Strategic alliances have become a fact of life in financial services; managing them effectively is a whole different story. Different from "traditional" outsourcing relationships of years gone by, where financial institutions off-loaded back-office functions to third parties, today's strategic alliances formed between financial institutions and technology companies and consulting firms focus on front-office, revenue-generating activities.
The significance of such alliances, crafted and executed with an institution's business objectives in mind, is that they can and do lead to faster penetration of new markets, acquisition of new customers, greater market share and lower distribution costs.
Financial institutions are increasingly sharing the risks and rewards of new ventures by entering into strategic alliances with technology companies. The caveat: Alliances hold as much peril as promise for financial institutions in that, for most industry players, the greatest challenge lies in how to effectively manage them-over time and against the backdrop of changing market dynamics, notably new competition from non- financial players who see enormous opportunity in the electronic banking, brokerage and payments arenas.
It's a management issue for senior executives that deserves more than mere lip service. Understanding the changing nature of these relationships- alliances often involve working with technology companies that can be partners and potential predators in one-is what counts as financial institutions evaluate new opportunities in the marketplace and how to capture them.
A recently published report from Andersen Consulting, called "Strategic Alliances in Financial Services," says that many banks will enter into "50 or more alliances in the next three years, with these alliances accounting for as much as 50 percent of revenue." The average large U.S. bank today has 30 alliances, up from 12 alliances a year ago. This explosive growth has created its own excitement in the marketplace, at times derailing analysis of the real value and risk derived from such business arrangements.
After interviewing more than 40 senior executives in financial services, the authors of the report found that strategic alliances can benefit industry players in the following ways: to capture value; to strengthen channels; to gain scale; and to bundle products. But obvious benefits of the "alliance phenomenon" can be offset by financial institutions' inability to manage the growing number of partnerships they form. One interesting point: The more alliances a firm has, the higher its return on capital employed-up to a point.
The report gives detailed insight into the far-reaching implications of strategic alliances and how to "manage the alliance portfolio." If you plan on being a serious contender in financial services, take a look at this report. Then size up your institution's existing alliances, their complexity, what they mean to your business today and where they can-or can't-take your business tomorrow. It could be the most strategic thing you do all year.