group even better , with a wider portfolio of products that can also contribute to simplifying how customers deal with the IP-related issues associated with these highly innovative products .
This sounds like a good collaboration , but a problem may occur when a smaller customer gets developed so well by FLS , that it becomes bigger and wants to be served directly by Philips ... or maybe Philips prefers to serve them directly . Of course , the decision between being served by FLS or Philips lies ultimately with the customer , whose choice is always respected , however unless such an topic is foreseen and a the appropriate procedure for handling it has been agreed with the partner , such a situation may become a demotivator for the partner , and a landmine under the alliance . You have to pinpoint such cases in advance and devise a solution that is beneficial for both .”
In alliances devoted to product development , Philips sets out milestones together with the partner . At each of these milestones the partners have the option of quitting the alliance or investing further . In case one of the partners chooses to throw in the towel , an arrangement should be in place regarding the intellectual property that has been created . Who is allowed to use it and for what purposes ? If one partner wants to sell it , then the other could for example have the right of first refusal . And what to do with intellectual property rights that have been contributed by one of the partners , and that the other one still needs after the alliance has been broken up ? During the alliance license agreements were in place to enable such use , and an arrangement has to be made – beforehand- that organizes the situation should a break-up occur ( e . g . a right to license of ( some of ) the IP , at some pre-agreed or market compatible fee , or perhaps a cross license ).
When partners act in different industries , they may have different business dynamics . Electrical appliances are generally bought for multiple-year use , so the market penetration of a new product tends to proceed relatively slowly . In the food industry and personal care , on the other hand , a product needs to be successful within a few months , if not weeks , or otherwise the supermarkets will take it off their shelves . It is easy to imagine what a challenge it is to build up a big enough installed base of the appliances ( such as Senseo coffee machines ), while at the same time introducing the corresponding consumable ( the coffee pad ) to the supermarkets and make it interesting for them to keep it on the shelves until the installed base of appliances is big enough to generate large and sustained demand !
Would the concept of a virtual alliance work here as well , or is such cross-subsidy limited to one-company solutions ? Ivo Rutten : “ If you share costs and revenues but do not bring the assets into the alliance , it is always difficult to determine the proper cost for certain non-tangible efforts , for example the sales effort . If we were to say that our cost of sales for a certain product amount to 20 %, then you need open book calculations to show your partner that this is really the case . And even if he believes you , he can disagree with you about the way you organise your sales or award bonuses . This is a complication when it comes to determining how much profit each partner made , and how to split it fairly between the partners . Generally it is wise to find an as-simple-as-possible mechanism that needs no complex bookkeeping , even if that simple approach is perhaps a little coarse or not entirely fair : better simple and pragmatic than complex and a potential source of conflict .
Sharing profits however , is of course the eventual driver for the alliance . Without that most alliances would not materialize . Besides sharing profit an Alliance may also be built on sharing risk , however .
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