We recently talked with Dr. Gene Slowinski, Director of Strategic Alliance Research, Rutgers University, author ofReinventing Corporate Growth and top-rated instructor on how Open Innovation partnerships have transformed the nature of competition in industry. With the right partner(s), it is possible to not only develop innovative products and services, but to enter new markets and achieve significant growth. Still, it’s a well-known fact that most alliances fail to meet expectations – and many just plain fail. So we asked Gene how firms can avoid this fate – or at least minimize the risk. He offered the following 5 insights:
1. Strategic alliances, open innovation and co-development can be very powerful but are not always the best approach to innovation. They must be chosen, screened and monitored carefully; otherwise they can drain resources, create IP problems, and cause unnecessary headaches. On the other hand, if done well, they can create significant advantage and improve NPV (J&J, Air Products, and GSK are examples).
2. To determine whether an alliance is worth it, ask “What did customers like and love in my market? Was it the result of collaboration?” If so, the alliance is a success. Seek out the opportunities that will make a difference. Strong alliances can change an industry! A corollary: if this year’s strategic plan looks like last year’s – it’s broken. External thinking should be built into your strategic plan.
3. The model “Want – Find – Get – Manage” has proven effective in numerous companies. The basic steps are as follows:
a. Want: What external resources do we need to succeed in our mission?
b. Find: What mechanisms will we use to find these resources?
c. Get: What processes will we use to plan, structure and negotiate an agreement to access the resources?
d. Manage: What tools, metrics and management techniques will we use to implement the relationship?
4. WANT sets the stage. The equation is simple, but powerful: A+B=C. C is what customer really wants, A is your IP, skills, capital assets, systems etc., and B is your partners’. Be sure to define want at a level of granularity that allows you to find it.
5. The Alliance Framework ™ is a rigorous process for planning and negotiating an alliance. The idea is to put together – or kill – a deal within 8 weeks. If you don’t kill the alliance by 8 weeks, it deserves to live. If it doesn’t live, you can part on friendly terms with the door open for future deals.
What is the Alliance Framework?
The Alliance Framework ™ is most effective if used by both partners. The key areas to reach alignment on are:
1. Objectives (ours, theirs)
2. Roles (ours, theirs)
3. Overall resources
5. Market model
6. Strategic exclusivity
7. Intersections with the potential alliance
Once alignment on these points is reached, the following ‘below the line” items should be discussed:
1. Detailed objectives and detailed resources
2. Financial pie-split
3. Intellectual property
4. Working process and governance
5. Term and termination
6. Alliance structure
Most alliances fail because they skip the first 7 items and go to the others first – this is not the sequence that leads to success. If not aligned on the first 7 items, part ways now! (For more details on how to use the framework, see The Strongest Link by Slowinski and Sagal.)
Key Conclusion: Go for alliances that shake up an industry, it is very easy to underestimate resources.
It is much better to do a few powerful deals than many which are marginal. Be sure your goals and strategic intent are aligned with your prospective partner’s – you should be able to make a deal or kill it within 8 weeks.
Reinventing Corporate Growth, Gene Slowinski
The Strongest Link: Forging a Profitable and Enduring Corporate Alliance, Gene Slowinski and Matt Sagal
Gene Slowinski is the Director of Strategic Alliance Research at the Graduate School of Management, Rutgers University and Managing Partner of the Alliance Management Group, a consulting firm devoted to the formation and management of strategic alliances, mergers and acquisitions. Prior to forming the Alliance Management Group, he held management positions at AT&T Bell Laboratories, and Novartis Corporation. In addition to a Ph.D. in Management, Gene holds an MBA, and a Masters Degree in the sciences. He is a member of Los Alamos National Laboratory’s Technology Commercialization Advisory Board. For the last 25 years Dr. Slowinski has consulted and conducted research on the formation and management of strategic alliances, joint ventures, mergers, and acquisitions. With Matt Sagal, he co-authored the book The Strongest Link. His new book, Reinventing Corporate Growth is the leading book on growing the corporation.