'Alliances are where the real growth is.' That challenging assertion comes from Peter Drucker, the world's most distinguished expert on management. That doesn't mean mergers and acquisitions; 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 be somehow better.
This defensive-minded strategy fits what two other gurus, Gary Hamel and C.K.Prahalad, dismiss as 'denominator' management. Profits arise by subtracting costs (the denominator) from revenues (the numerator). In mergers, the acquirer's chief aim is often to slash costs by 'rationalisation' - like Glaxo closing Wellcome's historic research labs. Alliances like Gardner Merchant's with Sodexho seek true numerator synergy: in which two and two make at least five in revenues - preferably much more.
Naturally, a real growth strategy also strives with might and main to keep costs low and falling - but the driving emphasis and energy flood into strengthening the numerator: building a greater, better business. Today alliances are increasingly the golden means to that end. They 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.
At one extreme, alliance means total union of ownership - as in the Gardner Merchant/Sodexho marriage. But the partners operate independently, exploiting this staunch independence as a potent source of extra muscle. For instance, in Belgium and Germany separate Sodexho and GM businesses vigorously follow separate growth tracks. Elsewhere, strengths are complementary rather than competitive. In the US, Sodhexo has leapt ahead in healthcare catering, but GM leads in corporate dining. Together the pair have virtual nationwide US coverage, which neither could claim before.
At the other extreme, winning rich benefits from alliance needn't require any shared ownership. 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. Great car companies, too, have strong umbilical relationships with sole suppliers of absolutely vital sub-assemblies.
A second common form of alliance is where one side provides essential facilities for the other: for instance, in liquor, major groups like Allied Domecq often widen geographical coverage for their beloved brands by using partners to handle the distribution. These may be active competitors in other products or markets - but in the rapidly evolving world of alliances, competitors make excellent bedfellows. Thus Pilkington and St.Gobain, the fiercest of rivals in Europe, are happy partners in float glass in Latin America.
That glass alliance represents a third type, where the expense of a project would be excessive for either party alone. By sharing the costs, allies richly enhance the combined profit potential. That can became global sharing. When GKN diversified away from engineering, where its car components business involves several allies, it entered the very different field of humble pallets. Joining forces with an established Australian business, Brambles, not only shared the costs and risks of going global, but imported essential expertise.
This long and fruitful association emphasises the fundamental necessity of alliances: each side must bring plenty of food to the feast. If the pact becomes too one-sided, difficulties and even collapse will follow. Until quite recently that was the fate of most so-called strategic alliances. Their success rate seemed even lower than the notoriously feeble proportion of successful mergers. But the stability of alliances has visibly and markedly improved with their steady, inexorable move from useful to valuable to plain indispensable.
That makes sense. If something really matters, you strive to make it work. According to Kalchas, the strategic management consultants, the key success factors include, first, ensuring that the chemistry between the two parties is right - including the vital personal relationships. Second, the partners, while deeply involved at board level, must keep a clear distance from operating management. Third, they must establish a sharply focused vision of the purpose and development of the partnership.
All three factors are demonstrated by the Gardner Merchant-Sodexho match, built around the shared vision of creating the world's largest contract caterer - but doing so jointly. Two heads are generally better than one: in alliances, each partner will have specific strengths on which the other can draw. Thus, Pierre Bellon, founder and chairman of Sodexho, wants to benefit from his British partner's lead in forward menu planning, training and information systems.
Winning such benefits obviously requires working closely together - and Integration is one of six I's which another management expert, Rosabeth Moss Kanter, regards as critical. The others are Importance, necessary to ensure that the alliance receives enough time and resources; agreement on longer-term Investment; Interdependence - that is, both sides must seek strategic gains that depend on the alliance's success; Information about each other's plans, etc; and Institutionalisation, an ugly word meaning that all formal legal mechansims must be in place.
Actually, the formal framework is of least concern. As Tony Hales, chief executive of Allied Domecq, observes, it must be got right; then 'you stuff it in a drawer', because 'the relationship is what matters'. A seventh I easily outweighs formality - its opposite, Informality. That allows the partnership to develop organically and to preserve the flexibility which, in a world as fast-moving as today's, is sure to be required.
If companies genuinely want to grow, especially globally, that statement is true of the alliance route: it's sure to be required. 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, in astonishing fact, alliances are so indispensable that IBM alone has over 20,000 world-wide. The old adage, 'if you can't beat 'em, join 'em', has a new and universal twist: 'join 'em, and you can beat anybody.'
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