business alliances, business competitors, corporate strategies

'Alliances are where the real growth is.' That challenging assertion comes from Peter Drucker, who in no way includes mergers and acquisitions in the statement. Most are not alliances and, says Drucker, don't in themselves win real growth. Rather, many are costly efforts to counter adverse commercial trends in the hope (often disappointed) that just bigger will somehow be better at winning the competitive wars.

Competition is commonly thought of in such militant terms. The opposition is 'the enemy'. Your strategy is designed to 'blow him out of the water'. It's a war in which, in theory, no holds are barred and no prisoners taken. But the theory is being comprehensively overtaken by practice, and by the business results which prompted Drucker's observation. Today collaboration between adversaries is expanding rapidly and widely - and the best collaborators are also the most intense and successful competitors.

Modern alliances are increasingly the golden means to the end of building, not simply a bigger business, but a greater and better one. Alliances come in all shapes and sizes, but share the same essential foundation: the belief that as active and sharing partners, both sides will achieve high ambitions that otherwise lie beyond reach. Most alliances involve joint ownership, usually 50-50. The important principle, however, is not the ownership, but the mutuality. And the vital means is communication, in which the Internet, especially in its Extranet form, plays the crucial role.

Rich benefits from alliance can be won without any shared ownership, but not without shared communication channels. Among today's most powerful trends is the supplier-customer partnership; suppliers get involved as intimately in, say, product design and production planning as the customer's own staff. Plastics moulders Nypro, for example, are so integral to Johnson & Johnson's soft contact lens business that even their computers are linked. In telecoms and IP technology, British Telecom likewise seeks strong umbilical relationships with customers to whom it acts as main supplier.

As noted before, Andersen Consulting, in studying high, middling and low-performing electronics companies, found startling differences on this crucial issue. The high performers had almost three times as many alliances as the low and the medium. Many of the allies are suppliers, time-honoured adversaries converted into partners. High performers are also particularly keen on joining forces, not only with direct competitors, but with 'complementors'.

You have a complementor 'if customers value your product more when they have the other player's product than when they have your product alone.' The definition comes from Barry J.Nalebuff and Adam M.Brandenburger, who coined the word 'co-opetition' to describe the new world of companies working in alliance. Co-opetitors abound in information and communications technology, because no company, however mighty, can supply from its own resources all the hardware, software, connections and distribution that customers require - and it's customer needs that drive co-opetition.

Also, all IT and telecoms suppliers are in multiple markets. In this highly segmented world, for example, Intel and Microsoft are inseparable complementors in the Wintel combination which dominates personal computers. In the even faster-booming market for chips and operating systems used in consumer electronics, however, Intel is competing against Microsoft. That's characteristic of today's pattern of alliances. It shifts constantly, following the shifts of markets and corporate strategies.

You therefore need flexible and careful management to make co-opetition work. The high performers in the Andersen study not only pick many more partners, but take extra care over the picking. Typically, the aces spend 50% more time than lower performers over the choice of ally. As noted earlier, the collaborations cover a wide range: the most common are joint developments of new products, marketing alliances and licensing agreements. Any of these can bring fierce competitors together, because otherwise the opportunities created by cooperation will be lost to both.

Seizing these chances is so imperative that one electronics executive, speaking to Andersen, said: 'I would give equal emphasis to competition and collaboration...it is as important for us to work with the competition as it is to beat our competition.' That's a practical expression of what Nalebuff and Brandenburger expound as 'game theory'. The theory holds (irrefutably) that the company and its competitors form part of the same 'business system': that system is their shared 'game'.

OPTIMISING THE SCORE
Decision-makers need to understand these games thoroughly. You have common interests with other players: for instance, getting the largest possible combined 'score'. The idea is to enlarge the pie, as well as your share thereof. To enlarge that share, sometimes you will exploit your strengths to prey on the weaknesses of rivals. At other times, however, their strengths and weaknesses and your's complement each other. So you play on the same side in one sector and compete in others to optimise your overall score.

