TRP 350: Value Creation Through Strategic Alliances with Kyle Harkema

[00:00:10] You're listening to The Rainmaking Podcast, hosted by legal dealmaker, author, and professional speaker, Scott Love. Scott Love You're listening to The Rainmaking Podcast, and my name is Scott Love. Thank you so much for joining me on the show. One thing I've always done as an entrepreneur is having strategic alliances. I've been doing this for quite some time, probably about 13 or 14 years.

[00:00:40] And we're talking about value creation through strategic alliances. This is something I've seen firsthand that works. I'd recommend you start to look for those opportunities, and we're going to show you how you can make those work for you. Our special guest is Dr. Kyle Harkema. He's the author of this book, Strategic Clarity, The Practical Method for Transforming Vision into Results. I've read this book. I'd recommend that you get this also.

[00:01:06] This book is a research-backed diagnostic mirror that decodes how your organization truly thinks, listens, and acts. Because strategy lives in behavior, not plans. Kyle Harkema, who holds an MBA and a doctorate in business administration, he's a distinguished scholar practitioner with a wealth of experience at the intersection of academia and industry.

[00:01:29] With an academic foundation built on rigorous study and research combined with extensive practical experience in the business world, Kyle epitomizes the modern scholar practitioner. He's a professional who's not only understanding theoretical frameworks, but also knows how to apply them in real-world contexts. Make sure you connect with Kyle directly. We put all of his contact information in the show notes, as well as the link where you can order his book today. I'd highly recommend doing that.

[00:01:58] As always, this show is sponsored by SharePoint Legal Insights, turning legal intelligence into opportunity. The show is also sponsored by The Rainmaking Magazine. With over 40 authors contributing and sharing the best ideas in client development, check it out. It's absolutely free. Therainmakingmagazine.com.

[00:02:17] Also, if you're a transactional partner for law firms and you want ideas that can help you maximize your deal flow, attend our live half-hour webinar events, where I interview a different author or business development coach for lawyers each month. Visit rainmakingseminars.com to get on the list. Your info won't be shared with anybody outside of our organization. And now here's our guest, Dr. Kyle Harkema. Thanks for listening. This is Scott Love, and you're listening to The Rainmaking Podcast.

[00:02:46] Our special guest today is author Kyle Harkema, and our topic title is Value Creation Through Strategic Alliances. Kyle, thank you so much for joining me on the show. Thanks for having me, Scott. It's a pleasure to be here. You bet. I'm excited about your book that you wrote called Strategic Clarity. I've read this. I'd highly recommend this to anybody that's running an organization or maybe you're running a team within an organization. It's the same thing. You've got to have a strategy and you've got to have clarity. We're going to talk out of all the different chapters that you have, the 15 chapters.

[00:03:16] We're talking about Chapter 7, Value Creation Through Alliances, Collaborating for Success. So let's dig into that, Kyle. Let me ask you this. What could you give us in terms of a definition of an alliance or a strategic alliance between two or more professional organizations, two or three or more different entities? Yeah, absolutely. I think I would go back even one step further and say why are alliances even important in the first place, right?

[00:03:43] And for me, usually it's because neither organization can create as much value alone as they can together, right? So one company may have, for example, the customer relationship and another has the technology. Or one has distribution and another has specialized expertise. The alliance then makes sense when that combination creates something that neither of them could efficiently create on its own.

[00:04:12] So I think if you're asking me for a definition, that's what it would be. The combination creates something that neither side could efficiently create on its own because then the strategic rationale is only the beginning. The harder question is whether the two organizations can actually behave in a way that allows the value to emerge as well. Right. Right.

[00:04:35] What do you think are some of the main pitfalls for leaders of organizations when they see an opportunity and they want to have some sort of a deal in place? What do you think the major impediments and pitfalls are they need to watch out for? Yeah, that's a great question. And there are several.

[00:04:49] I think alliances still fail, even though they may be sensible, because leaders often equate the economics of the alliance, but they underestimate maybe the behavioral system required to make it work. So on paper, when they're mapping it out, their functions, their capabilities, they fit beautifully.

[00:05:12] And then maybe one company optimizes for speed and another company is optimizing for something else like control. One prioritizes maybe customer responsiveness, while another is prioritizing standardization and SOPs. So one may be willing to experiment and the other wants certainty before committing resources.

[00:05:35] So that's where I see a lot of a lot of strategic alliances fail because nobody has to be incompetent for that alliance to struggle. You give a couple of examples in your book on page 151. You talk about Spotify and Uber, Apple and Nike. Talk about those. What what how did that deal happen and what was what was the benefit for all the parties involved? Yeah, absolutely. I think one of the I want to tell another story. Sure.

