Where to start in forming a consortium
April 8, 2021
Loosely defined, a consortium is an alliance of two or more organizations that share a common objective and have an interest in pooling resources. By itself, a consortium is not a legal entity but is materialized through a mutually agreed upon written agreement. This contract typically describes the purpose of the consortium, the members and their respective obligations and rights, financial terms, and governance procedures and oversight.
Each member of a consortium is only responsible to the group with respect to the terms of the agreement, however – as each member retains its separate legal status and remains independent. In other words, it is not a merger or an acquisition. Each entity member provides representation for collaborative governance oversight to the consortium usually through a Board of Directors.
In many situations, consortiums form as a result of competitive threats where each competitor (or potential future consortium member) has limited resources and may be financially challenged. This competition leads to cooperation with a consortium agreement. As easy as that may sound, there are many challenges involved and often the hardest part is starting the conversation.
So, what does that “Consortium Playbook” look like? Below are some abbreviated pointers to get started when forming a consortium:
- Make the connection and continue to build a trusting relationship through transparent communication with a willingness to show vulnerability
- Understand the market to include the volatility and disruption
- Know and understand your capabilities and needs and gain an understanding of the other’s capabilities and needs
- Establish a vision with goals collaboratively
- Complete a thorough business evaluation to include pros and cons
- Engage necessary individuals and service representatives from each potential member to ensure all infrastructural needs are met such as risk management, compliance, legal, marketing (branding), finance with revenue cycle management, IT, etc.
- Establish rights and duties for each member
- Establish governance oversight
- Consider the need for outsourced services and vendors and third-party contracts
- Negotiate and establish the terms of the consortium agreement
- Establish measurable outcomes to monitor success
- Execute a contractual agreement
As an old saying goes, “there is strength in numbers.” A consortium can bring advantages and benefits to its member organizations when they share a common goal. As with anything, disadvantages do exist. However, if all members provide equal commitment to achieve the common goal, the consortium can and will be successful.