Leveraging Strategic Relationships – Pt. 2

Continued from Part 1...

It’s very easy to say that more strategic partnerships are needed for small businesses; however, it’s much harder to make it happen for various reasons. One of the most obvious reasons is that there has to be two willing partners to make a deal. Also, there must be financial incentives on both sides that would make such a deal attractive for the near term and the future. Nevertheless, where there’s a will there’s a way.

Below are three different strategies in the form of decision rules that small businesses can use to assess whether or not they should consider strategically partnering with another company in order to grow their businesses. These decision rules are crucial, because of the potential negative impact that a bad decision can have on a small business.

Decision rules for:

1) Strategic alliance or Collaborative partnership. Companies should only form alliances that are highly selective, focusing on particular value chain activities and on obtaining a particular competitive advantage garnered from the combination of resources and capabilities that it and its allies possess that give it an edge over rivals. This approach is best used when two or more companies choose to work together very closely, but without going as far as a joint venture, merger, or acquisition.

2) Merger or Acquisition. Use when alliances don’t go far enough in providing a company with access to the needed resources and capabilities required to gain a competitive advantage over its strongest rivals now and in the future. A company should only merge or acquire another company whose strengths will complement or enhance its own, not one who has the same weaknesses.

3) Vertical integration. Vertical integration should only be considered if the integration will strengthen the firm’s competitive position by producing sufficient cost savings to justify the extra investment, add materially to a company’s technological and competitive strengths, or truly help differentiate the company’s product offering. Furthermore, the company first should evaluate thoroughly whether or not they have the expertise to integrate the operations of the vertically integrated company into its own before making this type of decision to broaden its strategic focus.

Partnering with another company can be very risky, so due diligence is the key. Before you as a business owner decide to go this route as an option for business growth and expansion, you have to make sure that you do a thorough analysis of the other company’s financials, strengths and weaknesses, operations and management style, reputation, and their company values and culture among other things. This relationship will be like a marriage, so the personnel of the two businesses better get along well or else you’re just asking for trouble. Make sure that during your “dating” process you learn all that you can before jumping into the relationship. The more time you spend on the front end in the due diligence and planning process, the less time you will spend on the back end trying to resolve problems and issues that could have been avoided.

Strategic relationships can be very lucrative as a growth strategy, but they can also be very damaging. Just make sure that if you are pursuing this path for your business to “measure twice and cut once.” You don’t want your business to be ruined by a bad relationship. Happy dating!

References
Thompson, A.A., Jr., Strickland, A.J., III & Gamble, J. E. (2005). Crafting and Executing Strategy; The Quest for Competitive Advantage, Concepts and Cases (14th ed). New York, NY: McGraw-Hill/Irwin.

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About Paul Wilson Jr.
Paul Wilson, Jr. is a "Dream Catalyst" and Marketplace Pastor for leaders and entrepreneurs. He is driven to lead people to unleash God’s potential in their lives through their purpose, passions, and professional skills. He equips leaders with creative, faith-based strategies to flourish spiritually and professionally, while operating from several multi-media platforms, including TV show host, inspirational speaker, and stimulating writer. Paul is the President of Kingdom Business University, which utilizes workshops, consulting, and coaching services to ignite Christian catalysts maximize their God-given mission in the marketplace. He is the author of the life purpose igniter “Dream B.I.G. in 3D: How to Pursue a Bold, Innovative God-Inspired Life!” He is also the host of Passion in Action, a motivational and educational faith-based Internet TV show for social entrepreneurs, business leaders, and community change agents. Contact us today to learn more about how he can help your business, church, or community to thrive on purpose!

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