September 4, 2008

Checking for strategic fit in a strategic alliance

Filed under: Strategy — Nicola Rowe @ 6:38 am
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Before you enter into a strategic alliance, you need to make sure you and your partner are a good fit for each other. You should check three kinds of fit: strategic fit, capability fit, and organizational fit. Let’s look at each of these in turn.


First, you want to make sure there’s a strategic fit between you and your partner. The first question to ask is whether the alliance is equally important to both of you. If it’s more significant to one party than the other, that’s a sign of a power imbalance – and potential trouble – down the road. Conduct a further check for strategic fit by comparing your strategic agendas. What does each of you hope to gain from the alliance? If you‘re seeking to learn about your partner’s technology while they want to leverage your distribution networks, your strategies will complement each other nicely. But be clear on whether you and your partner will be extracting complementary value from the alliance – a good sign – or whether you’ll be competing for value. If it’s the latter, stop and think twice before proceeding.


Secondly, you want to check for capability fit. Here, you need to ask what resources are needed to fulfil the objectives of the alliance. Next, and crucially, you need to check whether you or your partner can supply them. Does your promotion policy require door-to-door sales representatives? If you can’t supply them, can you be sure your partner is able to? Search specifically for the resources that are lacking. You need to nail down upfront who will supply these and how they will be paid for.


Thirdly, there needs to be organizational fit between you and your partner. Often overlooked as the “soft stuff”, a lack of organizational fit (sometimes called “cultural fit”) is actually the most common reason alliances fail. You’ll want to check five things. First, how decentralized is decision-making in each organization? If your managers are expected to show initiative while your partner’s employees are rewarded for following specific instructions from on high, you’ll run into trouble when your first joint project gets going. On that note, you’ll also want to look at how closely rules are documented – are they broad guidelines that leave lots of room for interpretation, or are there detailed policies and procedures? Either way, you’ll need to ensure you write the rules for your project at a level both of you are comfortable with. Finally, another important part of organisational fit is matching your reporting and controlling systems with your partner’s. You’ll need to agree on the metrics that will measure how your venture is progressing, and you won’t be able to do that unless you and your partner both have reporting systems that can spit out figures in the form they’re needed.


In sum, then, an alliance can enrich your business, taking your expertise, your geographic representation or your product base to the next level and beyond. Keeping a watch for strategic fit, capability fit and organisational fit when you’re designing your alliance will ensure you don’t run afoul of the most common traps. 


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