To Partner or Not to Partner: Best Practices for Making a Decision to Ally
By Renee Jansen, Senior Consultant
As organizations seek new ways to generate
value, they are confronted with the question
of how best to do so. Do they build up
capability internally? Acquire capability
through a merger or acquisition? Ally with
other organizations through partnerships?
In order for organizations to make high
quality decisions, the process of making
this determination must be systematic and
well managed. Too often, however, we see
alliances formed opportunistically — a
possible partnering deal presents itself and a
business unit jumps on the chance to form an
alliance. While many of these partnerships
add value to a company’s bottom line or
meet its goal in some other way over time,
many end up floundering because the
partnership was not connected to the overall
strategy of the organization. The internal
decision to build a new capability, acquire
a company, or form an alliance relationship
is an important one. The following presents
four considerations for making the right
decision: (1) understanding the fundamental
differences (and advantages) of the different
options, (2) employing a systematic approach
to assessing the factors that impact which
option is most suitable, (3) including the
appropriate decision-makers in the process
of assessing and agreeing on an option, and
(4) considering the portfolio implications of
a decision to partner.
Understand Your Choices
The decision to gain capability by building
it internally, acquiring it externally or
forming a partnership has significant
ramifications for the future of a business.
There are business risks associated with
the decision, resources required to manage
the chosen path through to completion, and
significant capital required to invest in the
given decision. It is therefore necessary to
understand the fundamental differences
between the build, buy, and ally options:
Build
Building out a new capability or function
requires a significant investment in both the
amount of resources committed to the project
and the capital to support its development.
Given the significant resources, capital, and
commitment required, the solution developed
is generally long-term, and may open a
new strategic direction for the company.
Because it is primarily an internal activity, the
developing company maintains total control
over the result; however it also bears the risk
of development. Finally, depending upon the
preexisting capabilities of the developing
company, and to a certain extent the level of
resource and capital it is willing to dedicate,
time to develop a solution is almost always
longer than purchasing the solution through
acquisition or allying with a company that
already has it.
Acquisition (Buy)
An acquisition is when one company
takes control of another company
through purchase or an exchange of
stock. Acquisitions generally work best
when one party is dominant; very often
a larger player looking to permanently
fill a gap in its capabilities. Smaller,
niche companies with specific business
capabilities in the targeted area can often
fill the need of the larger company. In a
merger or acquisition, integration tends to
be a discrete, one-time transaction, with the
acquiring company ensuring that relevant
products and capabilities are appropriately
absorbed. As opposed to alliances, the early
period of integration is often the time in
which most conflict occurs, however, it
tends to diminish over time as both new
and old employees become acclimated
to the change and the companies become
more and more integrated. Finally, unlike
alliances, acquisitions do not usually
require a renegotiation, and are seen as
a permanent change to both companies.
Alliances (Ally)
Alliances can be defined as a relationship
between two or more organizations that
retain their independence, in which
common objectives are jointly pursued,
and in which risks and rewards are shared
(though not necessarily equally). Alliances
often work best when neither partner is a
dominant player. Success often depends on
the diligent management of organizational
differences, early airing of issues, and
adherence to previously agreed operating
processes and governance structures.
Instead of integrating one business into
another, the focus of early alliance work is
to understand the companies’ separate and
joint goals, identify and plan to manage the
differences between the companies and set
up an appropriate governance structure that
defines roles and responsibilities for joint
work and decision-making.
Unlike acquisitions, in alliances the
initial honeymoon period is often free of
conflict. At this stage, executives on both
sides have a clear vision for the alliance,
synergies between the companies seem
well understood, the opportunities are
great, and enthusiasm runs high. However
overtime, priorities shift, issues often fester,
and trust can erode if not managed well. In
1
this case, conflict in alliances can become
more pervasive and severe over time. Given
such shifting priorities on the parts of both
companies, changes in management focus,
or simply the achievement of whatever
the initial purposes for the alliance
were, alliances usually require periodic
renegotiation and are rarely permanent.
Organizations can assess a number of
different external and internal factors when
making decisions.

