STrATEGIC ALLIAnCE MAGAzInE | PROFESSIONAL PERSPECTIVES But while we are recognized as a leader in computer, telephone, and video networking, we were now landing on an alien planet. Electric utilities are wrestling with massive changes in energy conservation, new pricing schemes, and consumer demands for new services. niche players are jumping in, igniting new competition. The industry is heavily regulated, with business models and players that we weren’t accustomed to—even the industry lingo was foreign. We decided early on that Cisco would need to work in new ways with new partners to crack the market. While we’d had remarkable success in developing technologyand IT services–focused partnerships that helped customers manage their computer networks and data centers, we needed to partner with a range of new companies from across the utility landscape. But as we set up these new relationships, we needed to know how we could all derive value from them. Would our new partners’ visions match ours, and how would we work together? How would we leverage our technology knowledge and apply our business and alliance models to the utility industry? The answer: we set about to create a sophisticated ecosystem of partners from across the industry that go beyond our traditional alliance models. In the process, we’re developing new types of partnerships that can tackle even the most dynamic markets. Over the last few years we’ve pushed into other uncharted (for us) markets like healthcare, industrial, and building automation, using similar partnership strategies. Our experiences, and those of other industry leaders, provide a blueprint for companies trying to penetrate new areas or fend off emerging competitive threats. The challenges—and opportunities—are huge, and the issues apply to almost all industries as the value chains and players are changing rapidly. They require a new type of adaptable enterprise—nimble, strategic, and able to connect dots inside their companies and across multiple partners.
The Five Pillars of a Strong Alliance Framework When we explore any new potential partner ecosystem, we start with five pillars: 1. The market environment: what do our (new) customers need? 2. How do customers make their decisions and how do they buy? 3. new disruptive forces. 4. Our own company’s priorities. 5. The changing competitive landscape. Quarter 3, 2011
How all of these elements come together will shape how we deliver our services and how we position and build our alliances—which in turn will determine the partners we’ll need to align with to enter any new market. We’ve learned a lot by looking at the challenges addressed in the content industries: music, book publishing, magazines, movies, and television. Over the past decade they’ve had to explore new ways to distribute and monetize valuable content, and find new ways to attract advertisers (and increase visitation and value of eyeballs) with novel content platforms and approaches. The lesson is clear: Companies must explore new alliance strategies to survive and thrive. What worked four or five years ago—our cradle-to-grave “portfolio approach” to managing strategic alliances—is too static for Cisco and today’s market (although it continues to provide a solid foundation).
The Price of Failure
As I pointed out in my book, Strategic Alliances: Three Ways to Make Them Work (Harvard Business Press, 2008), the price of poor planning is high. A Harvard Business School/Accenture study found that 15 successful alliances created $72 billion in shareholder value over two years, but that same number of bad alliances cost companies $43 billion. About half of all alliances fall apart—reasons include poor planning, lack of clear strategic focus, weak framework, and poor execution. We realized a couple of years ago we needed to fine-tune our alliance model as we moved into new markets like utilities. We started with the positioning issues and the partners we’d need to assemble to be able to help deliver the “whole offer.” To do this, we use a simple competitive assessment grid to evaluate potential partners on 10 criteria, including philosophical alignment, market strength, and speed, among others.
Building Partner ecosystems— Inside and Out Creating partner ecosystems is more than just repackaging your old alliances—or throwing together a new team. To enter new markets, we had to identify the key players, examine market share, and evaluate the disruptive technology—all to weigh our chances of success. We found that utilities were under pressure from several forces: user changes, energy conservation, time-of-day pricing models, and the advent of new services expected by consumers. How do you control people coming in and out of the grid? What about security? It felt a lot like the 55
Non ASAP Member Limited Edition, Q3, 2011