None of us likes to think that our alliance partners might desert us in favour of one of our competitors but a recent entry in an annual statement from a large global software company suggests that the risk is real and might be closer than you think.
The statement and supporting commentary came in the section titled 'Business Risk Factors' and was the first risk to be mentioned.
The section started off reasonably enough:
"We rely on our relationships with our strategic partners. If we do not establish, maintain and strengthen these relationships, our ability to generate revenue and control expenses could be adversely affected, which could cause a decline in the price of our common stock."
That seems reasonable enough and I don't think many of us would argue the point, but then the section went on to outline the considerable risks and efforts that the company might have to go to, to manage those strategic relationships:
"We believe that our ability to increase the sales of our products depends in part upon establishing, maintaining and strengthening relationships with our current strategic partners and any future strategic partners. In addition to our direct sales force, we rely on established relationships with a variety of strategic partners, such as systems integrators, resellers, and distributors, for marketing, licensing, implementing, and supporting our products in the United States and internationally. We also rely on relationships with strategic technology partners, such as enterprise application providers, database vendors, data quality vendors, and enterprise information integration vendors, for the promotion and implementation of our products. In addition, as we develop new products, particularly those based on new or emerging technologies, we may need to establish relationships with new strategic partners, including those that may differ from the types of strategic partners we currently have. We may not be able to successfully establish such relationships, which may adversely affect the market acceptance of our products. In addition, given our limited history with our newer strategic partners, we cannot be certain these relationships will result in significant increases in sales of our products, particularly our newer products."
"Our strategic partners offer products from several different companies, including, in some cases, products that compete with our products. We have limited control, if any, as to whether these strategic partners devote adequate resources to promoting, selling, and implementing our products as compared to our competitors' products. Also, new or emerging technologies, technological trends or changes in customer requirements may result in certain of our strategic partners becoming potential competitors in the future. In addition, from time to time our strategic partners have acquired, and will likely continue to acquire, competitors of ours. Such consolidation makes it critical that we continue to develop, maintain and strengthen our relationships with other strategic partners. We may not be able to strengthen such relationships and successfully generate additional revenue."
"In addition, we may not be able to maintain strategic partnerships or attract sufficient additional strategic partners who have the ability to market our products effectively, are qualified to provide timely and cost-effective customer support and service, or have the technical expertise and personnel resources necessary to implement our products for our customers. In particular, if our strategic partners do not devote sufficient resources to implement our products, we may incur substantial additional costs associated with hiring and training additional qualified technical personnel to implement solutions for our customers in a timely manner. Furthermore, our relationships with our strategic partners may not generate enough revenue to offset the significant resources used to develop these relationships. If we are unable to leverage the strength of our strategic partnerships to generate additional revenues, our revenues and the price of our common stock could decline"
Nineteen years ago Neil Rackham (of Huthwaite and SPIN selling fame) wrote a book with two other co-authors called 'Getting Partnering Right: How Market Leaders are Creating Long-term Competitive Advantage' McGraw Hill Professional, 1996, Neil Rackham, Lawrence G. Friedman, and Richard Ruff.
In the book Rackham and his fellow authors argued that strategic alliances were rapidly becoming valuable organisational assets, which if not managed and controlled correctly could present serious risk problems for organisations looking to maintain shareholder value.
It appears that it has 'only' taken 20 years for the market to catch up with Neil's original thinking! But clearly organisations that don't conduct regular and objective alliance audits run considerable risks including:
- Brand value degradation
- Lack of growth to support established business plans
- Losing strategic alliance partners to competitors with consequent share price drop.
However, how many organisations actually conduct structured alliance audits? In our opinion very few.
True, many organisations conduct annual alliance health checks, but all too often these are look alike customer satisfaction surveys with simple voting buttons using phrases like: 'Very Satisfied', 'Moderately Satisfied' or 'Unsatisfied'.
All too often the external partners simply say what the assessing company wants them to say rather than delivering any constructive criticism.
But probably the biggest problem with alliance health checks is their absence of objectivity. How can an organisation measure itself objectively as compared with a similar class of its competitors to assess whether they are better or worse than their competition?
The answer may lie in the Alliance Best Practice Database of alliance benchmarks conducted from 2002 to the present day. The database contains over 800 in depth benchmarks allowing companies to assess alliance risk objectively.
Alliances are judged in five separate dimensions:
- Cultural and
The result is an assessment score somewhere between 0 and 100 indicating the number and quality of best practices currently in existence in the alliance in question.
So far such assessments have been conducted as part of the business development and sales efforts to develop more business from the same relationship, but there is growing evidence that the benchmark reports and their attendant scores could be used to assess 'alliance risk'.
In other words the possibility that the targeted partner would exit the alliance at short notice thus causing considerable business disruption to the host organisation.
If you'd like to know more about alliance audits or would like to run some pilot audits for yourself, why not contact us at email@example.com