11 Dec 2007

Alliances frail but worthwhile

There are three ways to generate growth in a company: organic growth, mergers and acquisitions, and alliances. But beware – partnering is harder than you think.

The convergence of traditional security devices and modern IT are forcing security companies to step up the learning curve. 

The necessary skills, competencies, and product and solution offerings, can typically be obtained either by organic growth or mergers and acquisitions. But both options pose some challenges, says Paul Pierce, author of a report, published by LUSAX, a joint research program between Lund University in Sweden, ASSA ABLOY, Securitas Systems and Axis Communication. “Organic growth typically is slower. Acquiring another company is a faster way to achieve scale and reach, but it can be costly and consume a lot of time and energy,” he says. 

Joining forces
The traditional security market is very fragmented, and no one company dominates the market the way, for example, Cisco does on the IT side. There are several companies that have one or two percent of the market and that makes it difficult for them to expand through acquisitions. They simply don’t have the financial muscle to do it.  

Alliances seem to be a way to get around some of the obstacles. In the LUSAX study, the industry experts identified the following reasons for partnering:  

Better utilization of resources (economies of scale and combining resources, lower transaction costs).
Increased coordination (companies may seek collaboration to increase coordination and control of previously uncontrolled parts of the value chain or to facilitate learning and knowledge sharing).
Positioning a company for possible future developments (companies may seek cooperation with technological leaders on an upcoming market. The alliance can be seen as a precursor to an acquisition).
One example
Intransa, a California company that offers scalable IP storage solutions, believes that partnerships are essential for its business. It recently entered an alliance with Atempo, a pioneer of data-protection software solutions, to create a solution that combines Intransa’s storage solutions and Atempo’s Time Navigator data protection software. 

“Intransa’s partners are typically proven industry leaders, who have demonstrated through years of experience that they truly support their customers, as well as new, up-and-coming vendors with ground breaking technology that can help address existing problems in new ways,” says Jeff Whitney, Vice President of Marketing at Intransa. 

“Partnership is about adding value to the end customer. If there is no value to the customer in the partnership, it doesn't matter how great the partnership seems to be for those involved,” he adds. 

Win some lose some
While alliances provide a fast way to win new ground, they are far from perfect. According to statistics, about 70% of alliances fail. Pierce says some of that is just a matter of definition: “If I buy your company and the alliance ends, is that a failure?” But he cites that at least half of all alliances do fail. 

“What is interesting is that about 20% of the companies have a success rate of 80%, while another 20% of companies have a failure rate of 80%,” Pierce notes. 

Successful alliances, he adds, are built on long-term strategic goals and a shared vision of market and product development – not just on trust and friendships. “A successful alliance is built on learning and transparency. Most have a learning organization, an open culture, change management procedures and excellent documentation.” 

That, and realistic expectations, as Whitney concludes: “Market conditions change, and not every partnership that looks good on paper really makes sense in the real world of security. Companies that are truly committed to supporting customers – and not just to their own short-term bottom line – form partnerships that make sense for their customers and make the long-term commitment to see them through.”