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.”
- 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
- 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?