[00:06:03] Maybe one that wouldn't be found in the book, right, because I certainly want people to read the book. So I worked for a manufacturer that had a strong product, but had a limited reach into its particular market. So that manufacturer formed an alliance with a channel partner that already had a lot of trusted customer relationships that had local market knowledge and access to buyers that the manufacturer struggled to reach.

[00:06:32] And on paper, it was perfect. So the manufacturer brings their technology. The partner brings their market access. OK, so everybody expected growth. But six, seven months and the relationship started getting really frustrating. And the manufacturer was saying, well, why aren't we selling more? And the partner saying, well, you're not giving us what we need to sell it. And then leads were getting passed back and forth. Customer information was maybe not traveling cleanly.

[00:07:01] Nobody is quite sure who owns the follow up. So the manufacturer measures their success via product revenue and the partner measured via their margin and their account relationships. So that's when the alliance began to break down. The problem was not the strategic logic in the partnership from its outset. The problem is they never had a shared operating logic around the value that they were going to create together.

[00:07:31] So what I would say is instead of asking, how do we get our partner to sell more? They need to step back and ask a different question. What value are we trying to create together for which customer? And once the partners agree on that, then they can work backwards and start to ask what opportunities should go through this alliance? Who owns the customer and at what stage? What information needs to move between your organizations?

[00:08:00] And now the alliances start to behave differently, right? When you have your success defined and then you start working it backwards, it works so much more smoothly. So the manufacturer stops treating the partner like an outsourced sales force and the partner stops treating the manufacturer just like another vendor. So that's when the alliance starts creating value instead of just merely sharing revenue between each other.

[00:08:29] So does that make sense? It does. It's very deep. And there's a couple of things I pulled out of that. I think one of them is I want to talk about these. One of these is trust between the entities. Absolutely. The other one is the leadership effectiveness of those leaders that can really get the teams internally to work effectively. And the third are key performance indicators, different metrics. Let's talk about that. Let's talk about key performance indicators because you touched a little bit on that and how people measure that. When you have an alliance, should that be a point of discussion with your proposed partner when you start the alliance?

[00:08:59] I think so. I think it has to be because if you're not defining success together, then it's going to be you're really off to the races at a disadvantage right out of the gate. And, you know, for me, I look for a few things. To your point, you know, KPIs. But I look for complementarity. Does each partner bring something that the other genuinely values?

[00:09:28] And then another thing is, is there clarity about the value that's being created? Who is that customer? What problem are they solving together? And why is their combined offering better than what either of them could offer individually? And then undergirding that is the behavioral alignment around the decisions that matter most. So to me, going back to your point about KPIs, that's why a lot of organizations just look at the lagging KPIs.

[00:09:57] They're looking at the things like, OK, what's the EBITDA? What kind of revenue are happening? But they often will omit looking at what are the leading indicators? Like, leading indicators, what are the health indicators that need to be present to make sure that the relationship is maturing as it should and not just jumping right to, OK, did we hit our revenue mark? I think an effective executive can keep their thumb on the pulse of that all along.

[00:10:24] Somebody that's truly effective within the organization can really share that info with their team and their strategic alliance partner. And I think the key, and you talk about this on page 149, is the role of trust in strategic alliances. Talk about that. How is it that here we are, we have an idea, maybe we have a loose affiliation with this other company, and we want to establish, let's just take it from the beginning.

[00:10:52] We want to establish a potential strategic alliance. How do you think they can go about doing that, and how do you think they can build trust with that other organization as that opportunity matures? Absolutely. And trust building is absolutely paramount importance. So, for me, what I coach leaders on is asking five questions to help build that trust.

[00:11:17] So, the first question would be, what value can we create together that neither of us creates effectively alone? And again, going back to trust, these need to be answered openly and honestly and without ego, which is easy to say and can sometimes be a little bit more challenging in reality. So, the second is, are our incentives actually compatible? OK, so that's an important thing to think through.

[00:11:46] The third would be, do we agree on who our customer is and what they value? Fourth is, how will decisions be made when our priorities conflict? And that goes right to that heart of trust, because eventually in a strategic partnership, there may be priorities that emerge that conflict that they didn't see going into the partnership. And then lastly, what behaviors will tell both of us in six months from now that the alliance is actually working?