Significant risks to the organization
(financial, brand, etc.) when working with
a third-party that cannot be effectively
mitigated or avoided.

Whether the third-party has a positive
track record in developing, distributing,
and/or servicing a product similar to the
one being considered.

Whether other companies in the
marketplace have the capabilities needed
to build, distribute, and/or service the
product being considered.
Assess Key Internal and External
Factors Systematically
Once the differences between the build-buyally solutions are well understood, various
internal and external conditions should be
systematically considered to understand
which option is the best strategic fit for
the company. Factors to consider include
characteristics of the final output from
the desired solution (e.g., level of control
required, time-to-market allowable, and the
complexity of the desired solution), as well
as the available inputs from the organization
(e.g., resources, capital and expertise).
Having an agreed upon framework for
which conditions should be weighed in the
decision can help decision-makers perform
an efficient and well-reasoned systematic
analysis of the options.

How extensively building, developing
and/or servicing the product will require
coordination of multiple groups (typically
because the solution must be integrated
with other solutions to create a robust
customer experience).

The volatility of the product environment
and criticality of speed to market.
See Box A below for more detail on the types
of conditions an organization may consider
and how they might combine to implicate a
specific build, buy or ally solution.
Possible Framework for Analyzing Build-Buy-Ally Alternatives
Organizations should assess key internal and external conditions to understand how well a possible
build-buy-ally solution meets its interests and fits within its constraints.
If
then
these conditions
Required
control
Company
experience
level
Access to
resources
Volatility
Availability
Degree of
Complexity
of relevant
of external
integration
of solution
market
sources
Time to
market
High
High
High
Low
Low
No
High
Sufficient
time to
design,
develop, &
implement
Medium to
agreed upon
level
Medium to
low
High to
moderate
Medium
High
Yes
Medium
Sufficient
time to
integrate
Low or
shared
Medium to
low
Moderate to
low
High
Moderate
Some and/or
partial
Low
Build
Buy
Sufficient
time to
coordinate
Ally
w/external
organization
& integrate
Using a systematic assessment can give
general guidance on whether to build, buy,
or ally but does not provide a definitive
answer, nor will it enable an organization
to weigh the tradeoffs of each solution. An
organization ultimately needs to consider
its key strategic priorities, as certain
factors should almost always trump others
dependent upon the business situation
and external market factors. Moreover,
the availability of an alliance partner or
acquisition target (or lack thereof) may, as a
practical matter, dictate a specific solution.
Include the Right Decision-Makers
Any framework that defines how to
assess the strategic question of whether
to build, buy or ally should carefully
clarify decision-making roles around that
question. Various internal stakeholders
— Business Development, Alliance
Management, the business unit or lines of
business, as well as other subject matter
experts within the organization will not
only want to have a say in the decision, but
should be adequately consulted to develop
a well-informed decision. For example,
the Alliance Management function may
need to ensure that an Alliance Manager
is staffed to manage a new alliance or
have concerns about portfolio conflicts.
Corporate development stakeholders
will have valuable information about the
relative value of acquisition targets. The
business leads are key to any effort to build
up a solution or capability internally and
will have strong views about the resource
considerations. And yet, the ultimate
decision-making authority for these
decisions might well sit elsewhere in the
organization, leading to under-consultation
with key stakeholders or lack of sufficient
communication about the decision being
made. Such decisions are at risk for being
overturned or revisited, wasting precious
time, or impacting the speed and quality of
implementation of the strategic decision.
Aligning around decision-making roles in
advance of specific decisions can ensure
that decisions are made quickly and
leverage a company’s best thinking and
expertise. A well thought-out approach to
Box A
2
deciding whether to build, buy or ally takes
into account not only those stakeholders
who are making the actual decision, but
those who ought to be consulted (either
because they have expertise or their buyin is needed for implementation). Finally,
