Organizations today face an increasing need to start or join a network of alliances and joint ventures. The formation of alliances has exploded and it is now thought that they are being formed at the rate of tens of thousands each year (Robert Spekman and Lynn Isabella, Alliance Competence, John Wiley, 2000). Virtually no one goes to market alone anymore; it’s too costly, too risky and too slow.

The rising stream of deals has created new imperatives. Given a heightened need for speed, companies must assess partners and structure relationships virtually overnight. At the same time, the reasons for forming deals are changing. While some partnerships seek to accomplish age-old objectives, many of today’s deals are driven by goals that are very different than before, and often in subtle ways. As a result, firms need new methods-and new information resources-to uncover competitors’ motives for partnerships, and to clarify and select their own deal rationales. Many executives charged with planning and executing partnership activity feel increasingly challenged as they realize that old ways of deal making are no longer adequate. This article explores how executives can design deal strategies and rationales that drive their firm’s array of partnerships.


In 1993, eight principals formed Shattuck Hammond Partners in New York City to provide financial advisory and bond underwriting services to hospitals and healthcare systems. Over one decade, the firm grew into a leading financial advisor to the healthcare industry. By the year 2000, Michael Hammond, CEO of Shattuck Hammond (then a division of PricewaterhouseCoopers), sensed that the Internet would eventually transform the bond market. He wanted his company to play a significant role in that development and understood that Shattuck Hammond would need an intelligent deal strategy to succeed. Over the next few months, Hammond and Keith Dickey, his chief knowledge officer, worked to develop deal rationales and identify potential partners that would allow the firm to attack the “e-bond” space.

On-line financial services had been dubbed “an industry made in Internet heaven.” A Morgan Stanley Dean Witter study published in 2000 projected that the brokerage subindustry of Internet financial services would grow from $2.5 billion in 1998 to $32 billion in 2003, reflecting a compounded annual growth rate of 67 percent (The Internet and Financial Services, Morgan Stanley Dean Witter, 2000). Although growth dampened after the Nasdaq collapse, the range of financial services on the Web continued to grow. But while many brokers moved to offer on-line equity trading, very few were quick to offer fixed-income products. Investment bankers and brokers, having created profits from an opaque, illiquid market, were reluctant to embrace the transparency provided by the digital economy.

The traditional structure of the bond market is transparent. Issuers establish relationships with financial advisors and then enter into arrangements with third-party underwriters to develop, market, and distribute their debt instruments. These securities are then pushed through intermediary broker-dealers and institutional investor channels. Finally, after many hands have taken pieces of the profit, fixed-income investments reach retail investors. But e-bonding could potentially cut out a number of steps. Through on-line bond auctioning, an issuer such as a hospital or municipality could sell directly to retail investors. Of course, intermediaries, including large or regional broker-dealers and institutional investors, could also participate in auctions.

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How could a smaller player like Shattuck Hammond reposition itself through partnerships to build a share of the e-bonding market? The firm ultimately wanted to facilitate a direct-auction relationship between issuer and retail investor. Retail brokerage firms like Charles Schwab had aggregated millions of such investors. Volatility in the stock market was causing many investors to see the need to allocate a greater portion of their portfolios to high-quality fixed-income investments. And tax-exempt issues (one of Shattuck Hammond’s areas of expertise) were suited to retail investors, given that corporations did not enjoy many of the tax-shielding benefits these investments afforded.

The company first identified the strengths it brought to the table– core competencies that included a history of relationships with healthcare issuers and rich experience and knowledge in the fixed-income market. It then identified two key rationales for partnerships, each of which represented a vital, complementary value-adding activity to support Shattuck Hammond’s goal of creating a direct, issuer-to-investor value path:

  • The need to partner with companies that had aggregated retail investors educated about the bond market
  • The need to develop a bond-auctioning Web site with the help of a technology partner.

If Shattuck Hammond could build strong partnerships in these areas, the company would be able to offer issuers a compelling value proposition. It would provide a novel way to market tax-exempt bonds that could save issuers substantial interest costs through a direct-to-retail model. Retail investors could bid on new issues at lower interest rates than broker-dealers or institutional investors, while still enjoying a higher interest rate than they would have to pay after purchasing the bonds with two or three channel mark-ups.

Who should Shattuck Hammond partner with to access retail investors? The company identified a universe that included dozens of companies; only a few made the short list. Charles Schwab, which had amassed more than 3.5 million on-line retail investors, was particularly attractive. Preliminary discussions with Schwab indicated that the company was gearing up its marketing efforts for fixed-income securities.

Shattuck Hammond also researched companies developing auctioning technologies and found that there were two types of players they could consider. First, there were companies building sites that focused exclusively on auctioning municipal and tax-exempt bonds, such as MuniAuction (later renamed Grant Street Group). In November 1999, the city of Pittsburgh became the first municipal issuer to use MuniAuction’s technology to competitively bid bonds directly to both traditional broker-dealer firms and to institutional investors (but not to retail!). Second, there were general auction-enabling technology companies such as Moai Technologies.

Shattuck Hammond signed an agreement to test MuniAuction’s technologies and also considered partnership discussions with Moai and others. In September 2000, Shattuck Hammond successfully conducted its first Internet bond auction: a $44 million revenue bond issued by the World Wildlife Fund. Over the next year, the firm conducted over five on-line municipal auctions valued at more than $250 million.


