabilities SWOT analysis is a great starting point for developing the foundation and structural components of a winning partnership, joint venture or consortium. Add in creativity, an eye for innovation, along with well-defined metrics for valuation and potential returns [quantitative and qualitative] and today’s professional managers can in fact develop a wide range of alliance possibilities to deliver a great “win-win” for their firms and organizations.