The relevance of the alliance factor

Nov 18, 2020

strategic partnership is a relationship between two commercial enterprises, usually formalized by one or more business contracts for the accomplishment of a mutually beneficial objective. They are intended to create value and grow the businesses. The general idea is that two are better than one. Think of it like a business marriage, the right partner wants you as much as you want them. In the pharmaceutical industry, the risks of high R&D costs, complicated regulatory landscapes, delicate manufacturing processes, various marketing & promotion omni-channels, extensive distribution networks, national & international trade complications and fierce market competition make strategic partnership increasingly more attractive. These partnerships can be in the form of licensing (in or out), joint ventures or third-party agreements. Out-licensing collaborations maximize the value of innovation and creativity. In-licensing agreements can be very profitable by allowing companies to fill new product pipelines without the extensive R&D processes. Joint ventures allow partners to pool resources, expertise and increase chances of success. Third party partnerships makes an organization free from the risks of certain services, including manufacturing, regulatory, logistics or warehousing. Advantages of partnerships are increased revenues, decreased costs, providing complimentary capabilities, risk sharing and gaining competitive advantage.

A successful strategic partnership also comes with exceptional benefits including:

  • Sharing resources for exponential growth: in 2011, Med-Immune (the biologics unit of pharma company AstraZeneca) agreed to share its manufacturing facilities with fellow pharma giant Merck—pairing the former’s excess capacity with the latter’s desire for greater flexibility.
  • Generating new ideas and innovations: academic institutions are helping companies to discover new molecules and perform scientific research on products; in return they receive funding, materials and royalties.
  • Leverage each other’s “halo effect” for brand building: think of Apple and Nike, 2006.
  • Maximize returns on investment on intellectual property (IP) & fixed assets
  • Tap into each other’s client base: think of Uber and Spotify, 2014.
  • Accessing new markets: for decades, multinational pharmaceutical companies have leveraged strategic alliances to build strong positions in new & emerging markets.

Success is usually measured by two key metrics:

  • Financial value which includes revenue increase, cost savings, lead generation and increase in transactional or client value.
  • Strategic value includes concepts such as brand leverage, competitive advantage, future value, and access to key assets & markets.

The soul to a successful strategic partnership is flexibility. It is important for the two partners to realize that they are separate organizations with separate cultures, competencies, capabilities, structures and dynamics.

A strategic partnership paradox

In a world where capital is scarce, innovation is in constant demand, talent is in short supply and competitive boundaries are blurring, it’s no surprise that partnerships are key essentials in a business tool’s box.  Increasing numbers of large and small companies are investing in partnerships / alliances as a way to quickly secure growth in a continually unstable and complex environment. However, the majority of partnerships and alliances fail to achieve their objectives. According to Forbes, the termination rate for alliances is close to 80%. This creates a unique and challenging paradox. On one hand, businesses are in a position in which they are being pressured to create more partnerships, but on the other hand, they are faced with a high failure rate. As a result, partnerships require a significant amount of attention and effort to manage. The most successful are those who recognize this paradox and are willing to learn either from others or themselves. Most partnerships fail when one partner feels undervalued, not supported, not respected or managed. Other important reasons of failure are:

  • Unequal risk/reward ratio
  • No joint value creation
  • Unclear definition of rights and duties.
  • Alignement of core values
  • Not a win-win strategy
  • Lack of trust and transparency
  • Ability to resolve conflicts or misunderstandings