Creating high-performance alliances
Strategic alliances are notoriously difficult to manage, but what might surprise corporate development executives is that the biggest deal killers could be lurking inside their own companies. In his new book, "Reinventing Corporate Growth" (Alliance Management Group), Gene Slowinski, director of strategic alliance research at Rutgers University, says a failure to communicate deal terms and strategy to internal teams can seriously undermine a deal.
To manage alliance relationships better, inside and outside the company, he recommends the Alliance Framework, a process developed in the early 1990s by Matthew W. Sagal, a former corporate development executive at Lucent Technologies Microelectronics Group.
As Slowinski tells Corporate Dealmaker's Suzanne Stevens, internal teams should understand their roles and sign off on alliance strategies even before approaching a partner.
Corporate Dealmaker: In the book, you quote a frustrated executive who said every time he spoke to someone new at his partner company, he got a different take on the alliance. What was the problem?
Gene Slowinski: Different functional internal groups will provide critical resources to the deal, and each looks at the deal from a narrow perspective. If those groups don't come to an internal agreement, the only person who knows they don't agree is the guy in the partner company. It's like calling Sybil on the phone. And, if the deal is not clear to the internal marketing group, for example, they may not have budgeted appropriately. All of a sudden someone from business development comes back and says, "Look at the deal I just signed." The marketing guy says, "I don't have resources to do that." It gets very ugly very fast.
How can you be sure that everyone internally gets the message?
The Alliance Framework is designed to do that. It outlines in a document our company's position on the deal. That document is passed to every internal stakeholder, defined as anyone with a budgetable resource or decision-making power, such as intellectual property and legal teams. We are not even going to approach a partner until we have agreement. The partner does the same thing. If we find at that time that [our companies] don't agree on the strategic elements, we'll part friends.
You suggest that companies should ideally reach this stage in eight weeks.
If both firms are willing to devote the resources to evaluate the relationship, there is no reason they cannot kill this deal in eight weeks. Really good alliance companies tend to do fewer deals, but higher quality and higher value deals. In fact, when you kill deals quickly and efficiently, you begin to earn the title partner of choice because people will know you have a rigorous approach. People are tired of stumbling for a year to 18 months with a potential partner only to write a low-quality deal.
Establishing the deal boundaries is a critical element of the Alliance Framework. What boundaries should be considered?
Alliances fail when you and I don't agree, but we don't know we don't agree. The best way to ensure we agree on boundaries is to test them during the first eight weeks. We describe what products and services, markets, technologies and geographic scope are part of the deal. When we explore those dimensions, the probability is high that we won't have a big miscommunication.
Can you give me an example of what can happen when boundaries aren't clearly defined?
We had a client who was doing tech development with a Japanese firm. The Japanese partner took my client's technology and used it outside my client's geographic view of the boundaries. My client had every intention of entering the same new market. The partner saw the opportunity just as clearly and was able to get there more quickly because it was in Japan. That's where you end up with hard feelings or worse.
Contemplating the end of a partnership when you're trying to negotiate it is not easy, but, as you say in the book, it is necessary. What type of termination language should be written into the deal?
In the broadest sense there are two ways that companies part: happy or unhappy. If we decide what the termination provisions look like under those two scenarios, it covers a lot of what we could possibly run into in the world. The problem is that people either completely ignore termination provisions or put in fluffy termination provisions that don't help people understand the intent of the deal. The big mistake is ignoring this stuff. CD
Voice of experience
The rich history of Control Data Corp. is on display in "The Eye for Innovation: Recognizing Possibilities and Managing the Creative Enterprise" (Yale University Press), by former Control Data CEO Robert Price. An upstart challenger to IBM Corp. in the 1960s, Control Data pioneered the supercomputer, sued IBM and won its service arm in a settlement, and successfully made multiple acquisitions, including Commercial Credit Corp., which in 1986 became, with Sandy Weill at the helm, one of the most successful spinoffs ever. Price joined Control Data (now Ceridian Corp.) in 1961, succeeded founder William Norris as president in 1980 and retired as CEO in 1990. He spoke with Kenneth Klee:
Corporate Dealmaker: Control Data made many acquisitions over the years. Did you have a corporate development function?
