Of course, simply establishing the new relationships is not enough. Companies also must know how to capitalize on the links after they are formed. ZyMos is one company that has failed to do that. As a small company manufacturing custommade semiconductor chips, ZyMos needs to convince customers of its reliability. The marketplace is fearful of a small company in today’s environment. All companies are growing so quickly that they need a reliable supplier.

They can’t afford to have their lines shut down.

Strategic relationships are an ideal way to ease these customer fears, and ZyMos has an impressive list of partners. It has technological agreements with many top-notch companies, including Intel and Apple. But ZyMos is still going out and presenting its product on the basis of technical data. ZyMos’s managers came to us and talked for an hour about line widths. That makes no sense. Pitching technology doesn’t work in this environment. ZyMos should be stressing its relationships with Intel and Apple. They have the right relationships, but they’re not using them.

The idea of strategic relationships is not limited to the electronics and computer businesses. It applies to all fast-changing industries. Strategic alliances can be critical in the biotechnology industry. As in the electronics industry, most of the innovation in the biotechnology industry comes from small firms. But bringing products to market is particularly difficult for small companies in biotechnology. Many biotechnology products must gain government regulatory approval. That is a long and expensive process. Few small companies have the resources to wait out the entire process. Teaming up with large companies solves this problem, while also giving the startups much-needed marketing muscle and credibility.

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* See the first posting about this at:
The important of Strategic Relationships

In some product categories, such as computer operating systems, one or two dominant standards will emerge in the next few years. For companies developing those products, strategic relationships are particularly important. Those companies must link up with others to help establish their products as standards.

Pauline Alker, one of the founders of Convergent Technologies, founded her second company, Counterpoint Computers in early 1984. Counterpoint is in the high performance, mini-computer business. But so are many other companies. The major difference that has made Alker’s company successful so early in its corporate life is her approach to strategic alliances. Pauline set out from the beginning by pursuing and attracting capital from three of the premier venture capital companies, Arthur Rock, Hambrecht & Quist, and Mayfield. While her products were in the development stage, Pauline set out to establish relationships that would ensure success. Counterpoint’s initial strategic alliances include technology exchanges and marketing, product development, manufacturing and equity relationships with three strategic partners: AT&T Informations Systems, Kyocera and British & Commonwealth. These companies have combined assets in excess of $150 billion.

To be continue at:
The important of Strategic Relationships -2

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Indeed, acquisition strategies in technology-based industries have a pretty dismal record. Schlumberger, for example, tried to acquire its way into high technology. The company, a leader in the oil-services business, wanted to gain a foothold in new technologies, so it acquired Fairchild Semiconductor, the pioneer of Silicon Valley’s semiconductor industry. But the strategy backfired. Key employees left the company and Schlumberger’s corporate culture did not translate well to Silicon Valley. Schlumberger’s desired foothold has turned into nothing more than a toehold, if that.

Exxon Corporation’s effort to enter the office-automation market through acquisition of small high-technology companies turned into a disaster.

Western Electric acquired robot maker Unimation in 1982, then saw Unimation’s sales drop sharply. And AM International’s high-technology acquisitions drove it into bankruptcy in 1982.

Clearly, acquisitions are filled with pitfalls. In many cases, large companies would be wiser to buy minority interests in small companies, or sign development contracts with them. These approaches allow the small companies to maintain their culture and entrepreneurial zeal. To better understand the growing need for strategic relationships, it is important to understand the product-development cycle in technology-based businesses. There are many steps between the scientist’s workbench and the assembly line, and no company can handle all steps.

Strategic relationships are needed to bridge the gaps.

*the end.

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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.

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To be continue at:
Forming Strategic Relationships -3