Alliances and partnerships have always been part of human history in almost areas of life – from private to public and from politics to business. Companies have worked with partners across countries, businesses for a variety of reasons, whether from a desire to expand or a need to cut costs. In the recent years the growth of partnerships has increased exponentially, driven by the benefits of risk sharing and resource pooling, technology convergence, industry deconstruction and knowledge diffusion. The automobile and pharmaceutical industries in particular have many good examples of partnerships that have evolved from simple contingency and contractual relationships to more capability-focused ones.
What makes a partnership strategic?
In a strategic partnership the partners remain independent; they share the benefits from, risks in and control over joint actions; and make ongoing contributions in strategic areas. Most often, they are already established when companies need to acquire new capabilities within their existing business. Strategic partnerships can also take the form of minority equity investments, joint ventures or non-traditional contracts such as joint R&D, long-term sourcing, shared distribution/services.
Strategic partnerships without a doubt involve challenges that have to be resolved efficiently to ensure the longevity and success of the alliance, such as separating proprietary knowledge, processing multiple knowledge flows, creating adaptive governance and operating global virtual teams. If these challenges are not handled properly, the partnership will more than likely fail, which, as the pragmatic research shows, happens in more than half of the cases.
Types of Strategic Partnerships:
Horizontal- Businesses in the same area (i.e. competitors) agree to work in partnership in a way that will improve their market position.
Vertical- A business collaborates with companies for its supply chain (its suppliers and/or distributors). Vertical partnerships often allow businesses to minimize risk in the supply chain and obtain lower prices in exchange for long-term commitment. Also known as channel partnerships [LINK] or supply chain partnerships.
Intersectional- Businesses from different areas agree to share their unique knowledge for the advancement of all partners.
Joint Venture- Two or more businesses form a new company in partnership. The new company is its own legal entity, and its profits are split according to terms spelled out in a formal contract.
Equity- a Company acquires a minor equity stake in other business in exchange for a monetary investment. Such exchanges can accompany other types of collaboration and, to a certain extent, agreed-upon access to decision making power.
Strategic Partnerships According to Purpose
Whether initiated between businesses in the same industry or businesses in completely different industry segment, partnerships can also be classified according to their purpose. Below find a few examples.
Conducting research towards new or improved products and services requires financial investment, time, and worker capacity and in some cases, specialized equipment. By nature, R&D is a risky but potentially advantageous task with unpredictable results. To conserve resources and therefore allay the risks associated with R&D investments, some businesses choose to partner around shared research objectives.
Development partnerships can take on many forms such as
- Joint research & development departments
- Co-application to government research grants
- A financially secure company offering funding to an organization with specialized research capabilities in exchange for intellectual property [LINK] rights
Strategic Integration and Referral Partnerships
Strategic integration and referral partnerships generate submissive channels of customer acquisition. Through such arrangements, businesses agree to refer clientele to their preferred partners. In most cases, especially today in the digital age, these partnerships are accompanied by integrations that allows customer to transfer their information between the business’s offerings.
Examples of such partnerships:
- Computers being shipped with pre-installed third party software.
- Discounted airport transfers offered by various airlines
- A customer relationship management software offering integrated access to a conference service
- A movie theater offering popcorn and snacks branded by their integration partner
Through cobranding, two or more manufacturers or sponsors produce an original product or service that is then offered under all of the partners’ names. Cobranding allows businesses to expand their brand recognition to new customers while offering existing customers a new way to experience their products or services, hopefully deepening their dedication to the brand.
Examples of cobranding:
- Co-branded Betty Crocker-Hershey’s cake mixes
- Corporate event sponsors
- The Chase/United MileagePlus Explorer credit card
Strategic Sales Partnerships
Similar to referral partnerships, strategic sales partnerships subsist between manufacturers and businesses with the capacity to resell goods and services. Referral partnerships is that a resell partner receives payment in exchange for their referrals, typically as a percent of the revenues generated or on a flat, per item sold basis.
Supply Chain and Channel Partnerships
Supply chain partnerships, also known as channel partnerships, exist between buyers and sellers at every level of the supply chain. Participants in supply chain partnerships include manufacturers, distributors, retailers, raw goods suppliers and many more.
Through channel partnerships, businesses move their relationships beyond one-off buying and selling transactions and develop various ways of collaboration to create more stable and efficient supply chains that lead to increased sales. Channel partnership agreements allow for the open sharing of sales report, pricing data and best sales strategies. For example, just in time inventory allows retailers to communicate in real-time with their suppliers to maintain inventory of running items.
Tips to Go Further, Faster with Strategic Partnerships
- See beyond what’s on the table. Imagine there is one chocolate chip cookie on the table but everyone wants a piece of it. It’s warm, crunchy and calling you by name. OK, now imagine there are tons of cookies baking in the oven.
This is the best way to describe the scarcity-abundance theory. The bottom line is that when one enters any strategic partnerships, the dynamic plays out best when they come from a place of abundance.
Sure, when one comes together to create new partnerships, they feel anxious and exposed. One needs to believe that all parties will eventually have their needs met to put you in the best position for achieving a better partnership.
- Be clear on your why.People enter into partnerships because they feel they don’t have enough value on their own. This sort of feeling almost never creates a mutually beneficial relationship. The chance of getting burned is guaranteed to an extent.
Be clear on the value you bring to the table and be honest about why you’re interested in creating a partnership. This relationship should either benefit one’s professional or personal growth or gain something from this partnership.
- Understand the why of your potential partners.One needs to ask a potential partner why he or she is seeking to connect and what he or she is hoping to gain.
The answers are not always clear at the onset. One should have the right chemistry and a shared vision to make this relationship mutually beneficial. If you sense resistance or a lack of clarity, postpone any decision making until you’re confident this relationship will be profitable and beneficial to you both.
- Seek commonality and a shared vision. This partnership should boost the vision of both sides. One also needs to share the same excitement and passion for what you do and how you want to grow.
Certainly everyone comes with different strengths and weaknesses, however, the best partnerships work because the vision and values are shared as well as passion and enthusiasm. These can hold the partnership through any sticking points in negotiations. Remember, the best partnerships work most smoothly when each party’s strengths build up the connection to create elevated and shared success.
- Don’t rush the process. There is no need to hurry into a contract.Sometimes enthusiasm and excitement can blind you to red flags. Set a follow-up meeting to address next steps so as to be sure that both parties are on board and equally committed to each other. A lack of follow-through by one party could result in stress and strain in the future. Judicious and thorough planning is key.
- Expect to be uncomfortable. When hashing out details about what each party brings to the table expect some push and pull strategy. A lot of people become uncomfortable with differences. Don’t let that one be you. Be prepared and clear and stand firm and know where you can give way.
By holding on for a positive outcome, commit to moving through sticking points with grace and diplomacy. Initial enthusiasm can open the door but stick–to–itiveness seals a good deal and expect win – win relationships.
- Write things down. Great partnerships require great safeguard. Seal all agreements in writing to avoid messy breakups and friction in the future. This is one of the hardest conversations to have but by far the most important one.
Many times partnership starts off with a rosy picture and blown apart with hard feelings and even costly results. Both parties should put the agreement in writing to protect their interests and ensure their growth as partners.
Granting oneself some protection by signing on the dotted line is brilliance in action. Respect yourself enough and protect yourself and your ideas. Contracts preserves relationship not destroys them.
If a possible partner hesitates at signing anything in writing, thank your lucky stars and walk away from the deal. Integrity includes clarity of principle and an agreement in writing seals a relationship and provides a level of security and fairness that is precious.