Finance News: Advice line - Pesh Framjee on finance and governance

Q. A merger has been proposed, but I am concerned about the differences in size, culture and influence. What are the ingredients for success?

You are right to be concerned. It is now a recognised fact that a merger can be a high-risk strategy.

It is too simple to accept that because businesses are related they can capture synergy by merging. Not all marriages are made in heaven, and divorce can be costly. You might want to start with a strategic alliance.

A strategic alliance is a unique collaboration of organisations working closely together on areas of mutual interest to generate value not likely for any of the partners alone. In such an alliance, partners will retain ownership of their own organisations while contributing resources other than cash, such as access to volunteers, local knowledge, special skills, people resources or access to technology.

To begin with, I prefer the concept of organisations contributing resources without creating a new organisation, as is the case in value-chain partnerships, consortia, licence agreements and service-level agreements.

Be it a merger or a strategic alliance, any successful partnership requires: clarity of objectives, vision and purpose; complementary resources, expertise and values; and a strong governance mechanism to form the new partnership's identity.

Typically, the partners in a strategic alliance should be accountable for the success of all partners in the alliance, not just their own organisation.

What's new about strategic alliances is that organisations are making a greater commitment to one another, sealing their fates in a common long-term strategy for the alliance operation.

Pesh Framjee is head of the non profit unit at Deloitte and special adviser to the CFDG. No liability arises to the author, his firm or Third Sector. Send your questions to pesh.framjee@haynet.com.

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