First, Look At The Purse

A strategic alliance, like a customer relationship, must generate a measurable return on investment.

One thing about strategic alliances: When they fail—and they usually do—they tend to do it in conclusive fashion. Once the deal is announced, strategic priorities typically change, key employees move on, and in the end, all there is to show for the effort is a yellowed press release and an exchange of business cards.

But what about those alliances that arent out-and-out losers? The ones that actually manage to generate some revenues and potential revenues for both parties? Gauging the true performance of these alliances is trickier, because the traditional criteria—joint sales, generated leads, number of certifications and trained employees—dont measure the partners actual return on investment.

"One of the interesting things that companies are beginning to look at is how to recognize the value of a strong, strategic relationship in comparison to an ad hoc, distribution-type arrangement," says Danny Ertel, CEO of Vantage Partners, which recently completed a cross-industry study of 150 corporate alliances.

In conversations with one client, a consumer products manufacturer, Ertel has been exploring a different way of recognizing the business value of a strategic relationship. This approach calls for "book-ending" the attributes of such an alliance. At the high end, what does a company do better or faster by virtue of being in a strategic relationship? Does a long-term partnership improve product quality or speed decision-making? And, on the low end, what does a strategic alliance accomplish less well than a routine one-off deal? Does a strategic relationship entail longer cycle times and higher costs?

"This cant be just a paper exercise," argues Ertel. "If you take the time to go through every item on the list, you have some basis for determining return on investment. You can manage against the strengths and weaknesses of the partnership."

Donna Troy, the recently-named CEO of partner relationship management (PRM) software vendor Partnerware and former head of IBMs software alliance program, concurs fully.

"If a go-to-market alliance cant produce an ROI, then youve got a poorly defined relationship that is bound to fail," she says.

High-tech companies that are working to generate ROI for their strategic alliances say the process must begin with, well... a process. A process that mirrors the formation of a stand-alone business.

Siebel Systems, which numbers roughly 54 strategic, go-to-market-type relationships among its 771 global partnerships, has got this process more or less down to a science.

Within the first 60 days, explains alliances VP Mercedes Ellison, who runs a 170-person organization, the partners sit down and write a joint business plan, which lays out revenue and market share targets, breaks down the vertical and geographical boundaries of the alliance, defines the workings of the deal pipeline and maps out the required infrastructure (training, staffing, and the number, location and equipping of solution centers).

"Against all these goals, metrics, accountability and tracking mechanisms that we put around the relationship, we stipulate what the dollar investment will be," says Ellison. "That way, nobody has to go around with a tin cup and beg for resources [once the relationship] is underway."

Then, every quarter, Siebel and its partner undertake a pipeline review, which examines how well the alliance is meeting its goals within the prescribed resource allotment. Here, Siebel applies a set of its own criteria in determining if the relationship is really paying off. One of those key metrics, says Ellison, is the percentage of closed deals stemming from partner leads. Typically, Siebel likes its partners to generate at least 40 percent of the joint sales.

"Were not quite there yet with all our partnerships," concedes Ellison. Currently, Siebels go-to-market allies are weighing in between 28 and 50 percent.

Siebel also employs third-parties to conduct partner satisfaction surveys, just like those it uses to gauge client satisfaction; it tracks the impact of market development funding on deal closings; and it monitors how well the investment in resources translates into sales quotas at the field level.

The data that comes out of the pipeline review process, suggests Ellison, is invaluable in running the 3 ½-year-old alliance program. It drives the decisions to upgrade, downgrade or mutually terminate partnerships.

Troy is likewise a big believer in setting clear goals, objectives and spending priorities upfront. In Partnerwares case, that means not only items like dedicated staff, market development funding and quotas, but defining every aspect of the pipeline management process—basic questions like how is cash flow managed jointly, and how does one partner cut a check to another?

"The key thing to keep in mind with these deals is that they are not cookie-cutter alliances, and the assets you devote to each of them are different," says Troy, whose company currently has strategic relationships with B2B software developer Comergent and an unidentified strategic consultancy.

This means setting a premium on the ability to collect and measure data points all along the "process-based systems infrastructure," notes Troy. Among those metrics that must be captured up and down that path, she adds, are lead closure rates; the time it takes for each step in the deal pipeline; and the costs involved in each of those steps.

In this pursuit, firms like Partnerware and Siebel have the advantage of possessing their own sophisticated PRM systems. "If you attempt to go through the process of defining, measuring and allocating resources manually, it will all fall apart," contends Troy.

Over at CompuCom, a product reseller still making the transition to outsourcing and integration services, theres an equally strong focus on trying to determine the payback from its go-to-market alliances.

Hope Griffith, a senior vice president at CompuCom, says the process of establishing return on investment is easier when the alliances yield real incremental revenue, from new geographies, new markets and new services offerings.

Benefits from a second type of alliance, however, are more difficult to track, says Griffith—deals driven by the brand equity of the partners. You cant just rely on the intuitive belief that these alliances add value to your customers. Here, you really need to establish firm upfront goals and easily measurable milestones.

"Alone, on an outsourcing deal, you might be able to promise the customer a 15 percent savings," says Griffith. "But together with a partner, you can guarantee that customer a 20 percent savings... so you need a way to measure the impact that extra capability has on your ability to close deals."

Mercedes Ellison of Siebel says that in a broad sense, her company has conclusively determined that two heads are better than one. Eighty percent of Siebels $1.8 billion in annual revenue is booked in conjunction with its partners.

"In the end, every alliance is based on what the partners want to get out of it and what theyre willing to put into it," she says. "We call it partner harmony. Its the core of our business."