Price: As we got bigger we did. But it was quite small, and it was a supportive effort. That was one of the key factors in the company's success with acquisitions. They weren't just a bright idea of somebody -- they had a real strategic purpose. And the line managers who were initiating and managing these acquisitions knew precisely why they were strategically important.
Centralized corporate development got more popular in the 1990s. Now the pendulum seems to have swung back. Would you agree?
In the last 20 years, we have developed really sophisticated financial tools, and the danger in that is that you think the numbers are the thing that is going to make the difference. Numbers come from someplace -- they come from actions, from people, from sales. Numbers are a visible result of something, not an entity in themselves.
You stress the importance of people and trust. And you relate a lesson on sensitivity you learned by wearing a velour shirt to a meeting at the IBM unit you'd won.
There was just an absolute dead silence. Dead silence. They were so shocked. Here they were, all in ties and coats. I went ahead and gave my little talk to them. We learned to laugh about it later.
Control Data backed Seymour Cray when he founded Cray Research in 1972. Why did he go?
Seymour absolutely wanted to do what he felt was the next most exciting thing to do, and he did not want the burden of looking after the legacy systems of the company. He did not want to be responsible for the company's main product line. [Even though he had designed it.]
Many companies are looking outside for innovation these days. Is that the right place to look?
You have to have a culture within the company which is built on the fact that people are aware of customer needs and are looking for ways to meet them. If they are, they will look outside the company as well as inside the company as well as inside their own minds.
Making Patents Work
Few people question the legal right of landowners to keep another party from building on their property. The same can't always be said for the owners of patents. According to Bruce Berman, president of the IP consulting firm Brody Berman Associates Inc., companies that sue to protect their inventions from being used by another party without a license are often deemed a patent troll. In his new book, "Making Innovation Pay," (John Wiley & Sons Inc.) Berman writes that patent owners have the same rights as property owners to protect and prosper from their assets, and he taps some of the most recognized IP gurus in the game to show companies how best to accomplish that.
The book is a collection of 10 essays, including one by Marshall Phelps, the granddaddy of the IP monetization effort who headed IBM Corp.'s IP efforts and now leads the charge at Microsoft Corp. In "Turning a Patent Portfolio into a Profit Center," Phelps writes that underperforming business units are likely to look favorably on licensing because they have little to lose and much to prove.
Dan McCurdy, former president of Lucent Technologies Inc.'s IP business and now CEO of the IP firm ThinkFire, addresses the critical issue of timing in "Seeing Through the Illusion of Exclusion." It's no surprise, he writes, that the best licensing opportunities often involve patents related to a company's most successful products. He adds it is best to license such patents when the licensee is in the early stages of trying to develop an alternate technology and has not invested heavily in the effort. This allows the licensing company to get the benefit of licensing fees without facing a new competitor in the marketplace -- at least not right away.
In "Roadblocks, Toll Roads and Bridges: Using a Patent Portfolio Wisely," Peter Detkin, former head of IP at Intel Corp. and the coiner of the phrase patent troll, writes that unrelated patents buried inside a company's IP portfolio can provide an untapped revenue source. Aerospace giant Lockheed Martin Corp., for example, cleaned out its unrelated patents through a patent sale, writes Detkin, rather than paying maintenance fees or letting them lapse.
"Companies would not dream of abandoning valuable but underused assets like real estate or inventory by simply failing to pay their local taxes or rent on the warehouse," Detkin writes. When it comes to patents, however, companies fail to maintain them and are timid about pressing their advantage with them.
"Making Intellectual Property Pay" may help executives change that. -- Stacey Higginbotham
Are you a master cyclist?
Too many managers fail to factor the business cycle into their strategies, believes Peter Navarro. The University of California, Irvine, business school professor offers a remedy in "The Well-Timed Strategy" (Wharton School Publishing), showing how cycles affect different kinds of initiatives, including acquisitions. Some companies -- master cyclists such as Johnson & Johnson and IDT Corp. -- do get it right. "Strategy, as it's taught in business schools and practiced today, is time-independent," Navarro explained in an interview. "You learn how to do something strategically; you learn why to do it. But you don't learn when." -- Ken Klee
Join Corporate Dealmaker's LinkedIn forum
Juergen Lasowski
And the winners are...
