Strategic Partnerships

Sometimes, strategic partnerships make more sense than entering a market alone, or competing but losing money. They can be a win-win situation, just ask IBM.

IBM in 1999 took on a new attitude: If you can't beat 'em, join 'em.

Big Blue stopped developing applications software, the kind used routinely by companies to manage everything from business accounts and inventory to project management.

It was a risky move. Most companies make tech-buying decisions based on the availability of such software. At the time, IBM was marketing about 45 different types of application software, but it was losing business to competitors. It was spending $1 billion a year developing the software, but couldn't break above 10% of market share.

So IBM went to its competitors and extended a hand.

"We decided to partner with them rather than compete head-to-head," said Buell Duncan, general manager of IBM's development relations. "We think it's been an enormous success."

But there can be drawbacks if you don't choose wisely. Like any business venture, many partnerships fail, or the companies part ways after a few years.

A study by McKinsey & Co. found that business alliances run a high risk of failure in the first two years. A study by the Wharton School at the University of Pennsylvania said many are terminated within six years. Yet another study on alliances, by Monitor Group Inc., found that just 20% are successfully managed, and just 7% of respondents said it had a "significant impact" on top line growth.

Overall, about 40% of alliances bring some economic benefits and help companies gain traction on long-range goals.

Like anything else in business, you have to go into a strategic partnership for the right reasons. Tactics flow from strategy, which flows from the ultimate mission of the business. If things are wrong upstream, you can't fix them downstream. If your strategy is solid, then a strategic partnership may be a useful tactic.