Strategic Alliance Success Factors and Benefits in the Construction Industry

The construction industry, like  all sectors of commerce over time, is looking for ways to enhance performance and increase efficiency; especially in this changing world where innovation and modernization occur faster than ever. Building construction is a highly competitive and risky business. This competitiveness is compounded where conflicting objectives amongst contracting and subcontracting firms  set the stage for an adversarial, and potentially  destructive, business relationship. Clients, especially those from the public sector, need broader tender evaluation criteria to complement the traditional focus on the bid price. There is also a need for change in the construction industry-not only toward a more cooperative approach 

\a strategic alliance isn’t a walk in the park, but when done effectively and with the right degree of leadership and resources, the participating industries can win and create beneficial advantages and opportunities previously out of reach due to fast-paced changes and developments. In the segment below we will look at some fundamental success factors and benefits of strategic alliance in the construction industry.

 

Success Factors of Strategic Alliance:

Trust

A transaction view proposes that trust is a vital factor in a partnership, with trust seen as having the ability to lower transaction costs through preventing opportunistic behavior. This help partners to extend their view and have a long-term perspective on the relationship. Trust works as a trigger for various structuring, organizing, and mobilizing mechanisms that enable an alliance to fulfill an extreme performance outcome, so its proposed that the main factor in firm success is trust. However, disrupting the flow of information between partners could lead to an absence of trust, resulting in conflicts and coordination problems.

Commitment

Commitment is key for continuing a relationship and fulfilling desired outcomes in strategic alliances and has a positive impact on performance. Commitment and joint action are required to encourage recurring reciprocity in a partnership.

Sharing knowledge

Trust and commitment are identified as important precursors to the effective sharing of knowledge in strategic alliances. The benefits of sharing knowledge include decreased failure rates, increased productivity, and avoiding the considerable challenge of generating new knowledge.

Communication and IT capabilities

In virtual teams, a successful strategic alliance depends on effective communication and the sharing of knowledge between partners. The development of effective communication skills is important for facilitating links between allied partners, and information technology is a key factor in aggregating and exchanging essential information. This means that effective IT abilities are vital for achieving a high level of performance.

Dependency

Dependence refers to the extent to which a firm relies on its alliance partners for economic, social, and financial resources. To deal with uncertainty, the amount of information and knowledge that firm need relies not only on the number of activities performed, but also on the extent to which actors depend on others to carry out these activities. There is a suggestion that dominance by one partner might be better for performance.

 

Benefits of Strategic Alliances:

Increase client base and competitiveness

The synergy of bringing two different organizations together creates new and innovative solutions for expanding clientele and reaching new prospective clients.

New market entry

A strategic alliance will instantly boost brand awareness in a completely new market that an organization may not have previously had the potential to enter. For example, a franchise alliance allows an organization to provide an entirely different set of services to a market comparable on its own, helping the company expand its market size. A company can also benefit when its partner is well-established in a specific geographical area. This can cut years off of the geographic growth learning curve for that company.

Shared and reduced risk

Collaborating companies share the expenses and risks of a partnership approach. Businesses with comparable capabilities can compensate fir one another’s limitations through strategic alliances and vice versa. All resources may be pooled together to manage and reduce these risks when both companies collaborate toward a single objective.

Getting ahead of the competition

A new market partnership becomes a strong and vital force for competitors to fear and captivate clients.

Acquisition of new resources and enhancement of existing ones

A strategic alliances allow firms to access additional resources such as expertise, goods, or other assets while maintaining their primary responsibilities. Sharing the best of what each partner brings and combining it into something more significant than the sum of its parts creates economic power.

Creation of a new image for participating firms

The optics of a small business specializing in smaller construction projects by forming a successful partnership with a larger organization specializing in extensive projects profits from the latter’s reputation. The larger organization can also develop a softer image thanks their union with a local/smaller organization.

 

Bottom Line

Strategic alliances have many success factors and benefits for both parties. It is an excellent approach to stimulate development and profit sustainably. However, a company must thoroughly analyze their motives and expectations to ensure success.

HWA Alliance is here to Help!

An important factor of the construction industry is the decision-making required for development strategy. Executives must select a route to achieve sustainable growth and implement a well-planned business growth strategy.

Strategic alliances are a growing trend and a critical strategy in today’s construction industry. If you want to learn more about strategic alliances or dive into this approach, HWA Alliance of CPA Firms (HWAA) is here to help you. HWAA offers a wide variety of strategic financial advisory services to clients, with a focus on mergers and acquisitions (M&A) and strategic alliances. Our expert advisors will help determine the best type of inorganic growth for your company. We are dedicated to our client’s growth and success.


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