Best practice of the week: 1.3.3 Affiliation
The pandemic forced managers to look for new “partners” in their markets and supply chains. But how to find out if the relationship will last? Organizations might affiliate to create a competitive advantage or mitigate a risk. Common affiliations (or “strategic alliances”) are for marketing, research or servicing a market. While less formal than a joint venture, affiliating is still a serious commitment of time, energy and expectations: unless you write down each party’s expectations and contributions, you’ll be certain to have a bad breakup.
Definition of affiliation: “Creating, monitoring and managing an informal arrangement with another entity for a specific purpose.”
Practice Summary
Potential benefits
- Economies of scale – reduce costs by consolidating operations
- Expanding the customer base
- Pooling capital and resources for joint projects
- Low-cost entry into a market – can also block a competitive threat and/or be considered as an option
- Acquiring needed expertise
Potential risks
- Partner does not fulfill commitments
- Inordinate loss of autonomy
- Difficulties in withdrawing
- Environment projected for the timeframe of alliance changes too quickly
Conditions for a successful affiliation
- Critical to a big goal of each party, i.e., it has a serious and accepted purpose
- Detailed agreement – clear delineation of responsibilities, contributions and contingencies
- Similar organizational cultures
- Clear governance structures and lines of communication including performance review and conflict resolution
- Inherent trust – a large contributor is a good track record by each party
Key metrics: Must be precisely agreed upon beforehand and used for accountability
Click the image below for the 3 Good Questions (to discuss in a management meeting)
- See also questions for 3.2 Joint Venture.
- How much control should one affiliate have over another?
- What issues should the affiliates keep separate?
