Working with competitors can be a "win-win"

CHICAGO Thu Jul 8, 2010 11:57am EDT

Students shake hands during etiquette training at a vocational school in Beijing October 25, 2007. REUTERS/Jason Lee

Students shake hands during etiquette training at a vocational school in Beijing October 25, 2007.

Credit: Reuters/Jason Lee

CHICAGO (Reuters) - Debbie Thompson, president of a small market research firm Strategy Solutions in Erie, Pennsylvania, does a lot of business working in collaborative teams with other companies.

The first chance occurred in 2002, when Thompson's firm was called on to work on a strategic plan for Pennsylvania's transportation system. The two-year, $3.2-million project involved more than a dozen different businesses, ranging from engineering firms to advertising agencies - each with a distinct role to play.

"I got to work with people that might be considered my competitors," said Thompson, whose firm specializes in tapping consumer sentiment about products and services using focus groups, surveys and related methods.

"It didn't matter who worked for whom, as long as the right resources were working together to achieve the client outcome," said Thompson, who employs a full-time staff of six and frequently hires additional workers for specific team projects. "It's a real win-win for everybody."

The Pennsylvania project was orchestrated by two large engineering firms that were initially contacted by the state; they subsequently brought in other parties based on need. Their methods included frequent conference calls, emails, face-to-face meetings, and an online document management control system that gave all the contractors access to proprietary information using secure passwords.

Since then, Thompson has increasingly worked on projects calling for ad hoc alliances with other firms. In 2008, more than 70 percent of her firm's business was conducted in tandem with other companies across a variety of industries.

For Strategy Solutions, the hidden benefits of these arrangements were numerous; they included access to additional areas of expertise and a flow of steady referrals that reduced Thompson's marketing expenses and entry into new markets. The Pennsylvania deal, for instance, led to significantly more government work.

"It brings you into different niches and market spaces that you couldn't get into on your own," Thompson said.

GROWING TREND

Strategy Solutions is one of thousands of small businesses across the country that have profited from working in strategic alliances. These partnerships can take many forms, depending on circumstances. They range from the ad-hoc teams assembled to do project work, like Thompson's, to more formal, long-term arrangements centered around a specific goal such as cross referrals of sales from one regional market to another.

The arrangements are not limited to any particular business or industry, but run the gamut from consulting and services to manufacturing and wholesaling. "It's just becoming very expensive to do things by yourself," said Robert Spekman, a professor of business administration at the University of Virginia's Darden School of Business and the author of several books on strategic alliances, including "Alliance Competence, Maximizing the Value of Your Partnerships".

"If you don't do alliances you'll be relegated to a second-class position in the marketplace," he said.

Entrepreneurs, said Spekman, are more willing to consider alliances than are traditional corporate-types, in part because of their willingness to take risks and also because they're frequently involved with fledgling ventures with limited resources.

So what distinguishes a successful alliance from a dud? Spekman, who has consulted on alliances in industries ranging from aerospace to manufacturing, said the key to a productive partnership is the ability to cede control.

"If management is not humbled and willing to share, the alliance is not going to work," he said.

To avoid potential conflicts, Spekman advises companies to identify the governance structure of the alliance early on in the relationship. Terms of operation, including how to set pricing and control supply chain, should also be agreed upon.

"What kinds of margins are going to be earned, who is going to share those margins? When do you pass along costs - those kinds of things," he said. "Once the marriage is consummated, it's too late."

To be sure, a lot can go wrong, said Spekman, noting that more than 60 percent of strategic alliances fail.

Even so, there is much to be gained from the right match up. Besides new products, services and markets, alliances can offer participants access to new customers, channels of distribution and technologies, among other benefits.

"All of those are very legitimate reasons," Spekman said.

He'd certainly get no argument from Thompson.

"You get to learn a whole bunch of things about how other people do business," she said. "You can't buy that anywhere."