When it comes to technology, the boardroom has been learning a new language: mobile, social, cloud, cyber security, digital disruption and more. Recently the National Association of Corporate Directors released an eight-part video series on the board’s role: The Intersection of Technology, Strategy and Risk. We have spent much of the past year focused on cyber security, an essential discussion given the widespread theft of intellectual property, privacy invasions and data breaches. A report on cyber crime and espionage by the Center for Strategic and International Studies (CSIS) in Washington, D.C., last year estimated that cyber crime costs the global economy $300 billion a year – an entire industry is growing around hacking! Research by PwC shows cyber insurance is the fastest-growing specialty coverage ever – around $1.3 billion a year in the U.S. As our boardroom agendas often get filled with discussions on risk, I asked Frontier Communications board director Larraine Segil how to shift the conversation to strategy. Larraine has a keen focus on opportunity and suggested we delve into solutions for governing “The Internet of Things.”

What exactly is the Internet of Things, and what are the implications for business strategy?

Think about connecting any device with an on and off switch to the Internet and to each other. This includes everything from cell phones, thermostats and washing machines to headphones, cameras, wearable devices and much more. This also applies to components of machines – for example, the jet engine of an airplane. If the device has an on and off switch, then chances are it can be a part of the Internet of Things. The technology research firm Gartner says that by 2020 there will be more than 26 billion connected devices. Think about Uber, the company that connects a physical asset (car and driver) to a person in need of a ride via a website. That simple connection has disrupted the taxi industry.

Airbnb has done the same for the lodging industry by directly connecting people with spaces to rent to those in need of accommodations.

What does this mean to for our companies? Larraine, what are you thinking when you hear about the Internet of Things for business opportunities? As a director, how can you help directors govern in this fast-moving digital age?

Frontier Communications provides connectivity services to a national customer base primarily in rural areas and is integrally involved in the Internet of Things. Frontier has a number of strategic alliances with companies that develop and market those very devices – or “things” – such as the Dropcam camera, a cloud-based WiFi video monitoring service with free live streaming, two-way talk and remote viewing that makes it easy to stay connected with places, people and pets, no matter where you are. Other alliances expanding the “things” will be introduced in the rest of 2014.

As a director, it is critical to be educated constantly about new trends, products and opportunities – competition is fast-moving, and customers are better-educated about their options than ever before. Strategically, the board has to think way ahead of the present status quo – and with the help of management and outside domain experts, explore opportunities for alliances. This requires using strategic analysis at every board meeting (not just at one offsite a year) and welcoming constant director education and brainstorming both within and outside of the company’s industry. The board should continually identify and evaluate strategic directions to keep the company fresh and nimble.

Remembering that we’ve only just begun, here are some critical questions boards should be asking about technology and the Internet of Things:

1. Are you including strategic discussions around technology at every board meeting?
2. Do your strategic directions include alliances within and outside of your industry?
3. How would you assess your current level of interaction with the chief information officer and chief technology officer? What can be done to improve the effectiveness of communications with them?
4. As a board, how are you helping to guide your company in innovative directions, taking into consideration disruptive technologies, competitor alliances and new ideas or skills coming from outside your industry?

Read more: How the ‘Internet of Things’ Affects Strategic Planning | Insurance Thought Leadership

Directors say a breakup between a CEO and his or her spouse is something the board should be aware of without getting into gritty detail, much like the CEO’s health. A divorce doesn’t warrant concern or even much discussion unless it becomes apparent that the CEO’s productivity has been affected or that the company could suffer as a result. In such cases, boards may have to provide additional support to the CEO or possibly consider hiring a replacement, even if it might seem like kicking the CEO when they’re down.

Robert S. Miller, chairman at American International Group and a board member atSymantec, says the real questions for directors during a divorce are whether the process is going to be a distraction for the CEO, and whether something will come out during the proceedings that will affect the company’s reputation.

Miller says it’s helpful if the CEO advises the independent chair or lead director about what’s going on so the board is at least informed of the situation.

“Every board is different and has to use their best judgment in terms of the balance of the privacy of the individual versus protecting the interests of the corporation,” he says. “A CEO in his or her personal life may have lost a lot of money in an investment or suffered the death of a child or any number of things that could affect and distract the CEO; those are things the board needs to pay attention to.”

Larraine Segil, a longtime director who currently serves on the Frontier Communications board, agrees.

Segil says if something going on in a CEO’s life is affecting their ability to lead the company, the board needs to get involved. If not, there’s no need for concern.

“The consequences of going through a divorce do rise to the attention of the board of directors,” says Segil, “but the divorce itself is none of their business.”

Indeed, an article published this month as part of Stanford University’s “Closer Look” series suggests that divorce can potentially impact the CEO’s focus, risk appetite and ownership stake in the company.

“Divorce is a kind of trauma for the person and potentially for the company, and I think from a board perspective, directors will want to think through [the implications],” says David Larcker, a co-author of the article and director of the Center for Leadership Development and Research at the Stanford Graduate School of Business.

The article, “Separation Anxiety: The Impact of CEO Divorce on Shareholders,” suggests that a CEO divorce can impact a company in several ways.

First, the CEO’s ownership stake could shrink considerably as a result of a divorce settlement. For example, in September Best Buy issued a statement regarding company president and CEO Hubert Joly’s exercise and sale of 350,467 stock options and sale of 100,686 shares of stock, which together raised about $10.4 million.

In the statement the company explained that Joly had gone through a divorce and needed to sell a portion of his stake in the company to cover the costs.

“He remains heavily invested in Best Buy,” a company spokesman said in the statement.

