Introduction
This post explores the dynamics of strategic alliances, examining both the advantages and potential drawbacks they offer to participants. A strategic alliance is a collaborative arrangement, either within a company or between different companies, where all participants work to their common advantage, ultimately leading to improved total quality of products or services. The terms “strategic alliance” and “partnership” are used here interchangeably, though there is a slight difference: the partners in a strategic alliance work together while remaining separate entities, while partnering may include the formation of a new legal entity (a partnership) with shared assets and liabilities.
We begin by covering internal partnerships, with particular attention paid to partnerships between teams. Next, external partnerships are discussed, and an example of a global supplier partnership is covered. Finally, some of the partnerships formed by my former employer are described to illustrate these concepts in practice.
Internal Partnerships
Internal partnerships can be between employees, between management and employees, or between teams. “Partnering should begin at home” (Goetsch & Davis, p. 70). Employees and managers can work together in many ways, including problem-solving teams and brainstorming sessions.
Partnerships between teams within an organization permits ideas and technologies to be shared between them. Such partnerships may also reveal redundancies between the teams. When this happens, the teams could be merged or reorganized to either eliminate the redundant parts or have the redundant parts working together.
Despite these advantages, there are at least two potential problems when forming partnerships between teams. First, partnerships usually come with some form of bureaucratic overhead. Second, members of both teams may have to explain their efforts to more people. Either way, this takes away time for productive work.
External Partnerships
External partnerships take many forms, from partnering with suppliers, to partnering with customers, and even partnering with competitors. An interesting example of external partnerships is illustrated by consortium buying, which is when two or more small companies combine to purchase common items in bulk for purposes of reducing costs.
Partnering with suppliers attempts to invert the usual script where the company attempts to play suppliers off each other to minimize prices. As such, developing trust in supplier partnerships is a long-term prospect going through various stages from uncertainty and tentativeness to a mature partnering relationship. (Goetsch & Davis, p. 71).
A prime example of external partnering with competitors is the relationship between Apple Inc and Samsung. The type of strategic alliance between these two companies changed over the lifetime of the alliance: It began as an alliance between a company (Apple) and a supplier (Samsung), then quickly involved into an alliance between competitors.
In 2011, Apple decided to outsource manufacturing of the iPhone’s displays to Samsung, a company based in South Korea. Shortly thereafter, Samsung began manufacturing similar phones that utilized Apple’s intellectual property. Samsung was accused of infringing on design and utility patents, and this resulted in a series of lawsuits by Apple against Samsung beginning in 2011 (Müeller, 2012). By 2013 more than 50 suits and countersuits were in motion in the courts of the United States, South Korea, Japan, and the United Kingdom (Kastrenakes, 2018). Apple won the cases in the US, and Samsung won the cases in the UK, Japan, and South Korea. The damage was done, however: Apple’s competitors had learned the techniques that made the iPhone successful. As with many tech company rivalries, Apple and Samsung have settled into a “competitor with benefits” arrangement, and Samsung continues to supply displays for use in Apple’s products.
Outsourcing always comes with problems such as differences in time zones, languages, and culture. The relationship between Apple and Samsung revealed another difference: the legal support for intellectual property rights. A very superficial review of two of the standards used to evaluate partnerships with suppliers (Goetsch & Davis, p. 72) – the Malcolm Baldridge Criteria and ISO 9000 standards – shows that neither address the problems Apple Inc encountered.
Personal Examples
The software company for which I used to work, America Online (AOL), had formed an external partnership with XM Radio, later purchased by Sirius, and became SiriusXM. I was responsible for integrating XM Radio’s channel offerings into AOL’s music streaming service, AOL Music. The partnership was beneficial to both companies: AOL was able to offer twice the amount of content to customers, and XM Radio reached a much larger audience.
“Partnerships” with AOL usually involved the following cycle: a traditional supplier partnership established; AOL would then purchase the partner; the (former) partner would either be absorbed into AOL and then put out of business, or the acquired company would be spun off and become independent again or it would be sold to a buyer. The AOL/XM Radio alliance described above is an exception: both remained separate legal entities throughout the partnership.
An example of the way AOL partnerships usually work is demonstrated by AOL’s relationship with the Huffington Post (HuffPo). AOL partnered with HuffPo in late 2010 so that AOL could gain access to the blogging software they used. In 2011, AOL outright purchased HuffPo. The terms of the acquisition were unusual… AOL paid $315 million, and Arianna Huffington became president and editor-in-chief of numerous AOL properties including Engadget, MapQuest, AOL Music, and Patch. Later, in 2015, HuffPo was purchased by Verizon, along with the rest of AOL. Finally, HuffPo was sold to BuzzFeed.
From an employee’s standpoint, this was a serious violation of trust – the previous managers of those properties were all quite talented, and they were replaced by complete strangers who soon allowed most of those properties to fail.
Conclusion
Internal and external alliances can be beneficial to all participants. For example, smaller companies can engage in consortium buying, giving them the purchasing power of larger companies. If managed well, all parties can benefit from the relationship, lowering costs and improving customer satisfaction. External alliances, especially with competitors, have the potential to go very wrong, and standards such as the Malcolm Baldridge Criteria or ISO 9000 may not prevent this.
References
Goetsch, D. L., & Davis, S. B. (2021). Quality management for organizational excellence: Introduction to total quality (9th ed.). Pearson.
Kastrenakes, J. (2018, June 27). Apple and Samsung settle seven-year-long patent fight over copying the iPhone. The Verge. https://www.theverge.com/2018/6/27/17510908/apple-samsung-settle-patent-battle-over-copying-iphone
Müeller, Florian. (2012, July 24). Apple seeks $2.5 billion in damages from Samsung, offers half a cent per standard-essential patent. FOSS Patents. http://www.fosspatents.com/2012/07/apple-seeks-25-billion-in-damages-from.html
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