[00:12:16] Because a lot of alliances, they spend a lot of time on that first question, right? Which is the value creation that neither of us can create alone, but they don't spend time on those other four. And those are really, to me, the undergirding of that trust factor. Wow, that's fantastic. Let's just say this alliance takes place and all these things have been kept in mind and it looks so far so good.

[00:12:44] But there's some potential conflict. How do you think they can resolve that? Absolutely. So for me, I think knowing and identifying those warning signs that the alliance is not working is very, very important. So this is where those behavioral indicators really matter. So some things that I would encourage both parties to look at are your meetings starting to multiply? Is your decision velocity slowing down?

[00:13:12] Are the same issues getting reopened and rediscussed when you thought you had solved them three meetings ago? A big one that I see a lot is, has the information stopped flowing cleanly between organizations? It may start really clean, really streamlined, and then it stops. And then are people protecting their own company instead of solving the customer problem, okay?

[00:13:39] Because those commitments can start to become a little ambiguous. And eventually what can happen is both sides say some version is, well, that other partner, they just don't understand how we operate, right? So now we start looking internal and it becomes a little adversarial. So those are some of those leading indicators that the partnership is starting to break down and maybe there wasn't enough clarity around it going in.

[00:14:04] I think it's always good to have not just a contract, but to have trust because the contract doesn't mean anything if there isn't any trust. And some of the best alliances I've had, because that's something I actually look for in the way I phrase it in my own strategy of having my own small business is not just who can help me, but who are the people where I can be of value to them? What do I have that can help them and then approach them about an alliance? And some of the ones we've had have just been a handshake or a conversation.

[00:14:31] Then others where we have a formal structure in place, because I believe that a contract preserves the friendship that you have. Because memories are short, people forget. And when there's something that memorializes it. But let me ask you this. Let's say that, well, tell me a story of an organization you've worked with on strategic alliances. What were the problems that they were looking to solve? How did they connect with their potential collaborator? What action steps do they take to really achieve success? And what was that success over time, Kyle? Yeah, absolutely.

[00:15:00] So I'll go back a little bit to the story that I alluded to earlier with the manufacturer with the strong product. Obviously, I need to maintain confidentiality. So I can't say who. But and then that channel partner and going to your first question of where did they meet? What I find is a lot of a lot of great meeting places are at industry specific trade shows. There's just a lot of networking that happens.

[00:15:29] So this particular meeting happened at industry trade show. And they ended up meeting at one of the one of the organization's booths and ended up going to dinner and really hit it off and started talking about, OK, we both are. We both have things that we can offer to a particular customer that neither of us can offer very well on our own. How can we make this work?

[00:15:57] So it's mutually beneficial for both of us. So, again, going back to that example, they did a really good job of asking the right questions up front, building that trust. Right. And then also spending time figuring out what are those KPIs and how are we going to define success? And one thing that I want to say about this, Scott, what I encourage when I'm facilitating these discussions is please don't set it and forget it.

[00:16:27] It needs to be revisited. Right. And I would suggest at least revisited on a semi-annual, if not a quarterly basis, to make sure that things are operating and the expectations are being held up from both partners' perspectives. Absolutely. Do you think in some strategic alliances, is there any revenue share or fee share? I know some entities, there's regulatory aspects that keep that from happening. But what have you seen in the past? Yeah, absolutely.

[00:16:53] To your point, it really is idiosyncratic to the industry. Right. You need to make sure that you're not, you know, breaking any laws, of course. But then there's also norms in specific industries where things tend to be more commonplace. So, yes, I've definitely seen revenue share. And that can look like a variety of different things.

[00:17:17] Sometimes there's an initial licensing fee up front, depending on who's bringing what piece of value to the partnership. So, there could be licensing. There can be revenue share. There can even be, I've seen organizations do a spinoff joint venture together where they bring different parts of their organization to actually spin up a separate organization with a specific mandate. Interesting. Interesting. That's great. So, tell me more about your book.

[00:17:47] Because, like I mentioned, this is only one chapter that we discussed today. What problems does your book solve? And who is your book written for? Yeah, absolutely. So, you know, the book is really written for CEOs, for departmental leaders. And why I wrote it is I kept seeing the same thing over and over again.

[00:18:13] And this may resonate with you and with your listeners, Scott, is you spend days or several hours creating a good strategy with your leadership team. Depending on the size of your organization, that can be, you know, a few people, it could be 30 people. And everybody is excited in the room. We leave the room. We're energized. Everybody's aligned.

