Whenever we attempt to do something new, we are often presented with a whole new, activity-specific vocabulary list. If we want to do some plumbing, we need to know what a "fitting" is; if we want to sew, we need to know about "bobbins." The use of words helps to set standards for communication, just as the "ISP." "link," and "internet" define newly created realities for the computer user.
With the subject of vocabulary in mind, we look at trends in business. There seems to be a lot of talk about alliances, in addition to joint ventures (that were commonplace in the 80's). However, with so many rapidly erupting changes, most people don't have a communications tool to express how today's businesses are forming relationships with others. The following is a vocabulary list that will enhance your ability to communicate about new ways in which many are conducting business. There's a good chance that your company has formed alliances and that you participate in them daily. Has your company set up links on your web site to other vendors such as amazon.com? Have you partnered in a project with another firm to create value for your product? Does your company ever look at purchasing another company or just working together on a project for a short period of time?
These are definitions that may become useful as alliances become more common:
1. Affiliate: The internet buzz word for "we work with you and the only expense to us is paying for real estate space on our site." The value for company B is normally in gaining exposure, and the value for company A comes from being related to company B. In some cases, the company B does not provide compensation for the relationship.
2. Ad Hoc Pool: Two parties agree to work together, yet no one is really putting forth resources, and the companies remain separated. This might be in the form of an agreement between companies to sell or distribute their product in a common forum or show, enhancing everyone's visibility
3. Consortium: Companies are interested in putting in more resources than the minimum amount, yet the partners each maintain their own value. Pharmaceutical companies or technology-based businesses might share R&D; however, each pursues its own direction.
4. Project-based Joint Venture: Two parties create a common organization to create value. Resources from both parties are added to the mix. The value is given back to the company by dividends or royalties. Lycos, a strong alliance company, might need a partner to enter into a new country to sell their products. The relationship requires a minimum of resources, yet creates value.
5. Full-blown Joint Venture: Two parties create one business for which they both share in the cost of operations and set-up. Resources in this relationship are extremely high. Staff and management must be fully engaged. The result is a business that is a separate entity and considered a long-term project.
6. Merger: Company A and company B meld together, combining assets to create new company, C. Many joint ventures are testing grounds for mergers. Successful projects move to the merger phase as relationships build.
7. Acquisition: One firm outlays assets to bring the other on board. Company A purchases company B. Company B is no longer a separate entity. It now belongs to and is a part of company A. The acquiring firm sees long-term value in expending time and money to build the acquisition into their company structure.
By realizing the distinction in alliances, companies can pursue several types of relationships with other companies, producing different results. To create a successful alliance, all parties involved need to understand their role in the relationship as well as select the proper type of alliance to create a win-win combination.
(Modified 1993 Lorange & Roos)
© MM David & Lorrie Goldsmith
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