Often, the biggest challenge that firms face involves developing deal rationales, an integrated set of goals for partnerships. Deals must be grounded in a well-considered strategy, which, in turn, is rooted in exceptional market knowledge. Firms should consider a three-part process for selecting deal rationales:

1. Identify core strengths and value activities in a market where a company enjoys distinctive skills and capabilities.

Firms should begin selecting deal rationales by taking stock of their existing strengths. Clarifying core competencies helps identify deal rationales in two ways. First, it allows the company to identify competencies that make it valuable to a prospective partner. A company can promote these areas when sourcing and structuring deals, as competencies will attract partners and provide negotiating leverage. For example, Shattuck Hammond identified its core strengths as privileged relationships with healthcare bond issuers, and rich experience in the fixed-income market. Both strengths could entice technology and on-line retail transaction partners. Second, clarifying existing core competencies will uncover areas of weakness that need to be shored up with new partnerships. A good deal can be the quickest way to close capability gaps.

2 . Select a guiding strategic vision for how and where to compete.

Deal rationales must be ultimately grounded in a guiding strategic vision that articulates how and where a company will compete. This vision will strongly influence the types of deals to be pursued. Let’s take a look at how three different visions suggest developing different rationales.

First, a firm can follow a strategy of specialization by focusing on a single core strength or niche. A firm choosing this strategy needs to craft deals that team it with partners in other crucial activities of the market. For example, in pursuing a specialization strategy built around relationships with tax-exempt issuers, Shattuck identified two other “choke points” in the value web where it needed key partnerships if it were to succeed. These two were auctioning technology services and access to aggregations of on-line retail investors.

A second strategy, horizontal massification, seeks to build scale in a particular market activity. Under this strategy, firms are likely to acquire other companies or competitors to consolidate an activity slice in a value web. For example, America Online’s merger with Warner Music/Time Warner and its attempted control of EMI reflected AOL’s desire to build mass in music content. Firms following this path may also want to strike deals that stimulate demand for their activity slice of the value web.

A third strategy, vertical integration, seeks to assemble or significantly control all major activities in a market-value web under one umbrella. Often, the goal is to secure a competitive advantage through superior information. In essence, a vertical integration strategy allows a firm to iron out all the inefficiencies in the value web by controlling information gathered in each activity area. To succeed, a firm following this strategy needs to structure deals to gain a controlling end-to-end presence in the value web. Blockbuster Video is pursuing a vertical integration strategy in an attempt to morph its well-known brand into a vertically integrated on-line video distribution system. To execute this strategy, Blockbuster needs to form deals at both ends of the digital value web, securing more content and accessing an audience of viewers. Its deal rationales have reflected these goals.

3. Buttress the deal strategy with partnerships in complementary value activity areas that support key functions such as marketing, operations, finance, or organizational design.

The final step is to select deal rationales in value activity areas that bolster key business functions such as marketing, operations, finance, and organizational design. For example, Shattuck Hammond’s proposed alliance with Charles Schwab is designed to support marketing efforts, whereas its deal with MuniAuction is to provide auctioning technology. Deal stewardship linked to specific functional goals is vital to partnership success.


After a firm identifies which deals to pursue, it must select specific partners. An initial list of potential targets can be obvious. Yet, in almost all cases, a thorough analysis of the players adds candidates.

The universe of potential partners should be searched to generate an A-list of firms who (1) bring the specific “assets” that meet the needs in each activity area; (2) are likely to consider a deal; and (3) will not generate excessive conflicts with pre-existing partnerships on either side. For example, Charles Schwab’s giant retail customer base made it an attractive partner candidate for Shattuck Hammond. Significantly, Schwab was gearing up its marketing efforts for municipal bonds and was not locked into any investment bank for sourcing debt issues.

Selecting target partners becomes much easier if a manager has access to a rich player and deal database. This database can be queried to reveal the set of companies that needs to be covered or for every business function that needs bolstering. Also, by reviewing past deals, managers can identify the firms that have already entered into similar partnerships, eliminating them from consideration or identifying conflicts that need to be resolved.

In other respects, partnership selection is intuitive and opportunistic, with subtle organizational and human dimensions to consider. Are counterparts liked? Can they be trusted enough to handle sensitive information? Will they be able to execute and will they have staying power? These soft factors become increasingly important as a firm moves to structure and implement the deal.


Erik Erikson was a psycho-social theorist who suggested that human experience consists of eight critical events or nuclear crises. Erikson’s fifth and most important event, which occurs during adolescence, is identity versus identity confusion. During this crisis an individual must determine the extent to which he or she is (1) like all other people, (2) like some other people, or (3) like no other person.

Erikson’s work has been contrasted with the interpersonal theory of psychoanalytical theorist Harry Stack Sullivan. Sullivan stressed the need for close relationships in clarifying identity. In other words, much of self-identity comes from relationships and interactions with other people. By contrast, Erikson insisted that a solid self-identity is not the result of intimacy, but, in fact, is a prerequisite to intimacy. In other words, before intimate relationships with others can be developed, “you must first know yourself.”

This discussion illustrates a key consideration: Should a company establish an identity in a market before reaching out for partner intimacy? Or, is it better to be supported by numerous partners right away? There’s no common answer. An organization can only devise its special solution when it considers its present and evolving core competencies and strategic vision, and becomes acutely aware of which business functions need to be supported with partnerships.