With all the recent news about several states exploring a purchasing consortium, can my organization benefit from a consortium?

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The current market and supply chain conditions offer a rare opportunity for business leaders to (1) evaluate and update strategic initiatives and (2) determine whether tools such as a consortium can enhance your organization and better position you within the industry going forward. How should we think about consortia and when do they make sense?What is a consortium (and what is it not)?A consortium is a collection of autonomous entities (e.g., companies, organizations, government agencies, etc) that align on certain principles or coordinate on activities that benefit all members. Entities are typically connected by geography, industry, and/or mission and opt-in to join voluntarily. To ensure efficacy, membership is granted only to entities that meet defined requirements, and typically dues are collected to cover the third-party operation of the consortium. Generally, consortia are most successful when aligned on non-strategic aspects of the business (e.g. commodity sourcing, quality standardization).Consortia are focused on specific goals versus broad-based alliances. Unlike a joint venture, there is typically no ownership stake or joint liability for another party’s non-performance. Consortia are not legal monopolies and are bound by anti-trust regulations in most jurisdictions. For instance, in purchasing consortia, it is commonplace that market share covered under the consortium must remain below a certain threshold.1Identify strategic needsA consortium is one of the tools to correct a strategic gap that cannot be addressed internally at the organization. Organizations need to conduct a holistic review of their business operations to understand which levers can unlock value. Figure 1 below highlights the three strategic needs where consortia are effective:In buyer leverage consortia, the strategic needs tend to be identified outside the core competency of the organization. One reason for this is the legal ramifications and anti-trust concern. For example, two semi-conductor manufacturers would not look to collaborate on iterations of a microprocessor (particularly if it were considered anti-trust) given the two have core competencies in chip design and manufacturing. However, these two organizations could form a consortium with other members to explore quantum computing chip design (risk mitigation) and to set future standards (buyer leverage). In this example, quantum computing likewise is part of both groups’ long-term strategic vision. Thus, the criteria—outside the core competency and within the strategic plan—are paramount to moving forward.Determine whether pre-conditions exist that consortia addressHaving established that a consortium is an available tool to address strategic gaps, the next step is to analyze whether the addressable conditions are present. There are three main conditions that consortia address: standardization, coordination, and untapped scale. The table below describes the conditions and the symptoms within an organization:Where any of these conditions exist, a consortium can position the organization for more success than the status quo.Implementation and beyondIf consortia are established as a viable strategy, the next phases become tactical to implement. Implementation cannot be overlooked as it is the failure point for most consortia. Which partners are courted, how the governance structure is developed, and addressing legal concerns are central to the value of a consortium.Where consortia typically fail is with members who attempt to circumvent the governance for their own gain. This is commonly seen in purchasing groups where individual companies use the group to gain insights into possible volume discounts and then conduct direct negotiations with suppliers undermining the consortium. Thus, successful consortia need to have well-defined, enforceable governance structures, a targeted mission for the group, a barrier to membership, and activity requirements to remain in the consortium.All in all, consortium formation starts with (1) conducting a rapid strategic gap assessment, (2) validating consortium as the proper tool, and (3) implementing and structuring the legal construct. With a structured approach, consortia can be the ideal tool to improve your organization and industry.To learn more about Kearney's Operations and Performance Practice, please visit our site here.1 Kearney does not provide legal advice revolving around consortia and individual situations may differ. Please consult a legal professional to determine the restrictions in place for consortia.