[00:18:38] And then six, seven, maybe eight months later, the organization doesn't look very different. And for me, at first, when I was earlier in my career, I thought it was a communication problem. And sometimes that's viable. But eventually, I realized that actually something else was happening. People were understanding the strategy, but they were translating it differently from their respective lenses.

[00:19:02] And that's a much different problem because the answer doesn't lie in the PowerPoint that gets rolled out to the organization in the town hall. Right. The actual answer there is much deeper and behavioral. And that's what I sought to solve with my work. That's great. Well, this is a fantastic book. Let me go over some of the other chapters that you have here. You talk about understanding entrepreneurial marketing, embracing entrepreneurial orientation, the role of market orientation.

[00:19:30] You spend a lot of time on marketing and then growth orientation, ambition and strategy, opportunity orientation, pursuing potential, two-way customer contact. We talked about strategic alliances, informal marketing research, market immersion, bringing it together and then enhancing firm profitability through strategic operations. I mean, we sound like we're in an MBA class now. Entrepreneurial marketing, common challenges, practical steps, and then the future of entrepreneurial marketing.

[00:19:58] So I think this is a book that anybody in an organization that wants to grow where you're involved in strategy. Like I said, even if you have a team of three or four people in a larger organization like a lot of people listening to this show do, this can help you grow. Absolutely. And I like the detail that you went into it. That's why we only wanted to talk about one thing today on strategic alliances. So as we bring our conversation to a close, Kyle, share us three action steps people can take to implement some of these ideas that you shared with us today.

[00:20:28] Absolutely. So going back to the book, thank you for the compliment on that. And I want to say to those who pick up a copy, fair warning, it is not an airport read. It's meant to be detailed. It's meant to be much more of a workbook than it is to be something that you read over a few hours on a flight. And there's deep value there. So let's go to the three questions.

[00:20:52] First, if you're looking at value creation through alliances, define your joint value proposition. So work with your strategic partner to finish this sentence together. Because our organizations are working together, the customer can now blank. Keep it simple, right? But what is that blank that gets filled in? And if the leadership team cannot answer that clearly, the alliance is probably not strategically mature enough yet.

[00:21:22] And then the second piece that I would say is build a strategic decision framework together. Identify a handful of decisions that are most likely to create conflict. So, for example, who owns the customer relationship? Who qualifies an opportunity? What does customization look like? Who absorbs additional costs that neither of us foresee going into this?

[00:21:48] What happens if speed ends up at conflict with quality? So those are some examples. Decide the criteria before those conflicts happen and how are we going to resolve these issues. And then the third piece is measure the behaviors that create your alliance. Don't wait for those lagging indicators like revenue. Look at whether the actual opportunities are flowing between the organization as you anticipated.

[00:22:17] Whether your customer intelligence is being shared, okay? And whether commitments are being met on both sides of the table. And whether those decisions are becoming easier or becoming harder. That goes to the thing that we talked earlier about. So if things start breaking down, you're going to start to need more meetings, right? The information flow is going to slow down. Be very conscientious of those things. Watch for them. This is great. Kyle, thank you so much for being here.

[00:22:47] And before we go, I'm going to mention to everybody, we're going to put all of your contact info in the show notes, as well as the book ordering link info in the show notes. But tell us more about your offerings and services. What do you have? What do you do that you'd like our listeners to know about, Kyle? Absolutely. Thanks so much for that. So I'd say the first and easiest place to start, obviously, is picking up the book, Strategic Clarity.

[00:23:11] I wrote the book so executives can understand the research and apply it without needing a doctorate to get through it. You can also find me at kylejharkema.com. So some of the services I offer, I work directly with CEOs. I also facilitate leadership alignment workshops and do various speaking engagements. And then I also do the deeper organizational work, which I call SOI Foundations.

[00:23:38] And what we do there is we diagnose specifically how your organization is thinking, listening, and acting. And we determine the strategic posture that fits your business and your context, and then translate that into behavioral change. Because ultimately, my goal is pretty simple. Make sure that your organization is actually behaving in a way that supports how leadership intends to compete in your specific space. That's great, Kyle. Thank you so much for being on the show.

[00:24:08] And I look forward to having you on in the future as a guest again. Scott, it's been a pleasure. Thanks for the great questions. And I look forward to being on the show in the future as well. Thank you for listening to The Rainmaking Podcast. For more information about our recruiting services for international law firms, visit our website at attorneysearchgroup.com.

[00:24:31] To inquire about having Scott speak at your next convention, conference, sales meeting, or executive retreat, visit therainmakingpodcast.com. Thank you. And I'll see you again.