October 2, 2012
The Opportunities and Hazards of Partnering
BY Mary Mahoney
When John Donne, the seventeenth-century English poet, lawyer and cleric, wrote his now-famous Meditation #17, he likely did not anticipate its relevance to today’s business world: “No man is an island, entire of itself; every man is a piece of the continent, a part of the main.”
In business, no enterprise is an island to itself. No company can fulfill all of its clients’ needs singlehandedly. Consequently, businesses seek partnerships and alliances that can fill gaps and leverage their core strengths.
The potential benefits are considerable. TechRepublic notes that partnerships enable individual firms to attract higher-profile clients and more lucrative projects, share the burden of supporting clients, serve larger clients, handle greater risks, pool financial resources, try new projects and gain exposure to new technologies.
Sadly, the history of business partnerships is littered with relationships gone terribly wrong, as even the biggest companies can attest. Microsoft, for example, has stumbled over the partnerships it formed to develop Windows-based “smart phones.” Its failed alliances include Ericsson, Sendo, Nortel , Motorola, Palm and LG.
Only Microsoft’s two-year-old relationship with Nokia survives. Stephen Elop, Nokia’s CEO, has committed the company to develop Windows smart phones. For Nokia, the partnership is make or break. Its global market share slumped to 20 percent last quarter. Nokia’s new Windows phone – to be introduced later this year – must be a big success to save the company.
Research shows that nearly 80 percent of all business partnerships fail. James H. Krefft, author of Changing Course, believes partnering is an “unnatural act” for most people and that the relationship skills required are “counterintuitive to much of what we were taught and how we are rewarded in our professional lives.”
In an interview with Inc. magazine, Gene Slowinski, director of strategic alliance and open innovation research at Rutgers Business School in New Jersey, listed the following common reasons why strategic alliances fail:
- Unilateral deals – “Probably 80 percent of the deals that we see include Company A providing some unique product or technology and Company B providing access to markets and distribution.”
- Deals based on personal relationships – While personal relationships are useful in forging partner relationships, “Many people merely approach the company that they’re comfortable approaching, not necessarily the one that will make the best partner.”
- ‘Drive-by’ alliances – The kind in which two CEOs meet on a golf course, get to talking, and cut the deal before any of the actual implementers even know about it.
- Strategy change. – Many alliances bite the dust when one partner abruptly changes strategic direction. Small companies are more likely to alter their strategy than large firms because they can respond more quickly to the marketplace.
- Loss of a key person –”Alliances are relationships between individuals, not institutions,” so it’s important for each partner to establish relationships with more than one decision-maker in the other organization.
- Priority mismatch – When deal-makers come to the table with unequal technical and management competence.
- Intellectual property – The key issue to address is this: What are your rights to use your partner’s intellectual property both inside and outside the deal?
Failed partnerships are expensive. While the direct costs can run as high as 80 percent of the investment in forming the partnership, the indirect costs and opportunity costs can amount to as much as five times the investment, according to Krefft.
With the risk of failure so high and the cost of failure so daunting, how can any enterprise hope to tap the opportunities and benefits of a successful partnership? A survey of consultants suggests that both parties must approach alliances with a high degree of sharing, transparency, honesty and discipline in order to achieve a sustainable level of trust.
Krefft advocates teaching “partnering behaviors” that “build trust in an organization and inspire a sense of vision and confidence in others.” A study by the Hitachi Foundation of Washington, D.C., cites the following five characteristics of effective business-community partnerships:
- Ensuring a good match and building trust before making a commitment
- Framing expectations and reciprocal values with clarity
- Learning the language and culture of partners and demonstrating consistent, coherent messages
- Building relationships and tapping into the power of the personal motivations and core values of individuals and the business or organization
- Establishing an evaluation plan at the start of the working relationship
The Oregon Healthcare Workforce Partnerships Project is an example of a successful business-community partnership. It was created in 2008 as a collaboration of interlinked, locally driven projects designed to expand community college healthcare training. The statewide initiative is credited with increasing community college healthcare training services in parts of the state where there are documented severe shortages of certified personnel.
With funding from a U.S. Department of Labor Community-Based Job Training Grant, the project also expanded healthcare career pathways, increased professional education for existing healthcare staff and offered new educational opportunities. The project developed or enhanced new models for distributed and distance delivery, incumbent worker training, use of mobile and off-site teaching facilities and resource sharing between colleges, employers, the workforce system and community partners.
In upcoming posts, I will explore partnering with vendors and how organizations can extend their values and brands to their partner relationships.