The Right – Strategic Business PartnershipsHow to Evaluate & Assess Business Partners Mazhar Syed Strategic Partnerships Manager du, Business Development Sept. 20, 2011
Evaluation of Existing Business Partners: Part 1 To Evaluate Existing Business Partners, the following Framework has 5 Key Factors to measure:
Shared Risks: Both partners bear a fair and appropriate share of the risk in the Business Alliance. No partner has a disproportionate level of risk.
> Questions: Was the risk in the alliance equally shared or was our risk higher or lower versus the other partner? If the risk is high, should we step out of the business partnership?
Shared Resources: Each partner commits an appropriate proportion of the resources, whether capital/investment, people, knowledge, technology, office space or other elements. > Questions: Were our invested resources higher or lower versus the other partner in the alliance?
Did we preserve and safe-guard our Intellectual Property, Customer Database, Technical Expertise/R&D?
Shared Rewards: Both partners share appropriately in the rewards, the partners work together to create mutual wins – whether to attain success via similar market, similar customer base, or major joint projects. > Questions: Did we see an increase in our short-term or long-term revenues from the time of partnership? Did we win any Major Business Deal or a Turnkey Project – which brought long term rewards and mutual success story?
Shared Vision: They share a common vision. The partners share common views of the objectives, results and outcomes of the alliance. > Questions: Was the shared vision achieved for both partners? Were the desired business outcomes and goals of each partner achieved (during and from the partnership)?
Shared Values: Both partners share common value systems and complement each other’s corporate cultures.Such a shared value system is the bedrock of the relationship, providing the means, motivation and commitment to resolve partnership related problems and mutually grow the relationship.> Questions: Do the business values/ethics and corporate cultures of both firms match or compliment each other?
Effectiveness of Strategic Partnership = Maximizing (SR)3 + (SV)2
Evaluation of Existing Business Partners (continued): Part 1 Key Metricsto Evaluate Existing Business Partners: A precise set of meaningful metrics is the best way to drive performance and produce the desired benefits of a partnership. These metrics should include shared measurements that are similar to both partners. The following 3 Major Categories of Metrics are an outcome of the assessment of 5 factors shown in the prior slide.
Operational Metrics: > Timeliness
> Productivity > Quality Measurements
Innovation Metrics: > Process Improvement
> Technology Integration
> New Business Gained > Profitability Gained across the portfolio
Assessment of New Business Partners: Part 2 Four Stages to Assess New Strategic Business Partners are: 1) Evaluation of Intra- or Extra-Industry Players for Basic Fit: > Information Gathering & Financial Analysis (Business Case Studies/Agreement Negotiations) > Approach of Partnership – whether Horizontal, Vertical, or Diagonal > Search for Leading or Emerging Players that add Strength in a Win-Win Relationship > Find out if both Business Partners have mutual Corporate Rivals and mutual Customers to target Questions to Consider: - What are the risks of such a collaboration? - Does this potential partner have a hidden agenda? - How turbulent is the existing market? What does the future look like? - Are there other collaborators or associates in the game (Sector / Market / Region)? 2) Establish an Inter- & Intra-Partnering Champion: The Partnering Champion is preferably a Senior Manager who commands respect at all levels, has outstanding analytical ability, and gets things done. The champion is responsible for establishing the framework for the partnership agreement, promoting ownership of the partnership and making it work in the startup phase. 3) Examine Strategic Fit: > Analyze potential partner’s Management Style, Strengths & Weaknesses, Resource Capabilities. > Critical for the Partners to share Broad Business Philosophy than Short-term goals. > The Partnership needs to fit with the overall Strategic Plans of each organization. > Joint Development of Agreements, Belief Systems, Business Plans,Partnership Structures, Timeline, Training, Knowledge Sharing/Transfer.
