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Archive for the ‘Strategic Business Alliance’ Category

“Joint undertakings stand a better chance when they benefit both sides.” — Euripides

In this article, I’d like to discuss joint ventures and strategic alliances, two commonly used business partnership structures. First a reminder of how I’m defining the two:

Strategic Alliance – a formalized relationship between two parties to pursue a specific endeavor or set of objectives while remaining separate entities.

Joint Venture – a strategic alliance where the two businesses create a separate legal entity for this endeavor.

Strategic alliances are quite simply business collaborations and can be formed for a variety of reasons, including joint sales or marketing, R&D, and other resource or intellectual property sharing. Strategic alliances take place between sole proprietors, small and large companies alike.   For example, in my consulting business I have strategic alliances with other consultants who specialize in areas I do not, such as human resources or social media.  These alliances benefit my business because they allow me to create added value for my clients. They benefit my client because I have saved them the time of finding and prequalifying additional service providers. And they benefit my alliance partners because they reduce their cost of sale and bringing them business they otherwise may never have received.

Using Financial Benchmarking as a Strategic Business Tool

Benchmarking is the process of comparing the business processes and performance metrics including cost, cycle time, productivity, or quality to another that is widely considered to be an industry standard benchmark or best practice. Essentially, benchmarking provides a snapshot of the performance of your business and helps you understand where you are in relation to a particular standard. The result is often a business case and “Burning Platform” for making changes to make improvements. The term benchmarking was first used by cobblers to measure people’s feet for shoes. They would place someone’s foot on a “bench” and mark it out to make the pattern for the shoes. Benchmarking is most used to measure performance using a specific indicator (cost per unit of measure, productivity per unit of measure, cycle time of x per unit of measure or defects per unit of measure) resulting in a metric of performance that is then compared to others.

Advantages & Disadvantage of a Joint Venture

There are many good business and accounting reasons to participate in a Joint Venture (often shortened JV). Partnering with a business that has complementary abilities and resources, such as finance, distribution channels, or technology, makes good sense. These are just some of the reasons partnerships formed by joint venture are becoming increasingly popular.

A joint venture is a strategic alliance between two or more individuals or entities to engage in a specific project or undertaking. Partnerships and joint ventures can be similar but in fact can have significantly different implications for those involved. A partnership usually involves a continuing, long-term business relationship, whereas a joint venture is based on a single business project.

Parties enter Joint Ventures to gain individual benefits, usually a share of the project objective. This may be to develop a product or intellectual property rather than joint or collective profits, as is the case with a general or limited partnership. A joint venture, like a general partnership is not a separate legal entity. Revenues, expenses and asset ownership usually flow through the joint venture to the participants, since the joint venture itself has no legal status. Once the Joint venture has met it’s goals the entity ceases to exist.

What are the Advantages of forming a Joint Venture?

Provide companies with the opportunity to gain new capacity and expertise Allow companies to enter related businesses or new geographic markets or gain new technological knowledge access to greater resources, including specialised staff and technology sharing of risks with a venture partner Joint ventures can be flexible. For example, a joint venture can have a limited life span and only cover part of what you do, thus limiting both your commitment and the business’ exposure. In the era of divestiture and consolidation, JV’s offer a creative way for companies to exit from non-core businesses. Companies can gradually separate a business from the rest of the organisation, and eventually, sell it to the other parent company. Roughly 80% of all joint ventures end in a sale by one partner to the other.