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.

As more midsize companies expand internationally, business leaders should take note of some best practices on how to make global partnerships succeed.

Today, midsize companies are as likely to partner with businesses in other countries as they are with companies in their own geographical region. The benefits of offshoring and outsourcing can include reduced costs for software development, manufacturing, even back-office order processing. Sometimes an international partner is needed to break into a new market. No matter what the motivation, the rules for building alliances do not differ just because one partner is beyond the border. However, international partnerships do require caution and due diligence.

“Midmarket companies can use alliances for growth, and, because they’re smaller, the potential can be rather startling,” says Larraine Segil. “The downside is that midsize companies don’t have the capital resources that a larger enterprise might have for entering into a less-developed global market.”

Worse, executives at midsize companies may not have the expertise necessary to make global alliances work. That should not preclude your business from entering such an alliance, but you likely will have to work harder at building and maintaining the relationship than a larger company might.

To successfully put together a global partnership, you need to consider:

None of this is easy. Larraine Segil estimates that up to 70 percent of alliances fail, or at least fail to produce the desired results. In a 2005 report, it added that failures are frequently a result of “relationship factors that can be controlled, such as ineffective decision making, misalignment of goals, and lack of common performance metrics.”

However, the potential payoff of learning how to conduct business with global partners makes the effort worthwhile. “Developing alliances is going to be a core competency of executives in the future, says Alan Naumann, CEO of CoWare, a midsize San Jose, California-based developer of software for designing computer chips. “If your management team is good at it, you have a competitive advantage.”

	Developing alliances is going to be a core competency of executives in the future. If your management team is good at it, you have a competitive advantage
Alan Naumann CEO Co Ware

Handling cultural and linguistic differences If your company is just beginning to think about global alliances, Segil recommends thinking hard about location. In some areas of the world, geopolitical issues might introduce too much risk. Growing markets in countries such as Russia and China represent huge potential, she says, but also present dangers such as intellectual property theft. In China, for instance, it is generally accepted that intellectual property belongs to society as a whole, not to individuals. “You have to understand their … expectations of management,” Segil notes. “Understanding the many subtleties of management in different jurisdictions takes time and attention.”

As important as clarity is in an alliance between executives who speak the same language, it is doubly important when they speak different languages. “You must have clear documentation of the terms, purpose and value of the alliance,” says Jim O’Gara, vice president of business development for Front Range Solutions, a Dublin, California-based developer of applications for small and midsize enterprises, and a Microsoft Gold Certified Partner. This means having an understanding of legal issues in other countries and employing knowledgeable translators.

It is also a good idea to have one person at each company who is both the liaison and the champion for the alliance, says O’Gara, who has managed worldwide alliances at both startups and multinational companies. Having that champion ensures clarity regarding whom to contact in case of questions or concerns.

Doing business internationally also brings up process issues, such as with time zones. “If you’re operating in Europe, China and Latin America, you can be up 24 hours,” Segil cautions. “You might have to set up a meeting at a bizarre time for one of you, but do it infrequently.”

Measure and review alliance metrics frequently You and your partners need to set up clear processes for the ongoing exchange of information and interaction. This might include identifying the liaisons within each company, as well as their backups; appropriate hours for contact; and how frequently partners will report progress to each other. Naumann, whose company has strategic partnerships with both Motorola and Cadence Design Systems, recommends having regularly scheduled executive reviews. This is an opportunity to step back from the tactical items and gauge whether the alliance is still serving the needs of each company, he says.

In Naumann’s view, it is especially important to do this when your partners are as large as Motorola and Cadence. “They have a lot of issues besides what you’re focusing on. You have to synchronize with them to keep adding value,” he explains.

If both companies do not get significant benefit, the partnership will not have staying power. One partner may become unhappy with the balance of trade and start paying attention to something else. By monitoring the right metrics, you will know when it is time to withdraw. “If you’re working with someone for two years and your market share in that region is going down, you need to rethink the partnership,” O’Gara explains.

If all of this sounds time-consuming, that’s because it is. “It’s hard to find the right partner,” Naumann says, “and then to implement and maintain the relationship.”

Howard Baldwin is a Sunnyvale, California-based contributing writer to the Microsoft Midsize Business Center. His work has appeared in CIO, Optimize and InfoWorld.

And you can’t afford to fail: In a global economy, experts say, strategic partnering is both the surest road to growth and the best insurance against failure.

To ensure that your partnerships push you up the ladder rather than down, here are a few of Segil’s golden rules for success.

1. Do due diligence on prospective partners.
Check for gaps in skills and competency; can they deliver what you’re looking for? Investigate prospective partners by talking to other companies they’ve partnered with, and examine their relationships for conflicts and synergies. Segil calls this analyzing the spider network.

2. Make sure your partnership has approval and support.
That means gaining the backing of the executive suites in both organizations.