Assessment of New Business Partners: Part 2 Four Stages to Assess New Strategic Business Partners are: 4) Being Aware of Hidden Dangers: > Cultural incompatibility may lurk beneath the surface. > The management style, organizational feel, and speed of work in both organizations might be difficult to gauge/determine from outside. Important Facts to Consider while Assessing New Business Partners: I) Do’s & Don'ts during assessment: Do’s > Focus on Business Logic but avoid Short-term gain. > Identify critical issues and potential obstacles. > Recognize the importance of cultural fit. > Build and encourage flexible combined Business Processes. Don’ts > Ignore areas of potential conflict. > Underestimate the resources required (money – time – people) for major projects. II) Pitfalls & Challenges in Strategic Alliances: > We can’t define every detail. No contract can anticipate what two groups must do to be creative together. > Though negotiations build consensus, there is an understanding that it is in neither firm’s interest to hurt the other partner in any form or manner. > Additional concerns - Intellectual Property Ownership, Knowledge & Technology Transfer, Exclusivity, Competition, Hiring of Employees. > Success depends on creatively combining the ideas and energies of both firms. > Conflicting Objectives, Strategies, Corporate Values, Ethical Standards. > Clash of egos and Corporate Cultures. > Relationships depend on trust.
Follow-up: An Invasive Model to Evaluate Existing Business Partners & Assess New Partners To Evaluate Existing Partners & to Assess Future Partners, the 4 Factors of following Methodology could be utilized:
Value Creation of Business Partnership: The types of values to gauge (for both Business Partners) include Social, Technological, Creative/Self-fulfilling, Political, Economic/Financial, Environmental, and Legal Values. Each individual block in the following Process Map can be calibrated (for the period of business partnership) from blocks in Learning & Growth Perspective all the way up till the blocks in Financial Perspective.
Invasive Model: To Evaluate Existing Business Partners & Assess New Partners Framework (continued)
Interactions & Communication in a Business Partnership: It is critical to look back and find out of how positive or negative was the communication between partners during the entire span of partnership, at these levels
> At Shareholders/Board of Directors level > At Staff/Employee level > At Cross-Functional level > At Customer level > At Tier-1 & Tier-2 Vendor levels > At a Legal/Corp. Affairs level
Risks of Business Partnership: It is relevant to figure out the different kind of risks during the phase of partnership
> Perceived conflicts of interest or loss of PR (public embarrassment due to one partner) > Corporate credibility and image, contradicting messages > Reduced flexibility in decision-making, loss of control > Potential liability, financial risk, blurring of accountability
In-tangible & Tangible Evaluation of Quality & Business KPIs/KRAs respectively: The following points need to be evaluated between partners. These are also the core benefits of any strategic business partnership.
> Combined Financial Gains > Greater Operational Flexibility > Better Market Positioning: By ‘Power of Association’ > Combined Customer Retention & Widening of Target Market > Improved Business Practices: Improved Management & Understanding of Target Client’s Needs > Greater & Wider areas of Expertise: Access to different Products / Solutions / Segments of Partners > Combining all Resources: Pooling of Technology, R&D, People, Money, Market, Space, IP > Enhanced Corporate Image/Reputation: Combined Brand Development & PR Campaign (to generate combined traffic for both businesses / websites) > Combine & Cross-Compliment Sales & Marketing Strategies: Generate sales and attract customers > Long-term Vision: A long-term Win-Win Partnership will strengthen partners, attract revenues for decades, make roads for bigger and better future alliances
APPENDIX The following pages comprise of the Research, Additional Facts & Articles, and References for the Presentation
