Two to Tango: The Art of Crafting, Building and Maintaining Business Partnerships
'We had a terrific [first] meeting--this [potential] partnership is going to be great for growing our business.'
As a product development manager, I am constantly hearing this from our executive management and wondering how to evaluate a winning partnership from one that looks promising but goes nowhere.
More and more, companies are placing an emphasis of pursuing growth strategies that involve strategic partnerships. Strategic partnering occurs when two or more organizations establish a relationship that combines their resources, capabilities, and core competencies for some business purpose. There are three main types of strategic partnerships: joint ventures, long-term partnerships, and strategic alliances. This article will focus only on strategic alliances.
In a strategic alliance, two or more organizations share resources, capabilities, or distinctive competencies to pursue some business purpose. Think in terms of a strategic alliance as a joint venture on steroids! These alliances may be aimed at world-market dominance within a product category. While the partners cooperate within the boundaries of the alliance relationship, they often compete fiercely in other parts of their businesses. This situation, called co-opetition, is defined as the cooperation with suppliers, customers and firms producing complementary or related products. It can lead to expansion of the market and the formation of new business relationships, perhaps even the creation of new forms of enterprise. Build versus buy decisions now have a new dimension--PARTNER!
This article explores these issues from my personal experience in working with over a dozen strategic, technology and content partners in the wireless industry. I should point out that my experiences stem from being in a startup situation, where the pressure to execute and get results is far greater, which has its impact on the quality of a partnership. Further, this article will develop frameworks for business-development executives to better qualify and quantify a new partnership.
After all, not all partnerships are successful.
Step 1: Qualify twice, partner once!
Famous words from a master craftsman: 'Measure twice, cut once!' The same applies to the arena of partnership opportunities where the number of prospects to chase is larger than the ones that will ultimately result in a win-win combination.
Partnership opportunities can be identified both internally and externally. In a startup, there are a lot of companies added to the 'partnership radar' via external well-wishers--VCs, board of directors, angel investors, family and friends. Typically these are the 'you should check them out--there might be something there' kind of companies, where there is little or none of the product/market or technology qualification to see if there is a fit. Internally-generated partnership opportunities are a result of several analyses: industry value-chain, technology gap, and customer buying behavior. These targets, though more qualified, need to be examined under the microscope before the decision is made to partner.
The first step in qualifying a partner is to understand the value added according to the following McPc Matrix.
There are two significant dimensions that capture the impact of a partnership. One relates to the effect of the partner on the overall product that is being offered to the market. The overall product consists of a core set of attributes and value adds (such as distribution, service). In this case, the partner can either add to the core of a product (technology partner) or offer value-added attributes to the product (distribution partner). The other dimension is the impact of the partner on the market coverage. Partners can either result in penetrating the existing markets or creating new markets (geography and end consumers). It is very important, as part of the qualification process, to identify the quadrant in which the potential partner might exist.
- Reaching in to achieve greater market penetration by choosing a partner that adds significantly to the core bundle of benefits.
- Reaching out to tap new markets by choosing a partner that adds significantly to the core bundle of benefits, while bringing in a new customer base.
- Reaching up to achieve greater market penetration by choosing a partner that contributes a value-added function that, while not essential to the core functioning of the product, nevertheless significantly elevates the product's availability, functionality and value.
- Reaching beyond by choosing a partner that brings both strong value-added functions and access to new customers.
Step 2: Know your chemistry
Forming a partnership is like dating--everything looks good from a distance; it's only when you get closer that you know if the date is the one!
I am going to start with the assumption that there exists a value proposition for both parties, hence the need to talk or discuss the partnership. But, the value proposition is not enough. Here are the next steps to test the waters.
Level of engagement
It is very important to get the key decision makers involved in the partnership in order to make things happen. Also, the partnership should touch people at all levels in the organization, because people like to be aware and feel like they have contributed to the forming of a new relation. It helps move the execution forward. Quite often, top-level management will decide something that is strategic and middle-level management is not motivated to execute since they were not in the loop.
Criticality of need
The best partnerships are those where the criticality of need is equally high. If there is a business case and value proposition, but not the same criticality of need, execution will suffer and the results will not be what you expected or projected them to be. In order for true win-win partnerships to develop and execute, the need has to be equally high.
Take time to understand your partner's business and objectives for the future. Understand your customer. That's probably something that you have read a thousand other places, but it's true. Whether it is a new product or new market that is being developed as a result of this partnership, know what percentage of revenue is expected. That will set the expectations for the level of performance from this new relationship.
Take the time to talk with references of the company that you are about to engage with. It is very, very helpful. Understanding the current relationships is a great way to judge how the working relation will be, after the dust settles around the partnership. Another insider trick: attend events where you might find either the partner company or its references--it's amazing what you can learn by listening on the conference floor, especially after a few drinks!
Step 3: The partnership life cycle
Partnerships, just like products, have a life cycle. The two axes chosen for this life cycle are: time and effort. Effort, in particular, captures all the resources that are devoted to making the partnership work and sustain it towards successful execution. As indicated by this life cycle, effort does not decrease after the partnership, but should be stepped up a notch and then consistently sustained at that higher level.
The partnership life cycle starts with preliminary identification of the prospects depending on the partnership being contemplated--product, technology, distribution or other. After the list of prospects is drawn from both internal and external sources, there is a need to qualify them according to the McPc matrix.
If all is well, the partnership will get signed, but that is where the next phase starts--execution. Typically the euphoria of signing a partnership rarely carries forward the momentum, and execution suffers. This is because top-level management does not fully involve middle-level management, and hence there is a let-down effect which results in poor execution. Further, companies tend to underestimate the amount of resources that an additional partnership will consume--it is more than an extra account added to the portfolio for an account executive. The account manager needs to plan for building a virtual or matrix team that will spend time and effort to execute on the identified opportunity.
The challenge for the account manager is finding the right resource pool with the best combination of 'will-skill' to get the execution done right. The 'Will-Skill' matrix has successfully been used for sales force effectiveness-drivers and applies to building the right team for a particular partnership. The individuals with either a wiliness to execute or those with experience in delivering results are the best suited to be part of such a team. This is also illustrated by the 'Will-Skill' matrix (adapted from an MBA program at UCLA).
The Argentine Tango is very artistic--looks extremely simple to the viewer but requires style and rhythm to master successfully. Learning the steps to the dance might still make the dancer look clumsy until they develop a feel for the music. The same holds true to crafting, building and maintaining a partnership. Following the techniques described in this article will make the business development manager more tactful, but being successful will also depend on their ability to pace the entire partnership. Just as in this dance form, it is important in a partnership to know how to lead, how to follow and how to navigate the partnership to be successful. Overall, remember that a partnership is for the long haul and so it should be developed for sustainability. According to a statistic on successful partnerships, their average duration is three and a half years--so spend the time upfront to make sure that the end is a memorable one.
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