stakeholders who should be kept informed
(either throughout the process or once
the decision has been made should be
identified. This latter category is critical as
they are usually impacted from a resource
perspective by build, buy or ally decisions,
at a minimum by devoting FTEs to manage
or oversee the alliance, integration or
in-house capability/product development.
See Box B for an illustrative approach to
allocating decision-making roles.
Make it an Alliance Portfolio
Decision
If forming an alliance seems to be the
best fit to support corporate strategy, an
organization should consider its portfolio
of alliances before making a final decision.
Alliance Management often takes the lead in
reviewing how a potential partnered product
might fit within the organization’s current
alliances. The goals of such a portfolio
review are fourfold. First and primarily, an
organization should identify and address
actual or potential conflicts as well as
synergies across alliances. It might be that
the conflict is irreconcilable such that an ally
solution is not the right fit. Conversely, it
should seek to identify and leverage synergies
across alliances (e.g., related technology or
markets, engage one partner to help influence
another). Second, taking the portfolio into
account in decision-making can help an
organization maintain a balance of alliances
with shorter and longer value horizons, and
alliances with different risk-reward profiles
(e.g., high/high, low/low, etc.). Third,
understanding how a new alliance will fit
into the alliance portfolio will help anticipate
or identify alliance resource gaps so they can
be quickly addressed and enable efficient
re-deployment of resources across alliances,
as warranted by performance, life-cycle
stage, etc. Finally, a robust understanding of
the alliance portfolio and performance over
time can allow an organization to identify
patterns of performance across alliances;
extract organizational insights and lessons
about Alliance Management.
Conclusion
Determining whether to build, buy or ally
with another company to support a strategic
corporate objective is a complex decision
with far reaching resource implications.
Companies who regularly engage in that
type of strategic decision-making should be
well informed of the fundamental differences
between the choices and systematically
align around and evaluate key internal
and external factors that impact which
solution might be the best fit. Additionally,
organizations should take care to clarify
decision-making roles for the decision and
consider carefully the portfolio implications
of any decision to partner.
Illustrative Decision-Making Roles in Build-Buy-Ally Analysis
Clarifying decision-making roles can ensure that high quality strategic decisions are made quickly and
that the organization is prepared for implementation.
Decision Driver
Decision Makers
Who to Consult
Who to Inform
Complex issues,
actions, or decisions
likely to require
negotiating with
different parties.
Person to manage the
process and ensure the
decision is made.
The decision makers:
Those people who
must have a voice in
making the decision
(i.e., may vote and/or
veto the decision).
The parties who may
act as advisors to the
decision maker(s) and
whose views ought
to be considered,
but who do not have
ultimate authority.
The interested and/
or affected parties:
those who need
to be informed
about the decision
(because they will be
impactedby it).


Completing a section of the build-buy-ally framework
Key Decisions
What it would
take to build the
solution?
What it would
take to buy the
solution ?
What it would
take to use an
alliance for the
solution



Product Manager
Product Manager
Product Manager


Product
Management
Council
Product
Management
Council
Product
Management
Council
Product Managers
with similar or
related products

LoB head

Product Managers
with similar or
related products

Business
Development

Procurement

Product Managers
with similar or
related products

Alliance experts

Alliance experts

Business
Development

LoB head

Alliance experts

Procurement

LoB head

Business
Development

Procurement
About Vantage Partners
Vantage Partners, a spin-off of the Harvard
Negotiation Project, is a management
consulting firm that specializes in helping
companies achieve breakthrough business
results by transforming the way they
negotiate, and manage relationships with,
key business partners. To learn more about
Vantage Partners or to access our online
library of research and white papers,
please visit www.vantagepartners.com
www.vantagepartners.com
Box B
Vantage Partners | 10 Guest Street, Boston, MA 02135 USA | T +1 617 354 6090 F +1 617 354 4685 | www.vantagepartners.com
Copyright © 2012 by Vantage Partners, LLC. All rights reserved.