Collaboration to Win Higher Value Business

How Strategic Business Alliances assist SME Member Firms to Win Larger Contracts than as Individual Firms

Successful Alliances leverage the integrated capacity of member firms to create competitive advantage to win larger contracts especially where the alliance reinforces a vertical industry focus. Potential Strategic Alliance Arrangements span from Collaborative Design and Development, Network Marketing and Bid Alliances through to Joint Ventures.

Alliances can secure larger contracts by collaboration rather than organic growth. Most importantly, each member firm becomes a channel to market for other members of the alliance. Network marketing can establish ‘brand recognition’ to successfully position the alliance in the target market.

Alliances also offer an effective business risk management solution in turbulent market environments. In the resources investment boom many engineering and construction firms aggressively pursued organic growth. In the subsequent investment downturn the firms had to lay off staff and close facilities to survive.

Business Alliances enable the seamless operation of business processes across value chains to best apply competence of member firms for mutual gain.

Contents:

1. Central Tenet

2. Critical Success Factors

3. Strong Case for Strategic Business Alliances

1. Central Tenet

Strategic Business Alliances are now a central tenet of many companies growth strategy and is based on realising the benefits of unlocking trapped value through collaboration.

Alliances represent a strategic shift from contractual based relationships to collaborative relationships. The adversarial nature of contractual relationships leads to non-added value activities. Successful alliances eradicate non-added value activities through the benefits of collaboration.

Alliances had their genesis in the partnership sourcing approaches developed within the Japanese company families – the keiretsu – in the 1960’s and 1970’s, which tried and tested many of the management tools now used by all the major industries of the world over. In fact many commentators place their partnership approaches as the single greatest factor which gave the Japanese automotive industry their unprecedented success in the 1980’s and early 1990’s.

The Japanese success was to eradicate non-value adding activities which result in the destruction of value in the adversarial interface between firms. The substantial benefits of alliances can be found in their ability to deliver superior value for the participants.

A useful definition is: Alliances enable the seamless operation of business processes to best apply competence of member firms for mutual gain.

Alliances between oil and gas producers (BG and BP), major contractors (Halliburton Brown and Root, Global Marine Integrated Services, Kvaerner and Schlumberger) and advisory firms including Bywater plc [1] were credited with achieving step changes in sustainable performance for the North Sea oil industry.

The best way to think about alliancing as opposed to contracting is to consider their core roles:

– Contract: Managed for cost

– Alliance: Managed for value

Contracted services tend to be tactical in nature, of low complexity, with a clear scope of works, for which there are many competitive suppliers. Alliances, on the other hand, are those where the supplier has a direct impact on the strategic priorities of the principals business, and where mutual trust and knowledge required by the supplier to add real value to the principal cannot be replaced easily.

Successful alliances must be driven by business leaders from each organisation.

2. Critical Success Factors

Experience in the North Sea oil industry suggests that successful alliances begin with a clear business need for all parties, that a set of shared goals and shared values must be agreed upon, that an integrated planning process is employed, all of which is underpinned by a common measures model.

A clear business need answers the question “why am I doing this?” For example:

– Need to win larger contracts

– Need to deliver complex projects on tight timelines

– Need to effectively manage uncertainty

– Need to dramatically reduce cost

– Need to effectively manage risk

– Need to Maximise return on investment

– Need to Access scarce resources

– Need to Access technical expertise

The other question to ask is “Am I ready, and are they?” by examining essential prerequisites for business alliances to succeed.

Business Alliance Prerequisites

If these prerequisites are met you can say with conviction “Yes I understand why I am going this, and yes, I know what I am taking on.”

Shared Goals and Shared Values must be agreed upon at the outset.

The single most important test of the shared goals is that they fully align back to the goals of the individual organisation.

Shared values is a topic that all too often go into the ‘too hard basket’ and yet a cultural mismatch is probably the greatest reason why alliances do not deliver the value they should. Alliancing is about shared pain to deliver shared gain. So before the pain starts, a foundation of shared values is needed.

The difficulty of marrying two corporate cultures should not be under-estimated. After all, if an entrepreneurial firm is trying to Tango with a hierarchical firm doing the Foxtrot, it is good to know that upfront.

Integrated Planning is the task of saying how you will reach the shared goals and has two key elements:

– Known problems ( Incremental Change)

– Unconstrained Opportunities ( Step – Changes)

Unconstrained opportunities can be where R&D of the two firms is merged together. Or where both parties collaborate to jointly address Business Risk and Opportunity Management for a complex project. Or where both parties form a dedicated project office with a one team culture.

What is important about the planning process is that it is done openly, jointly, and that known problems are discussed separately to unconstrained opportunities. If not, the debate quickly reverts to the known, rather than searching for the greater potential which is the unknown.

The Common Measures Model measures progress towards the shared goals. Consider a topside alliance in the oil industry. Its shared goal is to maximum production (topside efficiency) for minimum operating cost. That’s it. The operator of the platform may have many other considerations. And they have the whole asset to think about, not just topside. But for the alliance it is those two strategic measures that matter.

3. Strong Case for Strategic Business Alliances

There is a strong case for Strategic Business Alliances to unlock trapped value. Alliances can span from the pre-feasibility phase into realisation of complex projects which unlock significant value for participants.

About the Author

Bede Boyle is Chairman of Manufacturship Group formed by Jason Furness to assist business owners and leaders boost profits in Manufacturing by simultaneously ramping up revenue and driving down costs.

Jason was Manufacturing Manager with GM Holden, National Manufacturing Manager with Smorgan Steel Group and General Manager of Electrolux Orange Plant where he rapidly boosted Return on Sales despite the GFC.

Bede was Chairman of Bywater McLean Pty Ltd and has drawn on Bywater plc [1] experience in the North Sea oilfield to develop his strategic thinking for this article.

Bede can be contacted by

phone +61 [0] 419 213 010

email   bede@manufacturship.com

 

Comments are welcome

Have a great day

Jason

 

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