Joint Ventures and Partnerships – a better way to M&A?

Joint Ventures and Partnerships – a better way to M&A?

We are living in an world that’s becoming more interconnected than ever.

The digitisation of our global economy is like a tsunami sweeping over industries, changing business models in its wake. As individuals and as consumers we welcome these changes. There is more choice and more competing products. We can readily adapt and embrace such advances. We are more educated and informed. We have the ability to make own choices and make clear decisions on what we want and what’s expected  from business providers.

With power firmly shifted back to consumers on deciding what they expect presents some interesting challenges to organisations seeking growth.

Organisations face challenges in responding to the new order

Firstly, as organisations get bigger they can become colder and more impersonal in their relations with consumers. It’s not they want to be, but with the combination of structure, systems and processes – the operating model of the firm, can conspire against achieving this greater customer intimacy. So called “Change Programs”, are seen as the panacea, but due their limited size and scope, they can only serve to perpetuate the fundamental problems they are seeking to address.

Secondly, organisations rarely have full dominion over the systems, people and processes used to deliver the full customer experience. There’s a continued reliance on suppliers to fulfil their obligations.

Thirdly, the notion of value is like a living and constantly evolving eco-system. As the market changes to new innovations, so does consumer expectations. Once an organisation perfects its value delivery, it may not be long before it needs to be reworked again.

M&A is risky. Alliances are less so. 

Typically M&A’s are used by organisations to implement value adding strategies so they can grow and prosper. M&A works off preset notions of value requiring plenty of negotiation, planning and capital investment to pull it off.

In light of challenges and investment risk, business alliances in the form a joint venture, partnership or licensing can be a viable that needs to be considered.

Two or more firms can establish an alliance where efforts are pooled together, so that value to the consumer can be delivered in a way that this is profitable to all involved. When value ceases to exist the respective parties can exit and form new alliances in response to market shifts as and when they occur.

This is a far more dynamic arrangement and potentially a good one too in this day and age. Moreover, capabilities between organisations are much easier to leverage because the very systems and processes, often global in nature, can be used to support them. In other words, connecting and disconnecting infrastructure between firms is becoming far more straightforward.

The future lies in organisations acting as a cohort to the consumer. 

Here is a key thought. It should be possible to create a cohort of firms capable of dynamically delivering a product/service on demand, tailored specific to consumer needs, in a way that’s both seamless and transparent. Thanks to the digitisation of our economy firms can operate like transactional nodes within a value chain specifically geared to the customer.

But there is a problem with this as well. The big advantage with M&A is that it gives the owner full control over the value chain they own. The acquirer can therefore tweak the capabilities used to products and services as it sees fit.

Therefore for alliances to work, that sense of control offered by M&A needs to be negotiated and agreed so that the rules of the game are clear from the outset.

Alliances are a viable alternative to M&A. They offer less risk but the rules of the game need to be clear.

To summarise, M&As have ownership control that alliances lack. But they also carry plenty of investment risk. Alliances offer a lower risk alternative and can be strategically better suited where the impacts of digital change are being keenly felt. Moreover, they open the aperture to the notion of firms acting as a cohort in the delivery or products and services.  With good contract negotiation and agreed governance it should be possible to craft a contract that allows an alliance or joint venture to mimic an acquisition in the degree of control provided.