In the supplier-customer alliances mentioned above, the traditional adversaries stop battling over price, and play together to streamline the relationship, thus lowering costs and improving performance. The benefits flow to both. Such partnering between customers and suppliers is essential if you want to integrate the whole supply chain to achieve great economies and increase speed. The best performers in the Andersen survey act internally to re-engineer their processes - manufacturing only against orders, say. But they also rely externally on supplier-owned and managed inventories, and on the third parties in 'outsourcing' who handle their logistics and much else, even manufacture.

Those external relationships are key alliances. The spanking pace set by the fast-changing IT industries has been especially fast and furious. Few, if any companies have more business alliances than IBM, which began the 1990s with over 20,000 such relationships worldwide. It has created many more since, including important alliances in telecoms. But while the time pressures are particularly urgent in these sectors, many others share the same imperatives.

GKN, for example, operates in low-tech alliance with its Australian complementor, Brambles, in a world-wide pallet business. Allied Domecq, in common with other wine and spirits giants, has many marketing partnerships world-wide. In a key industrial supply, Pilkington jointly owns float glass manufacture in Latin America with its deadly European rival, St.Gobain. Pharmaceutical giants like SmithKline Beecham have linked arms with relative minnows to enter promising but unfamiliar fields like biotechnology.

This last variety of alliance, which aims to produce new breakthroughs, is the most exciting. Even ultra-rich companies benefit from pooling development resources, rather than competing to outspend each other. Apart from sharing expenses, each complementor stands to benefit by removing the other from the competitive ranks in the market concerned.

Co-opetition has thus become both inevitable and attractive, which doesn't mean that it always works. The tripartite PowerPC alliance of Apple, Motorola and IBM, intended to tackle Intel's microprocessor monopoly, proved disappointing because neither IBM nor Apple could develop enough sales volume. There are other risks: at its extreme, the business with a network of alliances becomes a 'virtual company', which depends wholly on outsiders, and therefore on the success with which these often tricky external relationships are managed.

They require a high degree of trust, which can be misplaced. But if co-opetition sometimes fails, competition doesn't always work, either. The prime example is the price war, in which everybody loses. Properly managed, alliances create games in which everybody wins - including the customer. The process, though, changes management decisively. The ultimate stage in this crucial development is the 'virtual corporation' - the title of a pathfinding book by William H.Davidow and Michael S.Malone

Even a global search will uncover few genuine examples of such an organisation, one which, in their words, is 'almost edgeless, the interface between company, supplier and customer permeable and continuously changing.' Though near-edgeless examples are so rare, the underlying trend in that direction is common. In most industries, companies are outsourcing more production and services, forming more and more alliances with suppliers and customers, squeezing out more cost and time from the combined business system.

Outsourcing, alliances and productivity are the daily bread of the competitive jostling in PCs, for example. Customers for information technology - which means virtually everybody - never know who they're dealing with these days. That's always been true, say, of PC components. Until Intel began its 'Intel Inside' advertising campaign, many users didn't know that its microprocessors were the core of their desktop or portable. Mostly, they still don't know who made the disk drive or the host of other devices assembled and boxed by the ostensible manufacturer. But increasingly the components themselves may have more than one parent.

The trend is accelerating. When IBM and Toshiba agreed to invest $1.2 billion in a plant, sited in Virginia, to make advanced 64-megabit memory chips, the two were already partners - with each other in a Japanese plant making liquid crystal display panels, and also with Siemens in a project making the great leap forward into 256-megabit memory chips. And these deals, while huge, are only a small fraction of the alliances that enmesh the IT industry like a monstrous spider's web.

MORE AND BIGGER ALLIANCES
The IT deals, in turn, are only part of the unstoppable trend in world business towards more and bigger alliances of all kinds. On the day that IBM and Toshiba unveiled their latest partnership, Wendy's, the fast food chain, announced a $400 million merger with a Canadian coffee and doughnuts chain, Hortons. The two have been allies for four years, coming together to build 'combo' units selling both hamburgers and doughnuts. The reasons for the alliance are strikingly clear from the numbers.

