Chapter 6. Building Alliances

The Point: Structuring strategic alliances can be a powerful way to grow a business exponentially. The economies of scale provided by carefully orchestrated alliances often allow the organizations involved to extend their product offerings beyond their core customer base. In sports, these alliances some of which have worked, whereas others have delivered far less than the anticipated results have included players, TV networks, leagues, and myriad other industry participants.

Strategic alliances, relationships that are formed with the intention of being mutually beneficial partnerships, have been around since Adam and Eve. Through the ages, alliances have been struck between and among individuals and organizations with all types of backgrounds and business interests.

Just as Bonnie Park had Clyde Barrow as a partner in crime, so too did Batman have Robin to help stop it. In comedy, Bud Abbott would have been nowhere without Lou Costello; some might say the same would have been true for Laverne DeFazio had she not found Shirley Feeney but that is debatable.

How many years later would we have heard about George Harrison and Ringo Starr had they not partnered with John Lennon and Paul McCartney? Could there have even been a Rat Pack without Frank Sinatra?

At the beginning of the 20th century businessman David Abercrombie went into business with Ezra Fitch, and Bill Hewlett and David Packard partnered nearly 40 years later.

In sports, it was unspoken but understood alliances between Jerry West and Elgin Baylor that allowed the Los Angeles Lakers to build a dynasty in the 1960s and early 1970s. In recent years, West helped form the alliance among Shaquille O'Neal, Kobe Bryant, and Phil Jackson one that allowed the team's reputation as a champion to continue. In 2002, the Memphis Grizzlies, intent on building a legacy of its own, hired West as its general manager and chief alliance builder, reportedly paying him $5 million a year.

In sports business, important strategic alliances have been formed between NBC and the WWF, AOL Time Warner and the NBA, and, to a certain and much lesser extent, this book's authors, David Carter and Darren Rovell!

Each and every alliance just noted, regardless of its outcome, was entered into with the understanding that the whole would be greater than its individual parts. In the process, the partners would prosper and, in the case of a publicly traded company, shareholders would profit.

Two online giants, America Online and Amazon.com, offer a prime partnership example. Within this alliance AOL hopes to gain more hits, visitors, and ultimately paying subscribers to its sites, whereas Amazon seeks to tap into AOL's subscriber base, one it believes to be a strong demographic match to its own, in an effort to sell more books, toys, and CDs.

Sports companies have begun to utilize this practice of alliance building as well. Nike has entered into strategic alliances with universities, including Duke and Michigan. In this relationship Nike gains large amounts of notoriety from these top schools through their extensive TV exposure and fiercely loyal fan bases. University benefits include financial gains, cost containment, and merchandising opportunities all of which directly and indirectly assist in the recruitment of student-athletes.

In fact, after the No. 4 Chris Webber Michigan jerseys that were bought by fans of all ages and societal classes during the emergence of the "Fab Five" in 1989 contained both the Michigan name and the Nike swoosh, both organizations enjoyed increased notoriety and exposure. This notoriety and exposure took on a different and far less desirable feel throughout much of 2002, when it was disclosed that a prominent booster had given $280,000 to Webber during his playing days at Michigan. In a federal case investigating the booster, Webber said he didn't receive that much money. He was subsequently accused of lying to a grand jury and obstructing justice. As a result of the money lending, Michigan also agreed to forfeit all the games that Webber and three other players played while ineligible.

Alliances can provide opportunities to enter into large-scale marketing efforts that normally would carry too high of a price tag on a stand-alone basis. Movie studios, such as Disney, and fast food restaurants, like McDonald's, often utilize this form of marketing partnership to help promote the newest summer blockbuster. These deals provide McDonald's the opportunity to run in-store promotions in exchange for contributing marketing assets to help publicize the film.

In the sports world, sports leagues are now working intimately with movie studios to try to use films to reach their demographic. In the summer of 2002, the NBA and 20th Century Fox teamed together in producing Like Mike, a story about a young orphan, named Calvin Cambridge, who makes it to the NBA thanks to putting on a pair of Michael Jordan's old shoes. The league gave the filmmakers access to NBA players, arenas, and trademarks, hoping that the young demographic interested in the movie will in turn think about the NBA. In the end, these integrated deals provide both organizations ideal marketing platforms for reaching shared target markets.

Certain alliances are created to strengthen negotiating positions with suppliers, customers, or regulatory agencies. Global corporations might utilize alliances for this purpose when attempting to penetrate a new market in a foreign country. For instance, because businesses are angling for a better way to penetrate the large Chinese market, many are turning to China-based partners to help procure local supplies, deal with the Chinese government, and reach Chinese customers. This development has become particularly pronounced leading up to the 2008 Olympics in Beijing.

Gaining access to critical or scarce resources is yet another primary reason businesses seek strategic partners. Many industries, such as the diamond industry, remain monopolistic. Currently, DeBeers owns a majority of the world's diamond mines, and has the ability to influence product scarcity. Not surprisingly, jewelers and watchmakers, in an attempt to address the issue of scarcity, hope to establish preferred relationships with DeBeers. Gaining hard-to-replicate access to this coveted product provides jewelers and watchmakers a competitive advantage.

Cost containment is often the most dominant reason to enter into a strategic alliance. By outsourcing certain aspects of their operations, companies especially those in the home computer industry can reduce costs. Because it would be far more expensive for IBM to create its own processors, it outsources this function to Intel, the established market leader, resulting in a powerful and lucrative business alliance. Occasionally alliances are constructed such that one entity finances the operation of another. In the dot-com world, both Microsoft and Cisco partnered and invested millions of dollars in cutting edge technology to align their products online.

If entering into a strategic alliance is to be beneficial it is imperative that organizations analyze their industry, competitive environment, and customer wants and needs carefully before entering into one. It is also critical that the partnership is crafted to the mutual benefit of both companies. If utilized correctly, strategic alliances provide companies valuable competitive advantages that would not exist independent of these arrangements.

In the ultracompetitive sports business and media marketplace, industry leaders such as ABC have capitalized on the importance of strategic alliances, crafting some that have worked famously like the network's historic relationship with Monday Night Football. Other networks, although enjoying their own measure of success when forming alliances, have on occasion fallen short, including NBC, whose relationship with the XFL failed miserably.