Aug 09
13
See previous article in: Forming Strategic Relationships -1
————-
Many strategic relationships link a small company with a large company. These relationships are not a zero-sum game: Both companies can benefit. Small, growing companies acquire an important aura of credibility by linking up with large, respected companies. The large company acts as a credible reference that tells the market the small company is a winner. Customers are more willing to take a chance with a small company if the small company has IBM or Digital Equipment standing behind it.
At the same time, large companies can gain a window on new technology. Typically, small companies develop new technologies faster than large bureaucratic companies. So by forming links with small companies, large companies can bring more innovative products to the market, and get them there
quicker.
A good example of this type of strategic relationship is the alliance between IBM and Microsoft. IBM agreed to use Microsoft’s MS-DOS software as the primary operating system on its personal computer. The operating system, essentially the traffic cop controlling activity inside the computer, is a critical element in a computer system. Designers of the operating system and the computer itself must work closely together. For that reason, IBM had always
developed its own operating systems for its computers. But the deal with Microsoft made sense for both companies.
For Microsoft, the IBM deal meant instant credibility. Microsoft was an obscure company in Washington state, run by a kid in his 20s. Suddenly, Microsoft was seen as a significant company in the personal computer industry. Its revenues have soared ever since. For IBM, the Microsoft deal meant the giant company could get its personal computer to the marketplace much faster than it could have otherwise. IBM was already somewhat late getting to the market. If it had to develop its own operating system, it might have arrived too late to become a leader.
IBM has forged other alliances as well. To help in the development of floppy disk drives, it struck a deal with Tandon. In microprocessors, it decided to standardize on Intel’s family of 16-bit processors. It also invested in Intel, buying 12 percent of Intel’s stock, and later increasing its stake to 20 percent. In each case, IBM gained quick access to new technology, while its smaller partner gained an important shot of capital and credibility. IBM’s stamp of approval delivered a clear message: This company is a winner.
These strategic relationships allow each company to maintain its independence and unique corporate character. These alliances should not be confused with traditional acquisition and diversification moves. Acquisition strategies often suppress innovation rather than foster it. The larger company often forces the acquired company into its corporate mold, thereby killing the innovative character of the small company that made it attractive in the first place.
–
To be continue at:
Forming Strategic Relationships -3