While Joly’s sale didn’t affect his adherence to Best Buy’s stock ownership guidelines, experts say a stock sale could cause a CEO’s ownership stake to fall below the amount of stock that must be held. In those cases, boards would have to decide if they will waive the policy.

In addition, sales of company shares could also potentially impact the influence a CEO has over a company and board composition, the Stanford article states.

Uneasy Lies the Head

Directors should also be mindful of the possibility that the CEO’s attention could be diverted away from the job of running the company. This is, directors say, the main concern for the board in such events. Several directors report that in their experiences, people double down on work when their personal lives take a turn for the worse, but boards may need to unobtrusively provide additional support to the CEO as he or she works through a difficult period.

Miller says CEOs vary in their ability to separate their personal life from their business life, but notes that he served as the chairman at a company in which the CEO went through a divorce, and the CEO kept the matter entirely separate from his performance at work.

“Nobody even suspected or knew about it,” he says. “It was just kind of something that happened in the background and had no effect on the business and no effect on his productivity.”

Anthony LeVecchio, a director on the boards of several small-cap companies, had a similar experience. A CEO went through a divorce and kept the board apprised of the matter with no impact on the company or his performance.

“As a director, your antenna goes up for sure,” says LeVecchio, who is president of The James Group. “Being the CEO of a public company is demanding enough, let alone to have all these other pressures.”

Many CEOs and high-level executives are calm and collected during divorce proceedings, says Robert Stephan Cohen, a prominent New York divorce lawyer with Cohen Clair Lans Greifer & Thorpe. And oftentimes it’s because someone such as a general counsel or advisor speaks frankly with the CEO and lets them know that it’s best to dispense with the divorce sooner rather than later. However, when money, homes and children are at play, it can be difficult to keep the proceedings unemotional. Some high-powered executives believe they can ride out any negative publicity that might result from a divorce, but typically such cases aren’t resolved without a lot of bloodletting, he says.

“There is always a point where the board and/or the stockholders put pressure on the CEO or the person who is highly placed to give it up,” says Cohen. “The reputational risk is huge and the market cap can be adversely affected.”

And divorce may take its toll on CEOs even after the marriage is over. The Stanford article notes that small samples of data suggest that retirement rates among CEOs are slightly higher following a divorce. Of the 24 CEOs who got divorced between 2009 and 2012, seven, or 29%, stepped down within two years of the settlement, the authors found.

Jordan Neyland, a senior lecturer of finance at the University of Melbourne, examined turnover after divorce among S&P 1500 companies in a 2012 research paper and found that of the 79 who divorced, seven were no longer CEOs at their companies a year afterward. In an e-mail response to questions, Neyland notes that it’s unclear whether this is an abnormally high rate of turnover. However, at least one CEO in his research cited family considerations as their reason for resigning after their divorce.

A Changing Appetite for Risk?

The Stanford article also raises questions about whether a divorce settlement might make a CEO more or less risk averse as a result of the financial implications of ending a marriage. Directors, however, were skeptical about whether CEOs would make business decisions to rebuild their personal wealth that weren’t in the best interests of the company.

Barbara Hackman Franklin, a director on the Aetna board, says major decisions such as a large acquisition would involve a lot of eyes on the deal from the board, management and advisors.

A dramatic change in the CEO’s behavior would be noted, she says, yet it’s impossible for directors to know how a CEO will react after an event like a divorce. There’s no way to assess or measure whether or how a CEO’s risk appetite has changed, particularly if those changes are subtle.

Ultimately, says Franklin, boards that are monitoring performance will notice if something slips, whether it’s because of a divorce, a health problem or some other issue. But CEOs are entitled to have a personal life outside of work, and disclosure to investors about their personal lives isn’t necessary.

“I do believe people are entitled to have private lives,” says Franklin. “Not everything has to be out there in the open forum.”

By Amanda Gerut October 14, 2013

Watch the video…

By GARY M. STERN, FOR INVESTOR’S BUSINESS DAILY
Posted 10/11/2013 04:16 PM ET

In the pre-Internet days, companies rarely partnered with rivals. But in the post-Internet days, striking alliances with competitors has become a trend. Increasingly, competitors have become business partners rather than foes.

MasterCard (MA), for example, joined with foreign exchange provider Travelex in August to create a multi-currency prepaid overseas credit card in a win-win tie-up for both companies. Consumers can travel overseas with a credit card available in five currencies including euros, British pounds, Australian dollars and Japanese yen.

In the past, not all retailers accepted credit cards globally and sometimes clients were charged high conversion fees. But the new cards are easily reloadable and replaceable overseas, says MasterCard.

Travelex serves as the retail outlet selling the travel cards to consumers while MasterCard is the network where the transactions for these cards flow, says Seth Eisen, a MasterCard spokesperson.

In the fast-changing markets created by the Internet and digital technology, forming alliances with competitors can increasingly boost revenue and help lure clients. However, players must sidestep certain traps to ensure these deals don’t fall apart and terminate abruptly.

Partnerships for MasterCard make good business sense because “we believe financially it can be greater than the sum of its parts,” said Michael Weitzman, group executive of products and solutions for U.S. markets at Purchase, N.Y.-based MasterCard. “MasterCard wouldn’t have the reach, and Travelex wouldn’t have the access” without the team-up, he said.

A Bigger Whole
By combining forces, it strengthens the product and benefits customers. “We have 35.9 million MasterCard locations, and they bring distribution in 23 countries around the world including major airports,” Weitzman said. Customers arrive at an airport, deposit value on their prepaid cards in specific currencies, and get the ability to buy goods and services overseas.

