The purpose of a business alliance is to bring two or more companies together to achieve defined strategic goals. The benefit is to reduce risk, increase rewards, and leverage resources. But how do you know if you’re successful? Alliance management requires you to assess performance.
Over ten years ago, McKinsey & Company reviewed the financial and strategic outcomes of hundreds of business alliances. Their assessment was that the overall success rate was slightly higher than 50 percent. Who knew? Not the executives, according to the study.
To make sure this doesn’t happen to your business alliances, McKinsey & Company suggest:
At a time when alliances are increasingly important, under investing in efforts to measure their performance isn’t a realistic choice. To get the maximum value out of all alliances and the ability to intervene when their performance veers off track, managers should learn to measure their fitness on several levels—a process that can also reveal fundamental weaknesses in the way companies create and manage them.
While they recommended several levels and factors for assessing performance, they pointed out the importance of using these four metrics to gain insight into how the alliance was doing.
- Financial fitness: This includes sales revenues, cash flow, net income, return on investment, overlapping cost reduction, and increased revenue.
- Strategic fitness: These are non-financial metrics such as market share, new product launches, and customer loyalty.
- Operational fitness: Consider factors like the quality of your products and new hires.
- Relationship fitness: This is where you assess the business alliance culture against factors such as trust, clarity of decision-making, and contribution definition and delivery.
Alliance partners “must decide whether to share a single alliance scorecard, to have separate scorecards, or to develop some combination of the two.”
You cannot leave alliance management to chance. Otherwise, you risk overlooking potential problems as well as unrealized opportunities.
That’s where 3rd Eagle can help.
We offer assistance in finding successful partnering solutions, solid strategic alliances, and alliance management. Browse our website, review our blog, and then contact us for assistance with your partnerships and business alliances.