An alliance also allows you,
potentially, to access a strategic partner's complementarities.
What I mean by that is they might offer products or
services that are complementary to the products or services that you offer, and
maybe there's an opportunity to sell and market and deliver those things together
in a way that you might both be able to sell more products or
services than if you were operating completely independently.
So, but here you don't have to develop or gain those product capabilities yourself,
you're able to just access them through this alliance with a strategic partner.
Another potential advantage is that you can potentially utilize
that partner's capabilities.
Again, we don't have to develop those skills and capabilities and
that know how, knowledge, in house, but we can form some sort of alliance
where we can benefit from each other's capabilities and strengths.
So those are some of the advantages,
potentially, of a strategic alliance as opposed to an acquisition.
Now of course, there are some disadvantages.
One disadvantage, potentially,
is that an alliance is more complicated than an arms length contract.
So, while it's not as complicated, it's not as much as a commitment
as an acquisition, a strategic alliance is still more complicated and represents
a little more of a commitment than just a standard vendor agreement, for example.
So if you have a supplier that you've become dissatisfied with,
often times you can just, especially if you've satisfied the terms of
that contract, you can just move to a different supplier.
Well, in a strategic alliance, you've probably made a little bit more of
a commitment than that, and so that can be a potential disadvantage.
Another potential disadvantage is simply the fact that, by virtue of this strategic
alliance, you've agreed with a strategic partner to share the revenue.
So the reason a lot of executives give for
not wanting to form strategic alliance is, gosh,
if we can develop that capability in house or make an acquisition, we get to keep
all of those potential gains instead of sharing them with this alliance partner.
So by definition, an alliance means you're going to share some of those gains with
the partner and that might be a potential disadvantage.
Another potential disadvantage is that you also have to share control.
So the risk here is a risk of goal incompatibility.
So when you first form this alliance, you do all the due diligence you can.
You try to come together and you negotiate the terms of it.
And you've clearly come to some agreement that we think we can do something together
better than we're doing independently.
But over time, sometimes what happens is
our goals that we thought were aligned begin to become incompatible.
Perhaps the strategic partner wants to market the product differently,
or sell it though a different channel and maybe we disagree and
we'd like to see it done another way.
So again, one of the potential disadvantages of a strategic alliance is
we've given up some control.
We aren't the only deciding party here.
Whereas if we make an acquisition, we get to call the shots completely.
So, a strategic alliance is an alternative to making an acquisition,
and there are some pros and there are some cons.
These are all things to think about as you're potentially weighing out whether or
not you ought to make an acquisition or do something else instead.