Weitzman says that these prepaid cards operate like traveler’s checks and yield security and peace of mind. They carry anywhere from $25 to a maximum of $8,500. The card can be reloaded, and consumers can add up to $5,000 in any 24-hour time period.

“The problem in the past with charging overseas was currency conversion fees, which can add anywhere from 1% to 3% to the cost of doing business with your U.S. credit card,” said Christopher Elliott, author of “How to Be the World’s Smartest Traveler.” Foreign exchange conversion fees still apply with the new prepaid cards, but fees are lower. Consumers, moreover, don’t have to pay reload or transaction fees, though there are ATM fees.

For MasterCard, the prepaid card strengthens the brand globally. “Our secret sauce is to authorize, clear and settle transactions between 23,000 financial institutions and 3,500 merchants,” Weitzman said.

Travelex declined to answer questions about the benefits it reaps from the partnership. But Weitzman says it extends MasterCard’s reach to more customers overseas. And the alliance enables Travelex to extend revenue on conversions and partner with a global brand like MasterCard.

MasterCard not only strengthens bonds with customers through the partnership, it also boosts revenue. It earns fees from these transactions and spikes overseas revenue.

While some experts point out how these partnerships can go awry when parties try to end them, Weitzman doesn’t see many pitfalls in these agreements. MasterCard operates in a thriving business-to-business network, and this deal is one of many, he says.

MasterCard encourages alliances with a variety of partners. “By definition, we’re not a credit card, we’re not a debit card, we’re a network and we do valued-added processing. This partnership makes travel safer for our consumers, both in the U.S. and abroad, and provides value to merchants,” Weitzman said.

Partnerships between competitors are on the rise. “If companies can expand the market for both firms rather than taking away market share, you’re looking at a win-win,” said Larraine Segil, author of “Intellligent Business Alliances.”

Transparency Helps
The Internet is spurring these partnerships with rivals. “It’s hard to keep things secret and easier to know what competitors are doing,” Segil said. Hence, business alliances make more sense.

One partnership that worked effectively from 1998 until 2011 was Kraft Foods (KRFT) and Starbucks (SBUX). In 1998, Kraft, which sells Maxwell House coffee, agreed to distribute Starbucks’ premium blend in grocery aisles.

Segil says both companies prospered from the pact. Starbucks strengthened its reputation and gained supermarket distribution from Kraft Foods.

“Kraft gained an entrepreneurial kicker for an old-fashioned brand without pizazz and access to a younger, hipper market,” Segil said.
Segil describes MasterCard’s alliance with Travelex as another win-win. If customers face hurdles using their MasterCard overseas, it can damage its reputation and erode market share. Travelex, by smoothing the way for MasterCard users, boosts its cachet by its association with a larger competitor and expands revenue as well.

MasterCard’s customers also benefit by having an easier time using their credit card overseas. For customers, “It’s a seamless transaction; no denial of service and they can charge in francs,” said Segil.

But these alliances also carry some traps. Partners need to be fully explicit about what is being agreed to, what is being shared, and whether any information must be withheld. “If there are unmet expectations, it’s a formula for failure,” Segil said.

Hence, these agreements need to include a clear exit strategy describing when and how the partnership will end.

“Discovering where to draw the line between providing the right incentives and ensuring pay for performance can be difficult. “You have a very delicate dance balancing the different interests, and this is where combat pay is right now,” said Larraine D. Segil, partner emeritus at Vantage Partners. Segil noted that a management team that turns around older operating companies is expecting its due. “If they don’t have the recognition…you don’t retain them very long,” said Segil. Being able to satisfy both long- and short-term compensation needs is key.”

When Rob Basso started his business, he knew he was at a disadvantage. Smaller and less established than his competitors in the payroll services field, Basso lacked the capital, manpower and resources that the larger firms enjoyed. In order to level the playing field, he knew he had to creatively market and grow his business. To become immediately competitive, Basso decided to align his startup company with local accounting firms, 100 of which he now calls partners.

“We’re in a very competitive industry, and we can’t afford to outspend our large public competitors when it comes to traditional advertising and marketing,” says Basso, who is founder and president of Advantage Payroll Services Long Island, a Hicksville, N.Y.-based firm that provides payroll processing, timekeeping and tax filing services for small and medium businesses. “We’ve taken a more grassroots approach whereby we work in concert with other local businesses in order to gain attention and garner referrals.”

Because small businesses rely so heavily on their accountants for business advice, Basso aligns himself with CPAs who will recommend him when their customers ask for payroll assistance. He offers those firms educational opportunities in the form of complimentary business development seminars. It’s all part of a program called CPAdvantage, a win-win collaboration that provides Basso’s firm with new business leads and his partners free business training.

“CPAs hold the key to the decision-making power of a lot of small and medium-sized business owners,” Basso says. “Their partnerships have been an invaluable part of my business.”

In fact, partnerships can be an invaluable part of any business. There is strength in numbers, after all, and partnerships offer an expedient way to expand both the size and scope of any business.

Identify Opportunities
The potential benefits of partnership are enormous, says alliance management expert Larraine Segil, who has been teaching a two-day program for senior executives on alliances at the California Institute of Technology in Los Angeles for more than 20 years.

“You can’t always do it cost-effectively and fast when doing it alone,” says Segil, who has authored several books on partnerships, including her most recent, Measuring the Value of Partnering: How to Use Metrics to Plan, Develop and Implement Successful Alliances. “Partnering is the best way to leverage your resources with those of other companies that may know a market better than you do, have a product or service that is compatible with and augmentative to yours, or have a distribution system that will quickly take your product or service into a market to establish credibility.”

