Success Through Collaboration: A Focus on Strategic Alliances

Key Takeaways

• The participating organizations remain legally independent but work closely together and share resources and know-how.
• Strategic alliances are increasingly formed due to intense competitive pressure or new market dynamics – for example, OEMs being required to digitalize, develop new powertrain concepts, and assert themselves in a highly competitive environment at the same time.
• A cooperation’s objectives must be clearly defined – for instance, shared development costs or knowledge exchange.
• The success of strategic alliances lies in the details of implementation: intercultural management, domain expertise, a solution-oriented approach and legal finesse are crucial.

Overview: What Lies Behind Strategic Alliances?

A strategic alliance is formed when two or more independent companies from the same industry enter a voluntary, long-term collaboration to pursue common goals. The basis of the alliance is a joint contract that sets out all relevant parameters. Typically, the partners remain legally independent and cooperate in a goal-oriented manner. Other forms of collaboration include mergers, acquisitions or the creation of a joint venture – arrangements that are usually designed for an even longer horizon.

Opportunities in Strategic Alliances:

• Building know-how and the opportunity to learn from each other
• Leveraging shared potentials and strengths – the strength of one partner can compensate for the weakness of the other
• Savings through efficient use of resources

Risks in Strategic Alliances:

• Unmanaged cultural differences can foster mistrust
• Additional administrative effort due to complex, misaligned business processes
• Insufficient domain expertise, which all companies must contribute
• Delays caused by legal issues

What Makes Alliances Successful?

Strategic Preparation

The most important step in any alliance is to set clear goals – and just as importantly – non-goals. Without precisely defined objectives and scope, it is impossible to identify a suitable partner and bring them on board for cooperation.

Partner Selection & Fit

Choosing the right partner is a fundamental pillar of any successful cooperation. There must be a good fit regarding strategy, culture and resources. A shared or compatible strategic direction provides the base for long-term collaboration that benefits both parties. Organizational cultures must also be compatible to enable effective cooperation at the operational level. Finally, there must be a match regarding resources, with each party contributing assets of roughly equivalent value.

Governance & Relationship Management

Setting up a shared governance framework enables day-to-day collaboration. Governance defines and documents all cooperation-relevant details. It forms the basis for mutual trust between partners as expectations, objectives and limitations are clearly specified. Other key elements include establishing joint project structures – committees, exchange formats and role descriptions, among others. Both a robust governance setup and an open, trust-based relationship between partners are essential.

Phases of the Collaboration: From Pre-Contract Workshops to Exit

Every alliance begins with discussions and the intention for strategic collaboration. Once this intent is formalized in a cooperation agreement, the operational phase starts, where common objectives are pursued and achieved. Although many important aspects are set out in the contract, the operational phase is even more complex: two or more companies with established business processes must align quickly. The greatest challenges often arise here, as compromises can be difficult to reach. In practice, when two functioning organizations – two different “worlds”- come together, it is wise not to build a third, entirely new world. Instead, for specific tasks, one of the two existing worlds is chosen respectively, and the partner adapts to it. Depending on the cooperation model, the alliance ends after the joint goals are achieved, at a contractually defined point in time, or via termination. Ideally, exit options are also anchored in the cooperation agreement.

Successful Practice Examples

• CARIAD & BOSCH: Joint development of driver assistance systems
• Ford & Volkswagen Commercial Vehicles: Joint development and production of commercial vehicles

Where Do Strategic Alliances Occur?

Strategic alliances are found across many sectors – aviation, politics, pharmaceuticals, and automotive, among others. They all share the intent to achieve goals that a single partner could not reach alone, or only with considerable risk and/or financial resources.

Aviation

Airlines have been forming alliances for many years to get passengers to their destinations together. Major alliances include Star Alliance, oneworld, and SkyTeam. Through shared booking systems, codeshare flights, and logistical cooperation, passengers can travel worldwide from A to B – with a single ticket across different carriers and with their bagged checked-through all the way. This added value is indispensable for intercontinental travelers and fosters long-term customer loyalty and success for all airlines involved.

