We define a Strategic Alliance as a relationship between two or more alliance members where the combination of deliverables its members provide to each other drives a bigger outcome than just the sum of its parts. Disruptors will only enter into this type of relationship highly selectively as they represent one-way-door decisions with significant long-term implications.
Even though these decisions are made rarely and the process is - due to its unique setup - very individual, disruptors must build offering capabilities over years as a prerequisite for entering into a Strategic Alliance the moment the opportunity emerges.
These offering capabilities can be described as follows:
Symbiotic Relationship
In Strategic Alliances parties mutually benefit from the collaboration, e.g., by increased market presence, access to cutting-edge technologies, cost efficiencies. For this a disruptor must be prepared to disclose highly sensitive information on their IP, product strategy, and processes, and provide the other members preferred access, e.g., alliance-specific APIs, cross-licensing, shared risk-reward pricing.
Aligned Goals and Objectives
Entities share strategic objectives that they aim to accomplish collectively through the alliance. Once entered into a Strategic Alliance these objectives become non-negotiable at least for the duration of the agreement. As a result, a disruptor must accept a gradual loss of freedom in their offering strategy as it relates to the usage of technologies, adherence to standards, and service terms, to name a few.
Transparent Agreements and Terms
The formal agreement defining responsibilities, contributions, and benefits of the Strategic Alliance partners must be complete and precise, yet adaptable to changing needs over the agreement’s term. For this a disruptor must possess a full and detailed understanding of their assets, markets, and risks.
Non-equity Affiliation
Strategic alliances do not entail the transfer of ownership or equity stakes between the parties so a disruptor must be prepared to discuss alternative forms of relationships. These can depend on the geography the alliance is going to target (e.g., regulatory requirements such as data privacy and antitrust), the legal form of the other alliance members (e.g. privately held or publicly traded), and customer expectations (e.g., main contracting, liabilities).
Risk Distribution
Risks connected with the collaboration are divided among the partners, helping to diffuse and mitigate potentially adverse effects. For this a disruptor must exactly understand their own business model assumptions, their significance and stability, and ways to mitigate risks.
Adaptability
Permitting adjustments or modifications to the partnership over time in response to evolving market dynamics or business requirements is vital for the long-term success of the alliance. For this the offering itself as well as its commercial and legal fundamentals must provide flexibility, and the disruptor must understand the ramifications and risks of changes to the alliance setup.
Complementary Assets
Partners bring distinct resources, capabilities, or expertise to the collaboration that complement those of the other partners. The larger and more mature the members’ organization the more unique their corporate culture and the bigger the risk of friction caused by culture clashes, e.g., the opportunistic flexibility of a high-growth startup colliding with the risk-averse rigidity of a decades old incumbent.
Market Extension
Strategic Alliances are built for entry into new markets, customer demographics, or geographical areas that might have been challenging to access independently to increase adoption of an innovation. A disruptor’s offering must possess adaptability to requirements of these new markets, customers, or geographies, and the disruptor must have processes in place to quickly assess, prioritize, and modify their offering while maintaining full control over its internal impact.
Strategic Alliance Example: The Volkswagen Digital Production Platform
In 2018 VW Group set out to form a Strategic Alliance with a cloud provider for their Digital Production Platform (DPP). The platform was intended to integrate production data across VW’s more than 120 production sites providing the base for the digitalization of VW’s global manufacturing operations.
The undertaking was (and still is) so enormous that neither scope, sequence nor time frame of its implementation was definable and therefore VW was looking for a true symbiotic partnership designed to evolve over time as use cases were developed and implemented. As a result, the alliance partners would be only able to agree on a set of principles for their collaboration and develop the engagement model over time rather than formulate it in the very detail in a legally binding contract.
AWS (where I was in charge of the customer relationship at that time) was invited to the table in Q2 2018 and by Q4 a team of more than 40 AWS staff was involved reaching all the way up to Andy Jassy, then CEO of AWS. It wasn’t AWS first Strategic Alliance, but we were still new to the manufacturing space and dealing with a massive, 600K+ people organization headquartered in Germany was without precedence.
After a fierce battle with our largest competitor we won over the VW Group Executive Board and closed the agreement by the end of Q1 2019.
Let's look at the setup of this Strategic Alliance in more detail:
Symbiotic Relationship
With an annual production volume of around 10M vehicles across 12 brands VW Group had a core competency in supply chain management and manufacturing operations at scale. AWS on the other hand was well known for their speed of innovation and operating the world’s largest cloud infrastructure. While VW was benefitting from AWS’ IT capabilities, AWS would learn about manufacturing and gain input for new and differentiating web services and solutions.
Aligned Goals and Objectives
VW and AWS agreed on the goal to commoditize manufacturing use cases to drive down costs, increase leverage of best practices and nurture an ecosystem of partners providing leading edge manufacturing solutions. VW would benefit from a standardization of their production across dozens of plants while AWS would benefit from service consumption by new use cases for the Automotive industry.
Transparent Agreements and Terms
The agreement leveraged AWS’ standard pay-as-you-go, self-service pricing model to allow plants to only pay for what they consumed after they had consumed it. A model an on-prem IT wasn’t able to provide by default.
Non-equity Affiliation
Both parties maintained complete independence, last but not least due to ever growing antitrust regulation putting any form of equity agreement under the highest scrutiny.
Risk Distribution
As the scope was not definable at the start of the Strategic Alliance, both parties agreed a mechanism (which I can’t disclose further) on how to share the risk in the development and operations of the platform.
Adaptability
VW and AWS agreed to use Amazon’s proven Working Backwards approach for any and all decisions on which platform capabilities to develop, implement and operate. Also, the platform was architected in a set of clearly defined layers with well documented APIs and interfaces ensuring it could scale over time without running into bottlenecks and limitations.
Complementary Assets
While VW contributed their most experienced resources from the shop floor, developers from their Digital Labs, and consulting resources from Porsche Consulting and MHP, AWS assigned architects, developers, and program management resources from their global service and field organization.
Market Extension
VW and AWS intended to grow each other's market reach by providing solutions to manufacturing organizations beyond the VW Group and the AWS Marketplace.
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