Strategic Alliance Magazine Q4 2017 - 45

GETTING
Exercise Your
Alliances to Trim
Inefficiencies,
Boost Value,
and Get Them
in the Zone
of Functional
Inefficiency

FIT
By David S. Thompson, CA-AM

Benjamin Franklin had it right when he said
a penny saved is a penny earned. This adage is

especially relevant in the context of alliances, given that
partnered activities are seldom more efficient than a "go it
alone" strategy of acquisition or in-house development. It
should come as no surprise, then, that astute alliance managers can save their companies much more than Franklin's
singular penny.
A key alliance concept is to push for thoughtful savings.
In other words, we try to reduce inefficiencies without
disturbing the effectiveness of an alliance. While it is typically more efficient to build or buy an asset, the process
is usually far more expensive and risky. Effective and efficient alliances exist in a zone that balances alliance risk
with some level of expected inefficiency. We call this zone
the functional inefficiency territory, or FIT.
Two important questions for alliance managers as they
seek to reduce inefficiencies are:
n How does one know where to spend time to reduce inefficiencies?
n How does one know when an alliance has entered the
functional inefficiency territory (FIT)?
In order to answer these questions, it is important to understand three key alliance concepts: risk, inefficiency, and
value inflection.
45
Q4 * 2017 | STRATEGIC ALLIANCE MAGAZINE



Table of Contents for the Digital Edition of Strategic Alliance Magazine Q4 2017

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