Alliances: Preemptive Alliances

Dec. 21, 2004
The object of some partnerships is to thwart a competitor.

Many business alliances are formed for reasons that are preemptive. Although there may be a positive result for both companies, the dominant motivation for one or more of the partners is to block a competitor from partnering with a company in a particular market or application. The result of a preemptive alliance is a different strategic positioning for the connected companies and possibly a new set of market dynamics for all players to contemplate. In today's e-economy the preemptive alliance has become a tool that enables the initiator to gain a strategic advantage with a swift, decisive move. The structures of preemptive alliances take the same form as regular alliances: licenses, joint ventures, acquisitions, distribution, outsourcing, etc. Many of the acquisitions that Cisco Systems Inc., San Jose, has made in the last two years have been preemptive. For example, its 1999 acquisition of Monterey Networks Inc., Richardson, Tex., in the optical internetworking marketplace happened so fast that other potential buyers were left with mouths agape. Cisco's speed of decision-making was evident in an earlier acquisition of Kalpana Inc., Sunnyvale, Calif., the inventor of Ethernet switching and a manufacturer of LAN switching products. Kalpana also was a target of IBM Corp. Cisco swooped in and grabbed the company over a weekend while IBM was doing groundwater testing of Kalpana's headquarters to see if it was up to code. Cisco is a preemptive partner that has designed a methodology for making the relationship work for both parties. By matching compatible cultures, creating clear accountability and communications, and making serious financial and resource commitments to the relationships, Cisco has ensured a high level of success. The key question to ponder when assessing the feasibility of a preemptive alliance is how the parties will manage the alliance. This depends on the level of priority each partner places on the alliance -- what I call the "project personality." It does not have to be the same for both parties, although some companies prefer that it is at least similar. In some cases, although the desire to take the partner out of the game so that a competitor cannot get them may be priority enough, problems arise once the deal is done and the real work begins. The company that initiates the alliance may lose Interest, and the substance of the relationship may be deemed "experimental" or extremely low priority in terms of importance within the organization. Should conflict arise, the initiator of the alliance may be unlikely to resolve the issue or may even withdraw from the partnership. How can a target company, for whom the alliance may be very important, manage this unfortunate turn of events? It must enter the relationship with a clear understanding that it will have to commit a major share of time and resources to the ongoing management of the alliance. Otherwise the relationship could languish from neglect. In other words, the partner for whom the project priority is highest does all the work. That means not only its work, but potentially the work of all the other partners, too, including team selection and modification as the relationship evolves, establishing appropriate metrics of success, adding incremental value over time, and resolving conflicts as they arise. All this effort will be worthwhile for the object of the preemptive alliance if (1) it is a leader in its market, or (2) it has substantial access to industry resources, such as purchasing power, that will create economies of scale as well as a perception of winning. As for the company that initiates the alliance? It wins by making sure that its competitors cannot get access to a company that could have given them a competitive advantage in technology or intellectual property, industry access, or even a key position in a new market. Larraine Segil is cofounder of the Lared Group, a Los Angeles-based firm specializing in strategic-alliance consulting; author of Intelligent Business Alliances (1966, Times Books); and former CEO of an advanced materials distribution company.

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