The Unintended Consequences of Failed Strategic Alliances
If you read my earlier blog “Strategic Alliances Fail – Keep Yours from Being Next” then you know that strategic alliances fail way too often, and the failure will generally result in a material financial impact to the alliance partners.
Let me quickly recap. Many companies are expecting to generate upwards of 40% of their annual revenue from these collaborative business relationships. So, your $1 billion company expects to get $400 million from your strategic alliances. If half of them fail, you will now have a revenue shortfall of $200 million!
If a 40% revenue hit isn’t enough to make you lose sleep worrying about the health of your alliances and partnerships, then I’d suggest you stop reading NOW because a failed alliance has many more unintended, and negative consequences for your business:
Customer Satisfaction – Generally, the reason you got into an alliance in the first place was so you and your partner could bring something shiny and new to your collective customers…and of course, said customers, are eagerly awaiting its arrival. They won’t be happy when you tell them your alliance has failed and the shiny, new thing ISN’T coming!
Marketplace Reputation – You and your alliance partner will come up with some “public relations” spin on why the alliance ended, but industry insiders will know it failed and it won’t take long until most of the players in your marketplace will know as well, damaging your reputation with existing and potential customers, suppliers, employees and partners.
Existing & Future Alliances – You have existing partners and most likely, you’ll want to create future alliances. Having a failed alliance will make both more difficult. Partners will be wary of dealing with you and it will manifest itself in protracted negotiations, less favorable terms, and general mistrust. Remember TRUST is one of the most powerful ingredients for a successful alliance, and fair or not, your failed alliance, in the eyes of other partners, will make you a less desirable partner.
Legal Entanglements – You better have a good law firm handy (and plenty of cash for legal fees). Remember when you were in the blush of the alliance honeymoon and you executed the agreements and contracts with no consideration for what would happen if it didn’t work out? Most alliance breakups have to deal with a multitude of really messy issues (here’s just a few):
Joint Intellectual Property
Ongoing support of alliance products, services and customers
Alliance-related recurring costs
In-process opportunities and deals
In-process alliance projects and initiatives
Joint “Go to Market” activities (e.g.; Trade Shows, Webinars)
Alliance Teams and Subject Matter Experts
In case you haven’t had enough bad news about strategic alliances that fail, let’s talk a little bit about the “macro” impact of the abysmal success rate of alliances.
Let’s start small.
The US Middle Market in 2016 was comprised of approximately 200k companies (revenue from $10m to $1b) that represented 45m jobs with total annual revenues of $10 trillion. We can assume the revenue totals in 2016 already reflect the lost revenue from failed alliances, so had the companies achieved their alliance-related revenue targets, it could have added $6 trillion to total revenue. Just imagine, the millions of jobs that could be created with that $6 trillion in additional revenue!
Ok, so what would that look like for the Fortune 500?
The Fortune 500 companies in 2019 represented approximately 29m jobs with total annual revenues of $14 trillion2. So, the potential additional revenue with successful alliances would be $9 trillion and of course millions of corresponding jobs.
One more look…how about the global economy?
In 2018, the GDP for the Global Economy was $86 trillion. Let’s use the same math…successful alliances could have added $57 trillion.
Argue with the math if you like, but you’ll probably agree that even a small improvement in the success rate of alliances would translate into a significant economic boom that is desperately needed in the pandemic and post-pandemic world!
So, to sum it up:
There are many unintended (and negative) consequences of a failed alliance
Companies need to plan up-front for the end (natural or unnatural) of an alliance
At a macro level, failed alliances are draining revenue and jobs from the US and World economies
Even a small improvement in overall alliance success rates would provide exponential economic benefits
The post COVID 19 economy can use the “jump start” that successful alliances can bring
For more details or questions please contact me at bobjones@collabtogrow.com or visit our website.
1 National Center for the Middle Market (NCMM), Annual Report. 2016
2 Fortune
3 The World Bank