Strategic Management:

Harnessing the Power of Diversity

Joint Ventures (JVs)

Sharing Capital, Technology, Human Resources, Risks and Rewards

"Good fences make good neighbors"

– Robert Frost 

Why Joint Ventures?

As there are good business and accounting reasons to create a joint venture (JV) with a company that has complementary capabilities and resources, such as distribution channels, technology, or finance, joint ventures are becoming an increasingly common way for companies to form strategic alliances.

Sustainable Competitive Advantage

In a joint venture, two or more "parent" companies agree to share capital, technology, human resources, risks and rewards in a formation of a new entity under shared control.

Important Factors

to be Considered Before a Joint Venture is Formed

• screening of prospective partners

• joint development of a detailed business plan and shortlisting a set of prospective partners based on their contribution to developing a business plan

• due diligence - checking the credentials of the other party ("trust and verify" - trust the information you receive from from the prospective partner, but it's good business practice to verify the facts through interviews with third parties)

• development of an exit strategy and terms of dissolution of  the joint venture

• most appropriate structure (e.g. most joint ventures involving fast growing companies are structured as strategic corporate partnerships)

• availability of appreciated or depreciated property being contributed to the joint venture; by misunderstanding the significance of appreciated property, companies can fundamentally weaken the economics of the deal for themselves and their partners.

• special allocations of income, gain, loss or deduction to be made among the partners

• compensation to the members that provide services

The Role of the Business Architect

Business Architect is a person that initiates new business ventures or leads business innovation, designs a winning business model, and builds a sustainable balanced business system for a lasting success.

Business Model: 1+6 Elements

Business architects can be found in a multitude of business settings: corporate change leaders, initiators of joint ventures, managers of radical innovation projects, in-company ventures, spin-outs, or new start-up ventures.

Although the settings in which business architects act are different, they all design and run a new venture to achieve its sustainable growth.

Human Resources (HR) Action Steps to Prepare for a Successful JV²

• Business Strategy. Begin with a sound, well-articulated strategy.

  Before moving forward, determine and explain why you wish to enter into a joint venture, why you have chosen your partner(s), and what you hope to achieve. Define involvement (managerial, capital, etc) of the parent companies and how long the JV will last.

  Put in place strategies to define governance, accountability, decision-making process, and conflict- and issue-resolution procedures. Ensure buy-in and participation at the highest level. Consider outcomes: what could cause you to terminate the joint venture, and what is the preferred exit strategy.

• Human Resources (HR) Strategy. Develop HR strategies that align and support the goals of the JV: develop a distinct identity and culture for the new organization; communicate aggressively to employees; and establish distinct career paths, management, and a means of return for employees transferred to the JV. Create compensation, incentive, and retention programs tied to the success of the JV. Maintain open communication between the HR departments of the parents and the JV.

• Leadership. Define a process for leadership selection that's seen as fair and credible, and name top-tier leadership as soon as possible. Look for key indicators of leadership potentials such as behavior, past experience, and measurable outputs.

• Communication. To engage and motivate your employees, communication should be frequent and used to create a common vision, establish a connection with leadership, explain the new rules, support the individual transition process, aid in retention, and ultimately, define the new organization in terms of "We" instead of an "It" or "They". Share as much information as you can, and never sugar-coat or make false promises.

• Talent. Make the identification, retention, and motivation of the key talent a top priority. As times of uncertainty can lead to defections, take strong counter-measures to prevent them. Paying close attention to the specific skills, knowledge, and behavior that will be required to achieve the new organization's business objectives, identify the key players in both the parent companies who will be needed during the transition to a joint venture organization and beyond. Be aware of which employees are most at risk for recruitment by other organizations and collect data on the causes and costs or turnover that might influence which employees to target and which retention practices to implement. Conduct employee research to help the new organization determine what matters to employees and can serve as the foundation for all programs and incentives.

Strategic Business Partnerships...

Choosing a JV Governing Structure...

Three Possible JV Governance Arrangements...

Preparing a Business Plan...

Operating an International Joint Venture...

Common Reasons for Joint Venture Difficulties...

Factors that Contribute to the Poor Track Record of Joint Ventures...

Eight Conditions for Trust Between Organizations...

Human Resources Strategies...

 Case in Point  Diamond Associates...