Examples to Follow: One of the key elements of Modern Business Philosophy is to learn from other’s Successes & Failures Toshiba Corporation has been the pioneer who initiated and sustained Business Partnerships with theirpotential Partners as well as Competitors. Toshiba’s success story is a clear example of how significant Strategic Business Partnerships are. Business Partnerships of Toshiba Corporation: The following partnerships of Toshiba Corporation with other Global & Regional Corporations helped the company to become one of the leading players in the global electronics industry. > Toshiba-General Electric: In early 1990s Toshiba signed a co-production agreement for light bulb filaments with GE > Toshiba-Apple Computers: Toshiba Corporation formed an alliance with Apple Computers to develop multimedia computer products. Apple’s strength lay in software, while Toshiba contributed its manufacturing expertise. > Toshiba-Microsoft Corporation: Toshiba Corporation formed an alliance with Microsoft to develop handheld computer systems and products. Microsoft’s strength lay in software, while Toshiba contributed its manufacturing expertise. > Toshiba-Siemens-IBM: Toshiba, IBM and Siemens came together to pool different types of skills. Toshiba was strong in etching, IBM in lithography and Siemens in engineering. The understanding among the partners was limited to research. For commercial production and marketing the partners decided to be on their own. > Toshiba-IBM-National Semi Conductors: To develop the first Flash Memory products - Toshiba formed strategic alliances with IBM and National Semi Conductor.At Customer level > Toshiba-Motorola: Toshiba’s alliance with Motorola has helped it to become a world leader in the production of memory chips. > Toshiba-IBM: IBM enabled Toshiba to become the World’s Largest Supplier of Color Flat panel displays for notebooks. > Additional Global-scale Partnerships of Toshiba includes their alliance with Samsung, Sun Microsystems and Thomson.
Pre-requisites: During Assessment of New Business Partners Important Questions:
Why are we doing this with each other? Is this important to each of us and are we important to each other?
Are our expectations for the results produced by the partnership aligned? Do we have different or common goals?
Are we in this for a short-term very specific focus, or do we want to have a long-term arrangement that evolves over time?
Is there real benefit and value to each of us in investing in this relationship? Are we sharing appropriately in the results of this alliance?
How does the partnership reinforce and build the business strategy of each participant? What happens if those strategies should change?
What commitments are we making assure each partner is successful in this partnership?
How do we share information and knowledge with each other? How do we grow and learn from the partnership?
How do we build trust in the relationship? How do we build cooperation in the partnership?
Do we have complementary competencies and capabilities that enable us to build a beneficial relationship?
How do we manage problems that occur in the alliance? How do we reconcile differences that occur in the relationship?
How do we manage changes in expectations or strategy over the term of the relationship?
What level of risk is each of us willing to take in implementing the partnership? What happens when the risks are too high?
Do our company cultures and values promote us working well together, or are they so opposed that we will never collaborate effectively?
What happens when the original sponsors to the partnership move on? Can we sustain the partnership without them, or have we lost the motivation for being partners?
What is our track record in implementing alliances? What has worked, what has not? What is our partner’s track record?
What changes in the environment or the relationship will make the partnership unacceptable? What changes are allowable?
In what areas do our partner and we compete? How do we manage those overlaps? At what point is the overlap in-tolerable?
Value Creation Framework (Prahlad – 2004): Strategic Partnerships help corporations to achieve ‘Focus on Experience Networks’ together, as shown in the lowest corner block of Value Process Map.
References: Books & On-line Articles > Child, John, and David Faulkner. Strategies of Cooperation: Managing Alliances, Networks and Joint Ventures. 2nd Edition. New York. Oxford University Press., 2005. > Lendrum, Tony. The Strategic Partnering Handbook. 4th Edition. Sydney, Australia. McGraw Hill Publications, 2003 > Mockler, Robert J. Multinational Strategic Alliances. New York. Wiley Publications, 1999. > Spekman, Robert E, Lynn A. Isabella & Thomas C MacAvoy. Alliance Competence: Maximising the Value of Your Partnerships. San Francisco California. Wiley Publications, 2000. > http://www.1000ventures.com/business_guide/strategic_alliances_main.html > http://business-fundas.com/2011/value-creation-strategy-business-model/ > http://excellenc.com/Partnerships.htm