The Business case
All large, and many medium sized organisations in the public, private and third sectors are involved in alliances and other forms of partnering. Business leaders are increasingly choosing alliances and partnering, instead of acquisitions and mergers, to meet the needs of their customers and to grow their businesses. These agreements can be global, or regional or local.
There is a lack of statistics on the amount of activity transacted through partnering and outsourcing. With many public sector organisations and large companies it is likely to be around 60 – 80% and therefore critical to ongoing business success.
Improving the effectiveness of business partnering should result in a significant improvement in the organisation’s bottom line as well as more productive working relationships.
The pros and cons of partnering
As with most business opportunities there are a range of advantages and also disadvantages. Here are the more common ones we have encountered:
Driving forces and advantages of partnering, a need to:
- Get into emerging markets faster by using the partner’s existing sales and distribution channels rather than building our own
- Sell our products and services to the partner’s existing customer base
- Harness the partner’s expert knowledge and/or specialist equipment
- Reduce costs through outsourcing
- Increase our product range by selling our partner’s products
- Share costs of e.g. R&D and capital expenditure
- Recognise that the success rate of partnering is higher than acquisitions and less costly.
Restraining forces and disadvantages of partnering
- We are already very busy and do not have the management time to invest in partnering
- We do not know if we have the right skills for partnering
- As a result of the current business climate our mindset has become short-term, we are thinking less strategically
- We are already in the middle of a major initiative and must not be distracted
- We can get paranoid about losing confidential information
- Control is important to us, so if we do anything we would prefer to acquire a business
- Partnering might fail and then where would that leave me/us?
The top success factors for effective business partnering
The critical success factors in developing and managing an alliance are:
- Ensure that there is a viable, long term, market opportunity i.e. there’s something of value for both partners and for the ultimate customer
- Shift mindsets away from e.g. supplier/customer to those that are effective for partnering
- Build trust and credibility and open channels of communication
- Have the skills to create and implement an influence plan
- Build a shared vision / business objective with the business partner that is understood by the staff of both companies
- Define a balanced set of metrics and allocating responsibility for monitoring each metric between the parties
- Have a sustainable win-win-win and understanding what this looks like for your organisation, the business partner and the ultimate customer
- Have an up to date legal agreement including protecting each party’s intellectual property rights
- Appoint a strong sponsor in each organisation with clear roles
- Recognise and manage cultural differences
- Manage changing expectations and have the skills to revitalise long established partnerships
- Be willing and able to exchange knowledge, new insights and innovation with the alliance partner
- Evaluate the alliance regularly and facing up to difficulties
- Check that both parties continue to be financially viable
An example of a successful alliance
HP (USA) wanted to add high quality printers to its product range. Canon (Japan) wanted to move into high quality printers, building on its excellent reputation for photocopiers. Both companies could see a large, profitable and sustainable market for printers.
The two companies appointed a strong sponsor for this alliance and these two men built an excellent relationship and spent time understanding the cultures of their two companies. They both had clear roles and they also clarified what assets were in the alliance and what were outside the alliance and therefore confidential to that partner.
The sponsors developed clear objectives and outcomes and also agreed how they would resolve difficulties.
Both sponsors were strong enough to overcome internal resistance to the alliance e.g. over distribution channels.