Strategic Alliances

Businesses and nonprofit organizations are joining together in alliances to create value for themselves and society that far surpass the sum of their parts. HBS Professor James Austin studies these new alliances and sees mutual benefits and a new business-nonprofit relationship emerging.
by Nancy O. Perry

Where once "corporate giving" meant writing an annual check to a favorite charity, more recently businesses and nonprofit organizations (NPOs) have joined forces to achieve their separate, but related missions. When these partnerships crossed the line from engaging in mere transactions to charting a mutual course benefiting each of their strategies, HBS professor James Austin, head of the School's Initiative on Social Enterprise (ISE), took note.

"Here was a new arena," he says, "in which the goals of different kinds of organizations were very productively linked and in which significant value was being created, both for the collaborating nonprofits and for the businesses."

A 1997 ISE research forum at the School provided Austin with the opportunity to delve more deeply into this development. Identifying a core group of five cross-sector alliances (City Year and Timberland; CARE and Starbucks; The Nature Conservancy and Georgia-Pacific; Bidwell Training Center, a nonprofit vocational and technical school in Pennsylvania, and Bayer Corporation; and Jumpstart, a Boston-based NPO that prepares low-income preschoolers to enter kindergarten, and American Eagle Outfitters), he interviewed key executives on both sides of each partnership to document the process of their unfolding relationships. This initial research corroborated Austin's hypothesis that these alliances were creating value for themselves and society far surpassing the sum of their parts. In addition, it led to the development of ten additional case studies—all presented in the forthcoming book The Collaboration Challenge: How Nonprofits and Businesses Succeed through Strategic Alliances (Jossey-Bass and The Drucker Foundation).

Austin found that most of the partnerships he studied went through three stages of development he terms "the collaborative continuum." "Recognizing that relationships can evolve along this continuum, forward or backward," he says, "is a useful strategic tool for managers who are assessing what type of relationship they're in and considering if and how they should progress to the next stage."

In the first, or philanthropic, stage (which some partnerships skip entirely), the parties assume the traditional roles of "benevolent donor" and "grateful recipient." For example, urban community-service nonprofit City Year began its relationship with Timberland, a maker of outdoor apparel and footwear, when City Year requested fifty pairs of boots for its youth service corps program. "In the philanthropic relationship," Austin observes, "each side benefits modestly. The NPO receives funding, goods, or services, while the company enhances its reputation as a community supporter."

The relationship progresses to the second, or transactional, stage when the two organizations begin to regard each other as partners. As Austin writes, they start to "carry out their resource exchanges through specific activities such as cause-related marketing, event sponsorships, licensing, and paid service arrangements." For City Year and Timberland, the transition occurred when a cofounder of City Year met with two top company executives to thank them for their donation. "The meeting was important," recalls Timberland marketing vice president Ken Freitas, "because for the first time we realized that there was more here than a typical charitable contribution. There was a real connection. The similarities between what each organization wanted to do and how it planned to achieve its vision were striking." From then on, the partnership intensified in a variety of ways—including Timberland's sponsorship of City Year events and City Year–organized projects for Timberland employees—that made clear their mutual interest in making a positive impact on society.

By the third, or integrative, stage of a relationship (which Austin also refers to as the "collaboration frontier," since so few organizations have as yet reached this level), "resources from both organizations have been mobilized and meshed to create a new set of services, activities, and resources unique to that collaboration," Austin notes. One example of this integration was a 1995 pilot rollout of a new line of Timberland apparel called City Year Gear. Writes Austin, "Value statements like 'Give Racism a Boot' and 'Hike the Path to Justice' were associated with products such as backpacks and T-shirts that were marketed through Timberland's retail outlets, with the profits going to benefit City Year."

While Austin's research underscores the importance of ensuring a good fit between partners' missions, strategies, and values, this alignment may not always be readily apparent. Consider, for instance, the alliance struck between The Nature Conservancy, the largest private owner of nature preserves in the United States, and Georgia-Pacific, one of the world's biggest forest products companies. Encountering mounting difficulties for their respective agendas, the two longtime foes decided to join forces in 1994 to create a landmark agreement enabling both of them to manage some forested wetlands in North Carolina. "Both organizations are deploying their core competencies," Austin points out, "and they have now moved into that third, integrative stage where they're combining those competencies to devise a unique approach to resource and business management."

Austin also found that leadership is frequently of paramount importance in the creation and development of cross-sector alliances. Strategic unions "need champions, or internal entrepreneurs (intrapreneurs), at high levels on both sides [who] largely determine the acceptance and vigor of the collaboration," he writes. Not all successful alliances, however, start from the top; sometimes they spring from sheer happenstance. The CARE-Starbucks relationship, for example, began when a CARE regional officer bought a cup of Starbucks coffee and noticed that the two organizations did business in the same countries. A telephone call to a Starbucks official followed, and a short time later, the partnership development process began to brew. Starbucks products raised money for CARE, which, in turn, publicly recognized the company's humanitarian contributions.

"Underlying the sustainability and power of a partnership," Austin emphasizes, "is the amount of value that's being created through the collaborative process. I have tried to understand sources of value and how the kinds of resources deployed in different types of relationships determine to a great extent the amount of value created. In addition," he writes, "my research reveals that in cross-sector social purpose collaborations, unlike commercial business alliances, an essential ingredient for strong leadership involvement is an emotional connection…individuals make with the social mission and with their counterparts in the other organization."

Austin's hope for these new alliances is that "greater interaction will result in productive two-way learning: corporations can be enriched by finding out how nonprofits mobilize and motivate personnel, while nonprofits can learn more about marketing and financial management. As a result," he concludes, "we'll see the stark differences between NPOs and businesses diminish, revealing a new world of integrated, rather than independent, sectors."