Many banks and financial institutions have been considerably weakened by the financial market crisis and now cannot afford to be highly innovative and take excessive risk. These financial institutions may under these circumstances consider alliances as an alternate approach to strengthen their position in the market.
Similar to the survivors of a bad storm, many financial institutions have emerged from the crisis with much help and are now beginning to recover. The stronger, healthier survivors may be in a position to consider strategic acquisitions to place themselves in a favourable strategic position for when the business cycle begins to turn. However, new regulations are being written with the intention of making financial markets safer and implemented in stages over the next few years. Undoubtably, these regulatory changes will have a dramatic affect on how banks and financial institutions do business.
As the regulatory rules change for banks and financial institutions the regulators will increasingly make their presence felt. Even if financial institutions do not like these changes, they must and will adapt to them. Regulators are under scrutiny by governments and the public to prevent excessive risk taking and innovation by banks and financial institutions. Revised regulations will give Regulators extra tools to squeeze and shape market practise. Objections by those who are subject to these revised regulations will do little because they are without a doubt here to stay. It becomes obvious then that banks and financial institutions are left with little option but to play the hand that they are dealt.
Struggling banks and financial institutions are unlikely to be as bold as the few who can look to strategic acquisitions in a traditional sense to place themselves for the inevitable economic recovery. For these institutions alliances may be an alternative strategy that could yield unexpected benefits if they are carefully considered.
By nature alliances are fragile. However, to make sure a successful alliance is achieved, Rosabeth Kanter of Harvard Business School discussing alliances proposes Eight I’s to be considered when forging alliances with other organisation’s. Briefly, the points to consider when forging an alliance are:
- Individual excellence: Both sides must bring their strengths to alliances and neither can be expected to prop up the other.
- Importance: In alliances the relationship must matter strategically to both sides.
- Interdependence: You need to need each other.
- Investment: Have a stake in the partner’s success.
- Information: Transparency strengthens alliances and hiding information will impede trust.
- Integration: Create several points of contact across the organisations.
- Institutionalisation: A formal structure can aid in objectivity and make sure that alliances work for both sides.
- Integrity: Trust is critical and ethics are a must.
By taking account of the Eight I’s when considering alliances, a trustful relationship of mutual support with agreed common beneficial goals can be established. Considering these principles can do little harm to alliances when the parties need it to be successful.
It is understandable that the increased oversight by regulators has caused banks and financial institutions to become more circumspect and cautious in their dealings. Banks and financial institutions expect Regulators to be watchful and ready with an arsenal of measures at their disposal to use if they think it necessary. It follows that every measure that can be taken to achieve the success of alliances should be considered. The Eight I’s are sound advice but alliances are unique relationships and all parties must continue to work hard in many other ways as well to make sure that their alliances are and stay successful.
Any poor decisions reached when forging alliances can end up becoming very costly to all parties involved, especially if the alliance ends up unsuccessful. Reducing this risk once the alliance is formed is often not possible. By reaching agreement on the Eight I’s as a minimum before the formation of the relationship will increase the chance of ongoing future success.