Whether you’re looking for help with marketing, sales or systems, the key is choosing partners with the resources you lack, says John L. Mariotti, president and CEO of The Enterprise Group, a Powell, Ohio-based group of executive advisors that counsels companies as they navigate major business decisions.

“Think hard about what you know how to do well and what you don’t know how to do well,” says Mariotti, who wrote The Power of Partnerships and Making Partnerships Work, Smart Things to Know About Partnerships. “You have to find partners who complement you.”

The Three Cs
Segil says executing a successful partnership requires three things: collaboration, cooperation and communication. Specifically, she offers the following tips for making solid partnerships:

• Build a relationship that offers mutual benefits to all partners.
• Understand the interests and objectives of all parties before partnering.
• Create shared goals and aligned expectations.
• Build metrics with which to measure the partnership’s success.
• Clearly define partners’ commitments in terms of time, money and manpower.
• Be flexible and open to change.

Of those, Mariotti says mutuality is most important. “Mutual dependence is a great bonding agent in a partnership,” he says, adding that the best partners trust each other, are open with one another and are able to balance shared risks with shared rewards.

Protect Yourself
Even the strongest partnerships eventually end or evolve. If you’re not properly prepared and protected, the results can be devastating when they do.

“The most important thing in partnering is that you deal with the sticky issues up front, before they get even stickier,” Mariotti says. To keep relationships amicable, he recommends evaluating prospective partners for financial stability and professional credibility, then informally hammering out partnership details together. Discussing conflict resolution, exit strategies and contingency scenarios is valuable, as well.

If a partnership doesn’t feel right, however, be ready and willing to walk away from it. “Not every partnership will work out,” Basso says. “You need to know when to move on.”

LEADERSHIP
PARTNERSHIPS
DIVERSITY

LEADERSHIP
Touch a life. That is the important thing you can do as a leader, says Lieutenant General James L. Campbell, director of the Army staff. In yesterday’s Thought Leader Super Session, “Your Army in Support of the Long War,” Campbell told the story of his red “Hero of the Day” folder on his desk. The left pocket contains the names and phone numbers of every person on the Army staff. Each day Campbell dials a different number to say, “Thank you for what you do, and I am very proud of you.”
Campbell also offered up some other keys to leadership:
The number-one leadership trait is humility. “Always get your own coffee,” Campbell says.
Recognize how you are viewed as a leader. “I consider myself Jim Campbell, not Lieutenant General James Campbell,” he says.
Show those you work with that you want to be right there with them and nowhere else. “If you want to be somewhere else, you’re in the wrong job,” he says.
Remember that you’re on display 24/7. “You have no luxury to go out and do something stupid,” Campbell says.
You need a sense of humor. “If things get so bad that you can’t laugh, you have to take a step back,” he says.

PARTNERSHIPS
The counterintuitive definition of partnering. In her session “Leveraging Critical Internal and External Business Relationships,” Larraine Segil defined the necessary components of businesses partnerships. The author of Measuring the Value of Partnering: How to Use Metrics to Plan, Deliver and Implement Successful Alliances defines partnering as a business relationship for mutual benefit between two or more parties with compatible or complementary business interests or goals.
In parsing this definition, she made a couple of interesting distinctions.
Looking at the term “business relationship,” people tend to think they will like their partners. “The chances are, if you’re in a very strategic relationship, you likely will not like your partners,” she says. “You could dislike them quite a bit if you are partnering with someone who is a major competitor.”
Trust is of course critical for a partnership to succeed. The question then becomes, how do you trust your competitors who you do not like? The answer is simple: “If they do what they say they are going to do, then you can trust them,” she says. So as you plan this partnership, it is important to have short, measurable milestones that build up over time.
Another factor to consider, Segil says, is mutual benefit. The definition does not say the benefit has to be equal to both parties. In fact, it won’t be, she says. Organizations should go into partnerships realizing the goal of mutual benefit—and resist the inclination to make the benefits equally distributed.

DIVERSITY
Diversity is imperative. Ethnic, gender, and racial equality and diversity are facts of modern life, and every organization needs to embrace them to better serve customers and members in the global economy.
That message came from Ted Childs in yesterday’s Thought Leader Session on “The Diversity Imperative: Strategies for Success in the Global Marketplace.” Childs is the former vice president of global workforce diversity at IBM and currently principal in his own diversity consulting company, Ted Childs LLC, South Salem, New York.
The global diversity imperatives he described included the advancement of women, the diversity of the leadership team, multicultural awareness and acceptance, and work/life balance.
Childs identified four goals of a diversity strategy:
• Identify, attract, and retain the best people from every ethnic, gender, and racial group.
• Create a workplace where that talent can perform at its best.
• Assess and understand the diversity of customers as they are, and reflect that understanding in the workplace.
• Use external contributions to eliminate disadvantage and increase the diversity of the talent pool.

One of the fastest, least capital-intensive ways for small-to-midsize companies to grow is to connect with a larger, more powerful partner or brand. But how do you find a ‘big brother’ you can trust?

It seems that scores of new business alliances are born every day. Companies proudly announce partnerships with customers, with suppliers, with distributors, even at times with competitors. Big telecom and cable companies team up with the Yahoos and YouTubes of the world. Software firms get their programs embedded in websites of e-commerce partners. And as fast as business alliances are created, as many seem to be dissolved or simply fade away. Experts estimate a failure rate as high as 60 percent.

