Make Strategic Relationships a Success

Make Strategic Relationships a Success


a strategic alliance
is to decide what capabilities it wants
to add. Then it should decide what it
wants to achieve: Does the firm wish to
increase revenues, strengthen a
specialty or expand its geographic

have member firms
that are about the same size, whether
they have two or 20 partners, sources
say. Like-size entities focus better on
their aims and experience less friction.

a CPA considering an
alliance should analyze the
characteristics of both entities,
including conflict resolution practices.
It is important to put expectations in
writing and include an escape plan. A
business attorney should draft the

train each other’s staff about their
product mix and distribute handouts that
describe the additional services and
give contact information.

personally once a quarter to
discuss how well the arrangement is
living up to expectations and to make
adjustments if needed.

the theft of
explicit knowledge that’s protected by
copyright, trademark or patent law. A
CPA should be cautious about which core
business elements to share with alliance
partners. If in doubt leave it out.

hat if your firm could obtain the
competitive benefits of a merger without giving
anything up? It can—through strategic
relationships. Under the umbrella of alliances,
associations or consortia, CPA firms have long
pooled complementary skill sets to refer clients
to other practitioners and professionals. Using
such networks, CPAs can limit their financial and
administrative burden yet fulfill more client
needs while saving time, effort and some costs as
well. In contrast, adding capabilities through
mergers and/or acquisitions comes at a high price,
brings unwanted baggage and has a failure rate of
about 50%.

Bottom line: In surveys,
clients say they want their CPAs to provide them
easier access to a wide range of financial
services. Here’s information on choosing the right
alliance partner for your firm so you can give
them just that.

The three basic forms of strategic
relationships are multidisciplinary practices
(MDPs), virtual specialty corporations (VSCs) and
independent alliance associations. Some CPAs
consider MDPs an attractive way to offer conjoined
CPA and legal services, but the law firm-CPA
multiprofessional model was voted down by the
American Bar Association last year and it is on
the back burner for now.

VSCs are the
newest form of CPA associations. VSCs limit
membership by expertise and focus on improving
member firms’ profitability through creating a
brand for them. VSC participants offer similar
services and use the association to extend their
reach into new geographical areas. One example of
a VSC is Los Angeles-based Financial Consulting
Group (FCG), which specializes in business
valuation and litigation services. The primarily
CPA group has grown from 34 to 68 member firms in
the past two years, encompasses more than 30
states and generates upwards of $45 million in
annual revenue from those two services alone. FCG
COO Eva Lang says members benefit from referrals
as well as working cooperatively on large
ventures. A member can post a query on FCG’s
electronic bulletin board and expect a qualified
response within 48 hours.

alliance associations are a formal to informal mix
of CPAs and/or other professionals that
cross-refer clients or solve other service
problems for them. They can be as small as a
couple of firms in a localized area or as large as
the Chicago-based Leading Edge Alliance. That
organization limits membership to high-volume
firms. It offers accounting and consulting
services from more than 250 offices in upwards of
60 countries and is a resource for
multidisciplinary and CPA expertise providing
members with

A network of practice management

Best practices research and

Strategies for developing and
marketing high-quality products and services.

An international network for
multinational engagements.


Before a managing
partner or search committee even looks for a
potential strategic relationship partner, the
first step should be to decide what additional
capabilities the firm needs. CPA clients most
commonly ask for help with investment advisory
services, financial planning, legal assistance,
e-business (electronic data exchange, Web
hosting), human resources support, internal audit,
electronic security systems, specialized tax
services (international, industry specific),
strategic and succession planning and
organizational development.

Analyze what
your firm is trying to achieve through an
alliance: Is it trying to increase revenues,
improve client service, strengthen a specialty
niche, ensure that resources are allocated
judiciously, expand its geographic reach—or all of
these? On occasion a sole practitioner can use an
alliance to begin to develop an exit strategy for
retirement as well.

Choose short- and
long-term goals along with practical criteria for
judging their success. Some objectives will show
results right away, and some will take longer. For
example, in an alliance involving regional
partners with supplementary skills and the same
core businesses, a short-term measure might be the
number of referrals they make to one another.
Success in that area might show up in a few weeks,
while meeting a dollar-amount target might take
many months. Knowing how you want your firm to
benefit will help you develop a sound strategic
partnership. (For more on how to organize a
firmwide practice-development plan, see “ Strategic
Planners Lead the Pack,
Dec.01, page 26.)


The most successful
alliances have member firms that are about the
same size, whether they have two or 20 partners,
sources say. Like-size entities focus better on
their aims and experience less friction.

Take the time to assess a candidate carefully
over a series of discussions. Besides looking for
firms with a solid reputation and a strong client
base, evaluate the people you’ll be working with.
Discuss your firm’s financial and growth
objectives with the potential partner as well as
compatibility issues such as information access,
reporting practices, business cultures and
communication styles. For example, a two-firm
alliance I know of didn’t make it past a year
because one partner was able to make decisions
quickly but the other one dithered.

better minimize risks to your organization,

Request a peer review report.
Find out what grades other firms
give the candidate.

Visit a potential strategic relationship
Go see the office and
meet the partners and staff. Try to ferret out
hidden agendas such as undue interest in trade
secrets, particular clients or special protocols.
Meet the partners a few times where they are more
likely to let their guard down, at dinner or a
sports event, for example. Are you comfortable
with these folks? Rely on your gut instincts to
answer this.

