A four-step process for creating alliances.

• Author: Bluestein, Abram I.

A well-defined process treats strategy development, partner assessment, contract negotiations, and implementation as separate steps.

Strategic alliances have become a popular transaction in the late 1980s and early 1990s to bring companies together in order to pursue common business objectives. Many companies are considering joint venture opportunities as a vehicle for new market entry rather than assuming the risk of direct investment. Companies' performances with alliances, however, must be better than their track records with acquisitions if they are going to make a major contribution to the success of the firm.

A.T. Kearney's research into the critical success factors of strategic alliances began over five years ago with an in-depth study of alliance partners in which 150 companies assessed their own alliance processes. This study serves as a foundation from which we can identify what makes strategic alliances successful today. The lessons learned have been tempered over time by practical experience that has helped define when to pursue alliances and how to select partners, and assisted in setting the parameters of the negotiation.

Today, strategic alliances occur not only in the industries that have traditionally pursued them, such as the technology-intensive computer and electronics industries, but are also beginning to take place in new areas such as travel, hospitality, and health care. In fact, our study revealed that manufacturing-oriented alliances accounted for only 30% of alliance activity, whereas the greatest growth was occurring in the service sector.

Alliances are occurring because companies are realizing that they don't have the competencies or resources to compete alone in the global markets. This is not to say that today's alliance partners are short in capabilities, but that they understand their limitations.

The alliance between Merck and Johnson & Johnson is a classic example of two extremely successful companies pooling their resources to improve upon their individual positions. Merck realized it had the research, product development, and financial capabilities to succeed in the ethical pharmaceutical business but needed expertise in over-the-counter drug marketing to extend its products' life cycles. So even though Johnson & Johnson was a historical competitor, its strong, global marketing capabilities and similar culture made it a logical fit for Merck.

Companies recognize that penalties for failing to achieve...