Cracking the Code on Joint Venture Strategy Development


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Part 2: Four tools to enforce JV strategy development

Cracking_the_Code_on_JV_Strategy_Development_Water_Street_Insights.jpgTO HELP JV CEOs and boards address the unique challenges related to strategy evolution, which we outlined in an earlier insight, we developed a set of tools and approaches to enforce the strategy development process. Here, we provide tools, which can correct for misalignments around substance, principally parent-company differences in aspirations, specific product and market priorities, and investment appetites.

Please note that these tools are additive to – not replacements for – classic strategy tools and methodologies (e.g., customer analysis, scenario planning, five forces, options theory) available to support strategy in a wholly-owned business. In a subsequent Part 3, we will discuss the internal processes and structures that need to be put in place in order to implement these tools.


Each parent may have differing views about the importance of growth vs. cash-flow to the JV, or dividends to the parent companies. This can be due to different views of the “end-game” for the JV – i.e., one parent may be looking to harvest, and ultimately exit the business, while the other may be seeking to grow it. Or one parent may be cash-rich while the other is staving-off a downgraded credit rating – leading to very different appetites for dividends even if the investment meets hurdle rates.

Strategy tool: Shareholder strategic-wants analysis. To understand the specific areas of agreement or disagreement, we have found that it is helpful to conduct a survey or hold one-on-one conversations to capture the positions of board members with respect to competing shareholder wants. Often this can reveal that the directors from a single parent company are not aligned – and provoke helpful discussion about what a common, acceptable set of aspirations for the JV should be (Exhibit 1).


The most common area where JVs run into problems is on product market scope. This can become painfully obvious to the JV CEO after three to five years into the life of a JV, when the JV has executed on its initial authorized product market scope, and is starting to see new opportunities. Those new opportunities often conflict with the expansion plans of one of the parent companies. Or, the parents may have differing views about where the JV should be expanding, based on their other businesses.

As one JV CEO said, “Each of my parent companies has a different strategy for the JV – and they need to agree on a single strategy defining what the JV should do. Until that happens, the JV is stuck. I see our opportunities slipping by, and it’s my compensation that’s at risk.” While the JV CEO may feel the pain most acutely, this is an issue that can only be cracked if the JV CEO and key board members work together. It is also the area where a very different strategy tool is required to “crack the code.” 

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Strategy tool: Boundary mapping. We have found that it is helpful to map the current product market position of the JV and the parent companies, along with the “contested” potential expansion areas – and then facilitate a board discussion regarding the potential step-out areas. Often, this discussion, by adding rigor to the definition of potential growth areas, can illuminate opportunities that the JV can pursue that are not competitive with the parent companies – and also more quickly define “no-go” areas (Exhibit 2).


Any good strategy needs to define how the business will compete – including where the company will be truly distinctive along its value chain. McDonald’s true distinctiveness lies in brand management, retail site selection, and product and quality standardization. Apple’s distinctiveness is in product design. Dell built its business through a revolutionary approach to supply chain management.

But for many JVs, the business value chain is constructed in a way that makes adjustment hard. When a JV is started, it is natural to rely on the parent companies for various capabilities and functions (e.g., advanced product materials research, supply chain management, sales and trading, logistics). Over time, as external market and internal company conditions change, it may be advantageous to change where or how certain activities are performed. For instance, as a venture gains scale, bringing some functions into the JV (or outsourcing to a third party) can increase venture distinctiveness by allowing the management team to better tailor those functions to the needs of the JV’s business. This can ruffle feathers in the parent companies, though, because they may be left with under-used facilities, under-employed people, and stranded costs which were previously allocated to the JV.

Of course, there are often compelling reasons to keep – or even put more – functions inside the parents. When JVs remain interwoven with the parent companies, it is less natural to have an integrated and objective conversation about the nature of the businesses distinctiveness. It is also harder for management teams to make needed adjustments within certain potentially distinctive functions when they reside within the parent companies. For a joint venture to have a robust strategy, it needs to understand its sources of distinctiveness and how the parent companies contribute to (and potentially impede) that strategy along the business system.

Strategy tool: Charting the venture value chain – parent and venture activities with areas of distinctiveness. We’ve found that a simple map of the venture’s value chain – defining what is done by the venture vs. the parents – is an extremely helpful tool to anchor any JV strategy discussion. Done well, this value chain map will highlight where the JV needs to be truly distinctive to execute its strategy and win in the market – and whether those areas of distinctiveness come from the venture, the parents, or some combination of both.

For example, in a consumer goods JV, competitive differentiation was based on highly innovative product and package design (done by a young team inside the venture intentionally insulated from the parent companies), highly sophisticated supply chain management and purchasing scale (done by one parent for the venture), and a novel brand strategy that included online and grass-roots marketing strategy and sponsorships, as well as select co-branding with parents (done by the venture with active engagement from the parent companies). By laying the value chain with these areas clearly highlighted, the Board was able to productively discuss whether it agreed with management’s view on the nature and location of competitive distinctiveness, and to see that operational staff from the parent companies were overly-involved in product design – but not active enough in the co-developing the marketing strategy.

In other situations, we’ve found that it also helpful to compare the JV to competitors across specific activities – to test whether the JV and/or parent companies are truly distinctive in the specific activities provided. Just as it makes sense to revisit the “where” of strategy for JVs, it also makes sense to revisit the “how” – i.e., the setup of the business system.


Even where there is agreement on the JV strategy and on the attractiveness of specific opportunities, funding them isn’t easy. It can be difficult sometimes to get board approval for self-funded projects, but when a JV asks for additional parent company equity or debt funding for investments, those proposals have to pass the gamut of comparison with all other competing capital projects in each of the parent companies. Although it seems that making 50% of the investment for 50% of the return should be fair, numerous JV executives have complained, “Our parent companies would rather fund a 100% owned business first, even if our investment proposal is stronger.”

This is a tough nut to crack, and we suspect that many parent companies are always going to favor investment in wholly-owned businesses – especially if they don’t consolidate the JV or they entered the JV as an asset-light (i.e., investment-short) strategy. But JV boards can help to set clearer ground-rules for JV capital proposals, aligning on what constitutes an acceptable case.

Strategy Tool: Shareholder-endorsed funding criteria. In JVs, it is extremely helpful to have a set of board-endorsed guidelines for what constitutes attractive new capital investments and growth opportunities. Done well, these criteria provide guidance to management on ...

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