The combos save about a quarter of the costs, and sell a fifth more than either a Wendy's or Hortons on its own. That's often the basis of an alliance: to reap the synergies of sharing capital and operating costs while tapping a bigger market than either partner could achieve independently. The word synergy (meaning that two plus two supposedly makes more than four) was once fulsomely used to justify takeovers and fell into disrepute when their promised payoffs didn't arrive. But in their quieter way, alliances seem to be delivering the goods.

That's after a discouraging start, when alliance results appeared to be no better than those of allegedly synergistic acquisitions. It isn't just that managements have become more adept at handling strategic alliances (though they plainly have). The improvement results, first, from necessity: and second, from intrinsic aspects of the alliance relationship. Necessity is the mother of more than invention. If a project is absolutely vital to your future, the incentive to make it work is absolutely compelling.

Even three-way partnerships can pay off where necessity rules. The PowerPC chip metioned above has been widely hailed technically. Nobody noted the managerial achievement involved in bringing so complex a device into production and to market. But Motorola, Apple and IBM all had very powerful motives in their respective confrontations with Intel. Without an advanced microprocessor, Motorola would have been forced out of the market: Apple could never have competed with its MS/DOS rivals: and IBM would have been wholly at Intel's mercy.

As it happens, Apple has probably gained most of the trio and IBM least, because the latter found prohibitive the inherent disadvantages in offering two directly competing PC lines. That happens with alliances - they evolve over time as circumstances change, and may even develop (as with Hortons and Wendy's) into full-scale merger. So the partners have to be flexible for the alliance to work. That flexibility is one of the key, intrinsic characteristics that explain how so many alliances have resisted the inflexible forces that commonly mar straight amalgamations.

FOCUS AND DIRECTION
Another powerful factor is that, for an alliance to be effective, each side must have a clear benefit in view and in realisation. This clarity of purpose is linked with two other essentials of good management and winning strategy: focus and direction. The alliance is focused on a specific, uncluttered shared objective, and execution is placed firmly in the hands of an operating management whose task is equally clear. A clear line, moreover, is drawn between the operators and their overlords. There's no confusion between the two roles, as there is inside nearly all companies.

The good alliance in fact closely resembles a first-class piece of project management - the mode which is taking over much work inside large organisations. With external alliances also growing fast, the whole pattern of strategic formation and execution is plainly changing towards genuine partnership. That changes the nature of the corporation - every corporation. Consider the examples of the four major companies in quite different businesses mentioned above. Their alliances are so important that none of the four could now realise their ambitions without their many partners.

SmithKline Beecham's necessities included tapping into drug-related research fields, like biotechnology, where it had no position itself. At Allied Domecq, plans for developing as a global force in spirits depended on continued success with partners in markets like Japan. For Pilkington, alliance with a Japanese competitor was the key to expanding in automotive glass in the US and other markets. At GKN, alliances were the foundation for its attack on global markets for automotive drive-trains.

In all these relationships, the most striking element is their durability and relative smoothness. They became taken for granted, but only because the respective partners had worked hard, and were still working, to ensure that the benefits were mutual and the management effective. Whether the lessons of allied success are being transferred into the internal management of the allies themselves is another matter. But that's the next logical step - and the next necessity.

Too many companies joke about the 'tubular bells' or 'silos' that characterise their organisations: separate compartments which never unite in the common cause of corporate success. Sheer difficulties in communication used to explain (though not jusify) these harmful internal divisions. But Intranets and e-mail sweep away the difficulties. Departments, divisions and separate businesses can keep each other fully informed at all times and in real time. Nothing less makes any sense.

If companies genuinely want to grow, especially globally, the alliance route is sure to be required, both inside and outside. Externally, the approach is identical whether the partnership dynamic is all or any of these: scale, pooling expertise, cracking new markets, cost reduction, minimising and optimising investment, competitive advantage, or sharing technology, high or low.

In high-tech, especially in information and communications, alliances are indispensable, not least in developing and marketing the technology that binds customers with their allies and enables them to achieve genuine synergies. The old adage, 'if you can't beat 'em, join 'em', has a new and universal twist: 'join 'em, and you can beat anybody.'