3. Analyze the value each partner puts on the alliance.
It doesn’t have to be equally important to both sides, Segil says, as long as it’s of real benefit to both. “Too often, partnerships fall apart because one party starts to gripe that the other party is getting more out of the relationship. But that’s a false measure,” she says. “The real question is, Are you getting more out of this relationship than you would have without it? Then it’s still a value-add, whether it’s equally beneficial or not.”

For a midsize company looking to grow, an alliance with a much bigger company can be like grabbing onto the back of a train.

An example is the partnership forged between Acxiom, a leader in customer data mining, and Accenture, a global management-consulting firm. Based in Little Rock, Ark., Acxiom provides customer data to everyone from Ford (Charts) and Nissan (Charts) to Condé Nast and Blockbuster (Charts).

Accenture – the Bermuda-based consultant to an A-list of multinational telecommunications, energy, aerospace, and financial services firms – is now embedding Acxiom’s customer database directly into Accenture’s client-specific customer-relationship management solutions.

In other words, Accenture is taking Acxiom with it all over the globe.

WHENEVER I CONSIDER THE VALUE of business partnerships and strategic alliances, I think back to the day I helped my friend Des and his wife, Annabelle, move into their first home. We had spent the better part of the morning happily schlepping boxes and small furniture, but by early afternoon we had to face the challenge that every amateur mover fears — the dreaded sofa bed.

Getting it out of the old apartment was difficult but doable. Getting it into the new house, however, presented a seemingly insurmountable challenge. Short of removing the doorjamb entirely, there seemed to be no way to get the sofa bed through the front door. Since none of us had thought to bring tools, Des called his friend Sid, who agreed to come over with his toolbox.

When Sid arrived, he saw the situation and laughed. All we had to do, he said, was set the sofa on end and walk it through the door, angling the back of the sofa around the doorjamb. Being a musician accustomed to moving large amplifiers through narrow doorways, Sid saw the answer immediately. Within the hour we were all eating pizza and congratulating ourselves on a job well done.

People form partnerships and alliances because we understand that many hands do help lighten the load. But we also know — instinctively, at least — that outsiders bring a fresh, and often valuable, perspective to the table.

“One of the primary values of business partnerships and relationships is this ability to get access to different experiences, different perspectives, and knowledge,” says John Hagel III, coauthor with John Seely Brown of The Only Sustainable Edge: Why Business Strategy Depends on Productive Friction and Dynamic Specialization (Harvard Business School Press, 2005). “Often companies with different technical backgrounds that address different segments of the market bring a different set of experiences that help push you to think more creatively about opportunities and business needs.”

Our differences may indeed point the way to innovation, but they can just as easily lead to disagreements and misunderstandings. Before entering into an alliance or partnership, then, it is essential that all parties think long and hard about the logic behind the venture and the rules that will govern it as it moves forward. Larraine Segil, author of Measuring the Value of Partnering (Amacom, 2004), believes this is a process that begins even before you sit down to negotiate the terms of the alliance.

“The very first thing I would look at,” she says, “is have they partnered before? And if they have, I would go to speak to some of their partners and find out what their modus operandi was. You’ll learn a huge amount. It’s very rare that companies and people change the way they do things very quickly.”

If your potential partner has yet to establish a track record in partnerships and alliances, you can at least conduct a thorough background check. Seek input from your contacts in trade and industry groups or, failing that, look for a “paper trail.” With the resources of the Internet at your disposal, it should be easy to track down any relevant information that has appeared in the business or trade press.

Only after you have established that your potential partner can be a reliable ally should you move forward with negotiations that hammer out details such as a clear-cut vision of your ultimate goals, the milestones that will measure your progress on the road toward reaching those goals, and mechanisms for resolving conflicts and disagreements along the way.

The latter is particularly important because partnerships are, after all, social arrangements. When you bring different cultures together in any enterprise, a certain amount of conflict is inevitable. You can prepare for this in part by giving careful consideration to your deployment of personnel. The people who will be interacting most frequently with your partners should be flexible, curious, and open to new ideas. Whatever their expertise, you can ill afford to put dogmatic and stiff-necked employees in direct contact with your new partners.

That said, however, Hagel believes you should not be afraid of a little friction. “In business partnerships as they’ve played out for the past several decades,” he explains, “there’s been more and more emphasis on tightening and smoothing the relationships with business partners to make them more predictable. In the process companies are losing a lot of opportunity because not all friction is bad. In fact, friction occurs when you’re confronting new problems or new opportunities and you haven’t figured out yet how to address them. The challenge for management is, how do you take that friction, which can potentially be extremely dysfunctional, and convert it into productive friction?”

Running a successful business, like moving a sofa bed, will never be easy. But with the right partner at your side, miracles are indeed possible.

— Dayton Fandray