For all the risks, an alliance with a larger company is one of the only ways that some smaller and midsize companies have to accelerate growth without huge capital outlays. Organic growth takes patience and, typically, a long time. Brands are not created overnight. But with help from a powerful partner—what one alliance expert calls a “big brother”—a smaller company can raise its visibility, develop a new technology or product, gain access to broader marketing channels, tap into sources of new customers, or ride the coattails of a strong brand.

Though it sounds great, making an alliance work takes tremendous effort and commitment. And the risks are not to be underestimated. What if Big Brother is not so well-intentioned and walks away with Little Brother’s secrets?
What if the larger partner simply develops other priorities over time and allows the partnership to wither on the vine?

Experts agree: Since the sharp falloff in alliance creation after the dot-com bust around 200l, companies have learned much about how to design and manage these partnerships more effectively. Alliances are making a strong comeback, and companies have more realistic expectations about what they can achieve. “The deals being done now tend to be better thought out—with the caveat that there are still tremendous challenges around governance,” says David Ernst, leader of global alliances for McKinsey & Co. in Washington, D.C.

The Conference Board examined a few small and midsize companies that appear to have gotten over the hurdles to see how they benefit from alliances and collaborate with their partners.

Levels of Risk and Commitment
McKinsey’s Ernst defines an alliance as “a mutually dependent relationship where there is some shared risk, reward, and control. It would not be a straight armslength contract in which company A agrees to sell something to company B. It would include a range of contractual partnerships as well as joint ventures in
which a new company is established. Companies A and B will benefit depending on how well they collaborate.”

Herman Miller Inc. (HMI), a leader in the design and manufacture of innovative office furniture, has years of experience at forging alliances. A public company
with more than $1.7 billion in 2006 sales, it illustrates the advantages to a midsize firm of taking on smaller partners whose products fill in gaps in its product portfolio. Herman Miller’s alliances show how its smaller partners benefit as well.

As director of the product portfolio group in the late 1990s, Ken Munsch, now head of Herman Miller’s creative office, laid the groundwork for many of these alliances. When buying office furniture, Munsch explains, many large corporate customers prefer not to deal with multiple suppliers. Yet it is often not worth it for Herman
Miller to invest its own resources in developing a product to fill a niche or price-point gap in its office-furniture offerings. Instead, it offers a quality product from a partner who already has expertise in making the item.

The larger strategic purpose here is apparent: By offering a full line of office furniture, Herman Miller blocks competitors from supplying a niche product and gaining a wedge into the business of major HMI customers. For the smaller partners, affiliation with the brand opens the doors of highly desirable new customers as well as Herman Miller’s 250 dealers across the United States and overseas. The smaller company not only piggybacks on the brand but often gets support from Miller’s sizable sales force.

Companies weighing an alliance should be aware of the different levels of risk, formality, and commitment required for each type. Munsch cites examples from
his company:

• Marketing alliance – Herman Miller makes furniture out of various composite materials, metals, and fabrics but has never been strong in what are known as “wood
case goods.”Through an alliance several years ago with Geiger Brickel, a smaller maker of wood desks and credenzas with high-quality veneers, HMI was able to offer wood furniture to its major corporate accounts.
“We would highly recommend Geiger and, in some cases, sell together cooperatively,” Munsch recalls. “We strongly encouraged our dealers, most of which are independently owned, to carry their products.” In just two or three years, Geiger more than doubled its business, Munsch says. When the aging owner decided
to retire, he sold the company to Herman Miller, which knew Geiger was both a good business and cultural fit.

• Product alliance – In 2004 Munsch formed an alliance with a company that manufactures tables with swingarm seating for university lecture halls and large
auditoriums. The object of the relationship with Theatre Solutions was to move product—specifically Herman Miller’s branded Aeron and Equa 2 chairs—into a new
niche. HMI supplies chairs “from the tilt up” (minus their base), which are attached to Theatre Solutions’ swingarm mechanism; the swing arm enables students to
leave their seats easily. Herman Miller’s dealers who have university clients assist in promoting the Theatre Solutions product and receive a fee for successful sales
leads. The company profits from sales of the seats, in addition to receiving an alliance fee. Theatre Solutions benefits from marketing classroom seating that
features premium, branded chairs.

• Co-development alliance – Co-development alliances usually bring together a smaller company with an innovative product or technology and a larger company
that can help develop, market, and distribute it. Many giant companies in the computer and pharmaceutical industries owe their early rise to this alliance model
(think Microsoft, Intel, Genentech). Herman Miller has about a dozen co-development alliances with firms working on technologies and materials that might have
application to office furniture. One, for example, deals with materials for the Aeron chair’s suspension system. Often HMI licenses a patent to the co-development
partner, receiving royalties on sales of new products that emerge from the alliance.

Since new products and technologies may have long gestation periods before they pay off in increased revenue, co-development alliances require partners to commit more time—and often resources—than the other two types. In a product alliance, one company takes title to the partner’s products (e.g., Herman Miller’s chairs) in order to sell them or combine them with one of its own products. That may increase its costs and risks, since the company taking title to the goods must maintain and move inventory. Marketing alliances involve mostly sales support and involve less risk because one partner does not take title to the other’s goods, Munsch observes. “In this case the fee you receive can be considerably less
than what you get from a product alliance, which must be supported by all sorts of other marketing activities.”

To Protect Information, Contain the Goals
With companies getting more creative in structuring alliances, it has become harder and harder to define a standard model, according to Benjamin Gomes-Casseres, a professor at the International Business School of Brandeis University. “You see alliances that are a complex mixture of contracts, of supply arrangements, of marketing deals, a little bit of R&D.” But Gomes-Casseres believes today’s alliances tend to be closer to the strategic heart of the partner companies, rather than nice-to-have but marginal activities.