Politics

There are numerous political alliances in which countries cooperate to achieve shared goals – ranging from environmental protection to economic and financial cooperation. Prominent examples include the European Union, the United Nations, and its specialized agencies such as UNESCO and UNIDO.

Automotive Industry

Alliances in the automotive industry often target joint development and production of vehicles. The dominant driver here is cost. Vehicle development is highly capital-intensive due to product complexity and varying regulatory requirements for safety in both software and hardware. Building a production line – including the logistical integration of all service providers and suppliers – is especially complex. These high development and production costs start to pay off the more units are sold, keeping the per-vehicle cost low. If a company cannot achieve the necessary volumes alone, strategic alliance is often the most economically sensible route to make development and production viable.

Well-known OEM-level examples include Ford and Volkswagen (MEB platform, light commercial vehicles), BMW and Toyota (BMW Z4/Toyota Supra), or Mercedes and Geely (Smart).

In addition, alliances between OEMs and Tier-1 suppliers are common practice when it comes to joint development of specific components. Especially in areas such as battery technology or software development, partners collaborate to share high R&D costs. Examples include BOSCH and CARIAD on autonomous driving components, or Tesla and CATL on joint battery development.

Strategic Alliances in Today’s Automotive Market

Why Is the Topic So Relevant Now?

The automotive industry is undergoing major upheaval. The shift to electromobility and the rapidly increasing integration of software components and functions are two massive trends. Each, on its own, represents a major transformation; managing both simultaneously demands substantial R&D investment. Europe – and Germany in particular – also faces very high energy costs. Competing successfully in this environment, especially against accelerating competition from Chinese manufacturers, requires enormous effort. Cooperation is therefore a welcome way to reduce costs and bring products to market faster.

Typical Pitfalls

Cooperation in vehicle development and production is inherently long-term. With development cycles of up to five years, production runs of up to seven years, and subsequent spare-parts supply, these strategic alliances are often designed to span decades. To secure such long-term cooperation, a comprehensive governance structure is established – including committees, escalation paths, and communication structures. Though necessary, this frequently creates additional administrative effort that can undermine the goal of resource efficiency. Another often underestimated factor is the difference in organizational cultures. Divergent approaches and perspectives can easily cause misunderstandings. If such issues and potential conflicts are not addressed consistently, they can foster mistrust and jeopardize the partnership and its goals. Domain expertise must not be overlooked. Processes and technical details must be resolved meticulously, requiring the best and most experienced minds – first, because processes and proposed solutions often differ and must be reconciled, and second, because time is usually of the essence. Contracts are essential to provide a solid legal foundation. At the same time, they – and other legal requirements – should not unduly slow down or even block project progress.

EFS Consulting’s Contribution

EFS Consulting has decades of expertise in the automotive industry across the entire value chain. For more than 30 years, EFS has successfully delivered projects from product definition through development, logistics, production, sales, and aftersales. This experience enables us to advise and support clients both strategically and operationally in planning and executing cooperations.

At the heart of any cooperation is the connection between two companies with different business processes. Thanks to our deep process understanding, we advise clients on how to adapt their processes, so they align with those of their partner and connect seamlessly. This “bridge-building” between partners is often a lengthy endeavor that EFS Consulting supports both methodically and with our industry expertise – from process analysis and optimization to provisioning IT applications to strategic advisory for decision-makers.

We speak Automotive.

When two established companies join forces, differing views and disagreements are to be expected. As an external advisor, EFS Consulting is ideally positioned to address such conflicts diplomatically and find mutually satisfactory solutions. We develop a comprehensive understanding of the current situation and then focus the entire project on the best solutions. The more companies, departments, cultures, and languages involved – and the greater the technical complexity and time pressure – the better.

We make things work.

Conclusion

In today’s environment of heightened competition and cost pressure, strategic alliances are indispensable. To fully realize their advantages, however, they require strategic planning and know-how in operational execution. EFS Consulting advises clients on how to establish, steer, and conclude cooperations successfully. If we have sparked your interest, feel free to contact us.