REDISTRIBUTION OF WEALTH

For nearly a decade I have advocated the use of strategic alliances and joint ventures for the purpose of creating synergy and innovation. During that same time period many executives have been heavily engaged in pursuing mergers and acquisitions. While this management practice has been beneficial at the corporate level (most of the time) it has resulted in stagnant economies all over the world as M&A’s merely redistribute the wealth.

Alliances and joint ventures are most often formed by two or more organizations who see a strategic opportunity but needs or wants to join forces to take advantage of the unique opportunity – either because it lacks the resources and abilities to pursue the opportunity alone or in order to mitigate risk. Once formed, new products, services or marketplaces often result from the collaborative effort. Thus, synergy is created to generate new revenue or wealth from areas where revenues most likely would not have resulted had the companies acted independently.

Instead, most companies have been engaged in mergers and acquisitions. In many instances (DaimlerChrysler and AOL/Time Warner) the transactions often result in an erosion of shareholder value. In few instances do mergers and acquisitions result in creating new wealth instead of shifting or redistributing funds from one shareholder to another.

In order to not only recover from the current economic downturn, but also strategically prepare for the short- and long-term future of the organizations and the economies in which the companies operate, companies should be forming strategic alliance and joint ventures today. I know the urge to acquire is great, particularly now with so many companies valued so low (and there may be instances where M&A’s can be the right strategic move) but cash flow, stock and other management resources may be better used by forming strategic alliances and joint ventures that are designed to earn new market share as soon as the economy begins to recover.

For the next decade, organizations should be concentrating more on strategic alliances and joint ventures and less on mergers and acquisitions for long-term growth.