Of the many alliance forms, joint ventures call for the heaviest commitment and pose special risks for smaller companies. The separate legal entity created under such ventures has its own governance and management, with the equity usually divided according to each partner’s investment. Joint ventures aren’t easy to wiggle out of if things go badly, and can raise thorny governance issues as well. Often decision-making naturally gravitates to the larger partner with its superior market knowledge and more experienced staff, leaving the smaller partner out in the cold.

Robert E. Spekman, a professor at the University of Virginia’s Darden School of Business, cautions smaller firms against alliances with larger companies when the goals are too broad and open-ended. Alliances between giant companies tend to be viewed as long term and have multiple objectives. In contrast, a smaller company—say, a biotech or software firm with an innovative product— usually has a finite set of tasks that it needs help in accomplishing. It lacks the resources to manage big, multiple goals, but, just as important, wants to protect its secrets against “opportunistic behavior by the larger partner.” Unless the tasks of the alliance are circumscribed and precisely defined, Spekman argues, the larger partner “may get more deeply involved in your business than you’d wish.”

Another challenge for such alliances is that larger partners may not be able to move with the same agility and speed that the smaller company can and needs to. Increasingly, alliances are based on contractual partnerships with shorter time horizons, especially for companies with a significant Internet presence. Spekman, the author of Alliance Competence, points out that corporate giants accustomed to working with other corporate giants may have trouble understanding the need of smaller partners for relatively fast results. It can take as many as three years for the large company to get its team organized to work cooperatively with a partner, Spekman says. E-commerce businesses, facing a swiftly changing environment and eager for quick results, don’t have that much time. Some successful alliances last as little as six months. Thus, the duration of an alliance is not a good measure of success or failure, Spekman says. “In a more contained type of partnership, companies come together, solve a piece of the puzzle, and then move on. As one Silicon Valley entrepreneur told me, ‘You know your alliance is over when your partner stops returning your emails.’ ”

Further, as Internet alliances proliferate, fewer companies are willing to grant exclusive access to a single partner, according to Larraine Segil, a California-based consultant and author of Measuring the Value of Partnering: How to Use Metrics to Plan, Develop, and Implement a Successful Alliance. The big telecom companies, the makers of mobile devices, and online market powers such as Amazon and eBay are all hungry for content and seek multiple providers, Segil says.

Potentially, these alliances can be powerful growth engines; they don’t take much time to put together and involve minimal risk and investment. One example cited by Segil is a recent alliance between GoFish Corporation, a leading site for sharing videos, and Omni Film Distribution, which maintains a library of 1,300 feature length and short films. Under the deal, the two California companies share revenues from sponsorship of films seen on GoFish. Media companies that sell help-wanted ads running in print and online provide another example of how to achieve greater market penetration fast—locally and nationally—by means of collaborations. Monster Worldwide, for example, is allied with chains owning more than 60 daily newspapers and eight television stations across the United States whose help-wanted ads run on the site.

During the dot-com bubble, deals were put together very fast—and very sloppily—according to Segil. More recent e-commerce alliances have a better chance of surviving, she believes, because companies are smarter about how to structure them and Internet technologies have improved. Still, many entrepreneurial companies remain impatient with the planning and documentation that go into successful outcomes. To collaborate effectively, Segil argues, the partners need to design a process for scoping out the strategic, financial, and operational details even
before deciding what legal form the partnership will take. In addition, they need to set up metrics not only to assess progress on their goals but to take the pulse of their relationship—that is, assess how well the partner teams are communicating and coordinating their work.

A License to Grow
For his book, Blueprint to a Billion: 7 Essentials to Achieve Exponential Growth, David G. Thomson, a former McKinsey consultant, studied 387 companies that went public after 1980 and achieved $1 billion in annual revenues—an “inflection point”—in their growth trajectory. A majority of those companies succeeded with help from what Thomson calls “Big Brother-Little Brother” alliances under which a big firm helps a smaller firm develop or market a product or technology for the
benefit of both.

Procter & Gamble is an example of a Big Brother company that in recent years has sought to partner with Little Brothers with innovative and high-quality products. Thomson’s book describes one Big Brother-Little Brother partnership between P&G and a small maker of household and work gloves in Morristown, N.J.—Magla Products—which has achieved bounding success by gaining access to this privileged circle.

Magla’s strategy is to build on licenses to market its gloves under well-known brands. More than 50 years ago the company started by Herbert Glatt was making ironing-board covers and laundry-room accessories. After moving into glove-manufacturing, Magla secured the right to market cloth work gloves under the Stanley Works trademark. About seven years ago, it acquired a similar license from the Burpee seed company to market a fashion gardening glove. But Magla scored its biggest coup in 2000 when Procter & Gamble licensed it to sell a reusable household glove under P&G’s Mr. Clean brand name. The deal, negotiated by a trademark licensing firm in Atlanta, Nancy Bailey & Associates, opened retailers’ doors and ensured Magla’s gloves a space on the shelves of major chains, including Wal-Mart, Home Depot, and Target. Magla’s revenues, it is estimated, shot up threefold within five years.

Trademark licensing agreements are, of course, nothing new, but today there are many more of them, according to Nancy Bailey. Though big corporations are extremely careful about whom they let market under their brands, many increasingly see these intangible assets as a relatively cost-free way to augment revenues. P&G approached Nancy Bailey several years ago and asked her to look for quality products that could be sold under the Mr. Clean brand, then limited to their liquid, all-purpose cleaner. The trail led Bailey’s company to Magla Products and its gloves. Although other companies are licensed to market products under the Mr. Clean brand, Magla is currently the only partner that sells gloves in its niches.

