When clients ask me about creating strategic alliances, I compare the challenge to preparing a vinaigrette from oil and vinegar. It takes a lot of work to bring these dissimilar ingredients together for a specific goal, knowing well they may wish to separate later on.
This analogy seems fitting when one reviews KPMG’s 2018 Global CEO Outlook. In our fourth annual survey of 1,300 CEOs in 11 of the world’s largest economies, we found a high level of CEO interest in inorganic growth, with a preference for strategic alliances over M&A in the next three years.
While this focus could help companies grow and fend off disruption, CEOs who hope to build successful partnerships to strengthen their value chain should keep in mind the culinary art performed by a chef who whips together varied ingredients into a cohesive dressing.
Why the strategic alliance trend?
Looking at the 2018 survey data, we found that 33 percent of respondents will prioritize strategic alliances over the next three years versus 16 percent who will emphasize M&As and just 13 percent who favor joint ventures. This isn’t surprising when you consider the recent wave of M&As and companies’ understandable desire to pause and digest their acquisitions.
Our survey results also speak to CEOs’ realization that they must find new ways to respond to disruptive forces. Whereas M&As are about buying assets, strategic alliances can help a company add capabilities they need to succeed in the future. And these capabilities may exist across a wider ecosystem than a company previously considered part of its value chain.
For example, many players in the auto sector are now incorporating ride sharing services or vehicle charging stations into their plans, to prepare for potential demand for electric-powered and autonomous vehicles. It’s not realistic for a company to acquire all of these diverse capabilities, so strategic alliances enable them to do a number of things with the flexibility to add or subtract partners as needs change.
How to make alliances work?
But how can business leaders ensure their alliances are effective? The reality is that, compared to an M&A, a strategic alliance requires much more involvement at the c-level of an organization over the course of the relationship. It’s not just about kicking the tires, signing the merger deal and telling the business units to make it work.
This distinct mindset must begin at the negotiating table, with executives coming together with a partnership spirit rather than the view that they are simple buying or selling an asset. This means spending more time discussing ambitions, rather than price. You need to really understand what each party brings to the table and how you can achieve your shared objective.
Among the key questions to consider: Where do you want to play and what are the boundaries of the alliance, in terms of each partner’s role? Then, potential partners must work out how they will win together – essentially what do we each need to do, how will we do it and how will we measure whether it’s working? This is important, since strategic alliances often involve organizations with very different cultures.
In addition, a company needs to strengthen its capacity for agility so that the entire organization can work effectively with new partners and adapt quickly as things get going or when things go wrong. Successful CEOs prepare their organization, increase openness and adapt their corporate culture before they enter an alliance. And, that type of flexible thinking also means recognizing that there will be no single road to success. Rather, to satisfy your company’s entire evolving ecosystem you may require a mix of alliances, M&A and JVs.
If this sounds difficult, take heart in the fact that we see many organizations mastering the art of building and managing strategic alliances. The aforementioned auto industry is a good example as they form diverse alliances across their increasingly complex ecosystem. Similarly, in my home region, Asia Pacific, we’ve long seen how western companies across sectors make strategic alliances and JVs a core strategy when regulation prevented them from buying local assets.
Without a doubt, strategic alliances require a shift in mindset and approach – to create that perfect vinaigrette – but a new breed of global CEOs are eager to explore this challenge on the road to fresh innovation and sustainable growth.