Do Joint Ventures Ever Work Over the Long Term?

My best guess is that many people would answer that question in the negative. The reality is that you could build a case to support a “yes” or a “no” response to that question. Based on my experience, however, my answer would be an emphatic and resounding “YES!”

There are many lessons to be learned by studying the companies that have formed successful alliances. While not identical, there are a significant number of key factors that are common to all of them. Not surprisingly, the lessons learned fall into four main categories: planning, negotiating, managing and improvement.

Planning: The successful companies dedicated a considerable amount of time and effort to planning. In almost every case, they formed a multi-disciplinary team to evaluate several key aspects of the alternatives available to them. I’ve always proposed that the first alternative to consider during the planning phase is what I refer to as “do nothing”. I believe that always should be the base line for analysis of alternatives as it may turn out to be your best alternative

Early on in their planning, these companies also recognized that a major commitment of resources was required to succeed — people, technical and financial resources. This is one area that tends to be underestimated by many companies and results in failure of many ventures down the road. In addition, these companies recognized that the parties to the venture needed to agree on, and stay focused on, a common “vision of success.”

Negotiating: While each “deal” is unique and while negotiating is an art form rather than a science, there are some common threads of advice to be learned from other companies’ experiences during this phase of venture formation.

For example, these companies determined that major blocks of time needed to be spent on building and developing relationships during negotiations, including upper management personnel to ensure contact with key decision makers. They further discovered that it is critical to develop close, personal relationships and to maintain stability of personnel involved during the negotiating and subsequent phases of the venture.
Managing: During this phase, the most valuable lessons learned by those who succeeded were: that trust needed to be established between the alliance partners early on in the arrangement, and that the best of each party’s culture should be assimilated into the venture.

True success only came when the venture had a culture of its own and when personnel transferred from the parent companies learned that their allegiance belonged to the venture company. Also, while the parent companies are important to the success of the venture, they become like shareholders, needing to be satisfied, but not involved in day-to-day operations.

Improvement: The key to continuous improvement was determined to require a formal process for documenting, communicating and implementing lessons learned so that other ventures could avoid many of the pitfalls discovered by those that had been there before.

In summary, the key lessons learned included the following:

• Patience and commitment of resources are required over the long term.
• Communication is necessary at all levels of the organization.
• Differences in corporate cultures can present significant obstacles to success. The parties should accept the best elements of each party’s culture.
• The venture organization should be left to run its own operations without undue interference from the venture partners.
• Compensation should be related to the success of the venture company and not to the venture parties’ practices.

Thoroughly evaluated the opportunities and the risks associated with joint venture relationships before embarking