Perform a thorough cultural analysis.
Analyze the characteristics of both
entities. A young firm will have a different
culture from that of a more mature firm, for
example. Use tests that compare the values,
traditions, communication patterns, growth goals
and conflict practices of your firm with those of
the potential ally (see “ Matchmaker,
” below). You may want to use a
management consultant to perform this analysis.

Assess conflict resolution styles.
Conflicts are inevitable. An
alliance’s success or failure often depends on how
well the firms’ leaders resolve differences. Ask
potential partners how they’d handle a
hypothetical problem. Inquire about potential
partners at state society and business association
meetings. Check the firm’s history to see if there
are any lapses that trouble you. Consult public
records to see whether the partners have sued
anyone or have been sued. If so, find out why and
what the results have been.

Describe the terms of your relationship
in an agreement.
To lessen the
chance that misunderstandings will crop up in the
future, put your expectations in writing. Will the
allied firms get fees for referrals? If so,
describe the preconditions and procedures for
paying fees as well as for client and information
sharing. If there is a time frame for meeting
goals such as revenue enhancement or niche
development, the agreement should carefully
document it. Consult a business attorney to draft
the agreement.

Sign a prenup.
important to identify whose clients are whose and
to protect the core competencies, trade secrets
and proprietary information that give a firm its
competitive advantage. Use the agreement to
protect these and other assets that have been
exhaustively earned over time.

Formulate an exit strategy.
Talk through an escape plan if
expectations aren’t met and include it in the
agreement. Describe how you will divide any shared
assets. These could be clients, property acquired
during the partnership or combined office
services, for example.


Everyone should be
involved in making the strategic relationship
work. To stretch your employees’ thinking to
include the new services a partner offers,

Cross-train your people.
Educate your staff about the
expanded capabilities the alliance offers. Bring
in the partner’s people to train yours about their
product mix. Similarly, describe your products,
services and procedures to their staff. Distribute
handouts that list the additional services, with
brief descriptions if needed, and give contact

Create marketing incentives.
An organization doesn’t get what it
wants, it gets what it rewards. Encourage staff to
cross-sell, make referrals and help develop
markets. Ask your staff what rewards they want for
measurable increments of performance. Don’t assume
you know.

Give staff a menu of marketing
participation at all levels. Partners can speak at
clubs, professional organizations or conferences.
Staff members can write articles, develop a class
or best practices workshop. Everyone can network
by attending luncheons or asking a colleague to
lunch to share ideas. (For more on a successful
firmwide marketing model, see “ Teaming
Up for the Bottom Line,
Jan.02, page 43.)

Take regular temperature readings.
Don’t take anything for granted.
Many organizations conduct customer surveys to
find out how well they’re meeting their customers’
needs and annual employee surveys to gauge how
their people feel about them. Alliance
partners-in-charge should meet personally once a
quarter to discuss how well the arrangement is
living up to expectations and to make adjustments
if needed.

Intellectual property protection is more
problematic for tacit knowledge, which consists of
skills, information and experience so embedded in
an entity and its staff that it’s virtually an
institutional reflex. Because tacit knowledge is
amorphous and more challenging to grasp, it’s
harder to transfer and difficult—though not
impossible—to steal.

In a strategic
alliance, as with any relationship, trust is
earned over time. At the outset, be cautious about
sharing core elements of your business such as a
database or developing a common computer system.
Bear in mind that business is always in flux, and
if it enters a down period or the alliance partner
falters, a partnership that started well can go
bad. With proprietary information, if in doubt
leave it out.


CPA firms and other businesses that use
strategic relationships have a proven track record
of building revenue and a market presence at lower
cost than by entering into a permanent
partnership. Nevertheless, one down side is that
there’s always a chance a partner will become a
competitor. Even after a firm’s most conscientious
efforts to cover all the bases, sometimes another
firm steals vital information and then disbands
the alliance. If that’s a concern, put it in
perspective: Until you actually work with other
firms, you won’t know how well such an alliance
will serve you—and at worst you’ve just shared
best practices.

Leader behaviors that create barriers
among the key players erode trust,
collaboration and communication, leading
to the eventual breakdown of the
business relationship. Knowing up front
what the potential interpersonal
problems could be enables a CPA firm to
understand the dangers that lie ahead
and plan with them in mind. On the other
hand, when styles are really out of
sync, the decision to walk away from the
deal might be the most prudent step to
take. The Thomas-Kilmann Conflict Mode
Instrument is available from Consulting
Psychologists Press in Palo Alto,
California; 800-624-1765.

macro approach is to assess each firm on
17 specific scales, plus an overall
index score. The employees of each firm
complete the Campbell Organizational
Survey, a 67-item instrument that
measures things such as working
conditions, stress, diversity, top
leadership, feedback, planning, ethics,
quality and innovation among other
things. The overall results are
displayed in a report along a
two-dimensional graph from very low to
very high. Additionally, the range of
responses to each question is indicated
within the cluster of questions that
pertains to each category. The firms are
compared in ways that make it apparent
where similarities and differences might
exist. When parity is observable on key
scales (such as top leadership, ethics
or quality), chances are the two firms
will work well together. Likewise, when
major differences are spotted, it’s time
to look for another dance partner. The
Campbell Organizational Survey is
available from NCS London House in
Rosemont, Illinois; 800-221-8378.

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