For Jordan Glatt, Herbert’s son and the current president of Magla Products, the renewable three-year P&G license not only boosts revenues but gives his company some insulation against low-priced competing suppliers abroad. “Household gloves are a pretty commoditized product that’s hard to differentiate,” Jordan Glatt explains. “The consolidation of retailers has made it easier for the big chains to import from abroad and sell under their own label. We felt the only way to protect ourselves was to nail down space on retailers’ shelves with the brand. Yes, Wal-Mart can go abroad and buy cheap gloves. But they can sell more Mr. Clean gloves than a non-branded product. It’s huge in our world to be able to protect yourself in that way.”

The “halo effect” of being associated with the Mr. Clean brand doesn’t stop there. Magla’s gloves are featured once or twice a year in the millions of free-standing inserts that P&G drops into newspapers across the country every week. That kind of advertising would probably cost Magla three-quarters of a million dollars, Glatt estimates—too much for a business its size. Glatt says his staff has frequent contacts with the brand manager and marketing people at P&G. For Glatt, the relationship is definitely strategic.

Now a company with about $100 million in annual revenue and 400 employees, Magla’s growth may have reached Thomson’s “inflection point” and should climb exponentially. Last year the company signed an agreement with the American Red Cross to market a complete line of disposable medical-exam gloves under the label of the worldwide health and relief organization. By far its largest license to date, Glatt says his company is still rolling it out but “we’re already seeing a 20-to-30- percent increase in sales.”

Opening Doors With a Minority Partner
To protect both parties’ interests, it’s a good idea to have a tightly drawn contract, even though some partnership deals are still closed on a handshake. One such alliance pairs the North Carolina Mutual Life Insurance Co. of Durham, N.C., with $80 million in annual revenues, with the much larger Securian Financial Group in St. Paul, Minn., with $2.5 billion in annual revenues. What has brought these two companies together is the desire of Fortune 500 customers, when buying group life insurance, to show support for diversity.

Many big corporations would like to give a portion of their business to minority- and women-owned firms. North Carolina Mutual is the oldest and largest African-American-operated mutual insurance company in America. It underwrites group life insurance plans for companies that have from 10 to more than 40,000 employees. One client is NASCAR, the nationwide auto-racing association, which has made major efforts in recent years to expand into states with racially and ethnically mixed populations.

When it comes to bidding for the business of nationwide corporations, however, the company is at a disadvantage in that it is licensed to operate in only 24 states and so must work with a partner in states where it is not licensed. What’s more, its financial rating has slipped in recent years as a new president has put more emphasis on sales of individual life policies. (An increase in sales of individual policies by 600 percent in the last year requires the company to reduce its surplus accordingly, setting aside more cash to cover long-term obligations.)

That’s where Securian Financial, through its Minnesota Life subsidiary, can help. Securian offers a range of insurance products and financial services nationwide. It can provide a high degree of service in all 50 states, with the customization and leading-edge technologies that the biggest companies demand for their benefit programs. Securian enjoys an A+ (superior) rating from A.M. Best, which can perhaps address any concerns about North Carolina Mutual’s financial structure.

However, the alliance isn’t one-sided. Even as the country’s sixth largest group-life insurer, Minnesota Life sometimes can’t get a foot in the door of the biggest corporations. As explained by Willie T. Closs Jr., executive vice president and chief marketing officer for North Carolina Mutual, some employers believe that group-life plans are virtually a commodity product. “When you have a product that’s hard to differentiate on the basis of price or quality, there’s an advantage in
having a minority partner.”

The two companies began talking about working together about three years ago when Minnesota Life replaced another firm providing a portion of group life insurance to a large employer along with North Carolina Mutual. Their executive and sales teams discovered that, as mutual companies owned by their policyholders, they approached business in similar ways and had common values. They started laying plans to offer the same kind of synergies to other potential clients. Robert M. Olafson, a senior vice president of Securian, says the alliance was sealed with a “gentlemen’s agreement.” The partners agreed, “We can just do this and anything we get from it will be added value.”

The partners have been organized to do joint sales and marketing for just a year, but together they have already landed the business of three Fortune 500 companies. “We’re still spreading the word that this is something we offer, and we know we are getting many more opportunities,” says Olafson. “Sometimes it makes a difference, sometimes it doesn’t.”

Choosing a Big Brother
The North Carolina Mutual-Securian relationship is working because the two companies have taken time to get to know each other and build trust. A smaller company with an innovative product or technology to protect, however, needs to create a process for determining whether to trust a potential partner. Experts interviewed by The Conference Board suggest some criteria:

• Before bringing in the lawyers to draw up contracts, get the partnering teams together in a room to talk about philosophy and goals. “I don’t care how good the deal is,” says Robert Spekman of the Darden School. “If your partner doesn’t share the same vision, the same set of morals and ethical standards, walk away.”

• Look for clues that the larger partner takes you seriously and truly wants to help foster your growth as well as its own. You need assurances your company will be listened to and have a voice in major decisions.

• Do your due diligence about the potential partner’s behavior in past alliances, whether it has kept its promises and maintained the trust of its partners.

Though many innovative smaller companies fear that a big company may steal its proprietary technology or processes, a bigger risk is that they will take too long to do the deal or won’t achieve their objectives because the more process-heavy partner can’t move fast enough, says McKinsey’s David Ernst. Ernst suggests a few ways to reduce the risk when small companies partner with big companies:

• Talk to at least three companies and create an “auction” for the product or technology that you want assistance in commercializing. Without a firm auction date, big companies may take their time coming to the table.

• Ask for estimates on how long it takes the company, on average, to make key decisions, such as hiring a new plant manager or launching a new product.

• Find out what marketing and R&D resources the company plans to assign to the alliance. Ask, for example, “Whom are you going to assign to work on this project?”—and write their names into the contract.

Little Brothers, be forewarned: The alliance is likely to be more important to your firm than to the larger one. “If you expect them to respond with the same alacrity that you do,” Larraine Segil warns, “you may end up doing all the work—not just yours but your partner’s.” Brandeis University’s Gomes-Casseres suggests the way to deal with a slow-moving partner is to manage upward. “Sometimes the big company is simply not aligned enough internally to make up its mind. It’s up to you to try to force that alignment.”

Lastly, before going forward, the smaller company should estimate how much of the CEO’s time will be consumed by the alliance. Because the smaller company may be staking its future on it, Segil says, the CEO often takes charge of the alliance. Lost time for small to midsize companies means fewer sales. Will the returns justify this diversion of the leader’s attention? If so, Segil advises, the CEO should have a backup team in place to run the company while he or she is keeping the alliance on track.

About That 60 Percent Failure Rate…
Studies that estimate a failure rate as high as 60 percent for business alliances are based largely on limited samples and can be misleading. “What these studies usually show is that a certain percentage of alliances have ended after X number of years,” says Benjamin Gomes- Casseres of Brandeis University. “In many cases the alliance has ended because it has achieved its goals— it is actually a success.” In other cases, circumstances have changed and the alliance is no longer needed.
Frequently, the larger partner buys the smaller one. “Very few studies have tried to disentangle these various reasons for alliances ending.” *
Gomes-Casseres, a consultant and co-author of Mastering Alliance Strategy, adds that the fortunes of any given alliance will vary by industry and how fast that industry is changing. “So, for example, I don’t expect 60 percent failure rate for large capital-investment joint ventures by energy companies in some new field. I expect them to last a long time because they are put together very seriously. The partners have a strong commitment because there’s a lot of money involved— there’s often no way out of the deal without a lot of pain. In contrast, I expect a very high rate of endings for those dot-com deals that are mostly public relations ploys.”
* Research by McKinsey & Co. indicates that about 50 percent of alliances are successful in achieving their strategic and financial objectives, according to David Ernst. The finding is based on analyses of the effects of alliance announcements on stock price, and 50 in-depth case studies of joint ventures and other types of alliance.

Making Your Case for a Brand License
Convincing a mega-company to grant a license for one of its brands can be a tough sell. Nancy Bailey, whose firm has negotiated numerous trademark licenses for small-to-midsize companies, offers these suggestions on how to win the larger company’s confidence:
• Show that you understand the equity of the brand, its power and reach. Have a vision for your products using the brand.
• Demonstrate that you have a high-quality product, or the expertise to develop such a product, that will tie in well with the brand equity.
• Point out your product’s “unique point of difference,” why it is superior to similar products in its market.
• Show that you already have a strong working relationship with retailers that will move product. It helps if a retailer like Wal-Mart carries your product already, but you should avoid any suggestion that you want the brand in order to gain entrée to Wal-Mart or some other big retail chain.
• Provide a well thought out marketing plan for your product, and have the financial resources to support it.
Jordan Glatt of Magla Products adds that a smaller company should avoid a licensing agreement that might block its future growth. The licensor has a natural desire to limit the products covered by the document. The licensee should try to include related products that it might develop in the next three to five years. “You don’t want to become a one-item vendor,” Glatt says.

Most Requested Topics:

* Leading Knowledge Workers for the Millennium: Larraine will present the “Ten Qualities to Make Managers into Leaders” and the organizational characteristics to attract and support them. She has created a formula that will enable an organization to bridge the gap between yesterday’s leadership models, and the mandates of the new contemporary market-space. She will explain her approach using a simple methodology so that the audience can examine their own characteristics, corporate structure and culture, to determine how they can enhance leadership skills and increase knowledge capital.

* The Seven Trends That Are Changing the Way Business Works: Larraine presents the “Power of 7.” These trends are like the Walls of Jericho and provide entrance into a world of opportunity. They include: Global Security, Knowledge Transfer, Alliances, New Leadership and others. Like Joshua, persistence and determination to understand and excel in all 7 areas means that the walls will fall revealing the treasures inside–only the brave and focused will prevail.

* Strategic Alliances: Why do our alliances seem to start off well and then lose momentum? How can we ensure that every manager understands the risks and advantages in an alliance? Whose responsibility is the alliance? Does our company have the culture to create and manage valuable ongoing alliances? Sixty percent of all alliances fail at 3.5 years. In order to make them successful, alliance participants need a clear understanding of the success and failure factors covered in this presentation. The audience will leave with a set of tools that will allow them to create and add value to their roles in all kinds of alliances, whether between different divisions or functions of their company or externally with alliance partners.

* How to Create Global Competency in Your People–Managing Across Cultures: Larraine Segil has created a systems approach that will prepare participants for effective business management in any culture. Applied by companies such as Oracle and Dupont Agrichemical/Pioneer Hybrid This approach works no matter your job function–research and development, sales and marketing or senior management.

* Shift Your Mind Into a new Way of Looking at Alliances…Larraine Segil’s Mindshift Methodology: Successfully managing an alliance or corporate partnership requires not only a strategic business justification, but also the compatibility of the corporate cultures of the alliance partners. Although appropriate planning, preparation, implementation, and change strategies are integral to the achievement of alliance success, the importance of the cultural elements between organizations is often underestimated.