All About Business Partnerships

Feb 18, 2009 · 5 mins read
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Most businesses form long-term relationships with customers and other businesses that yield mutually beneficial win-win results. In today’s business, several factors necessitate the need for partnerships and alliances. For example, factors like a product’s time-to-market, development costs, need to define industry standards, and desire to gain market clout is associated with high risks, and are, therefore, makes sense to partner with an ally and jointly develop a business.

In general, businesses partner with each other so that one firm has access to resources and skills that, if developed in isolation, would be costly in terms of either money or time. Partnering enables firms to gain access to resources and skills each requires to develop and deploy the product quickly. Moreover, the biggest resulting advantage is the short time-to-market, which is the time to develop a product and bring it into the market. All the partnering firms can work together and develop complementary products that increase each individual firm’s market share. For example, Cisco, a strategic technology company, partnered with Current because the Cerent’s products make it less expensive for Cisco to transmit voice and other data over fiber-optic lines. Cisco also formed partnerships with Motorola, IBM, HP, EDS, and several other companies that will allow all to contribute to each other’s growth.

As can be seen with Cisco, collaboration is also important to define standards, especially for new technologies. Customers will not hesitate to buy a new technology product if it is compatible across different components and platforms. An incompatible product often raises uncertainty and doubt about the right product to buy. As standards of compatibility become popular, more and more customers purchase the associated products. As a result, the companies’ customer base would increase. Moreover, as the customer base increases, the partnering firms can launch complementary products. The success of complementary products is largely dependent upon the installed base of the product. For example, software developers are more willing to write applications in Java or .Net compared to Pascal or Fortran because the former programming languages have wider penetration in the market.

Business alliances can be classified into three different types:

  • Vertical alliance
  • Horizontal alliance
  • Customer relationship

At times, companies from vertical alliances with other firms that are at different levels in the supply chain. These partnering firms can be either suppliers or distribution channel members. Such relationships are used for gaining efficiency and effectiveness in accessing the primary market. Vertical relationships assist the manufacturer by providing information about the competitive advantage, market intelligence, and customer reaction.

Manufacturers, for instance, frequently rely on suppliers who are at different levels on the supply chain to implement inventory systems, among other systems. For example, the alliance between Apple (iPhone) and AT&T; can be described as a vertical alliance. In this case, Apple provides the iPhone and AT&T; provides the service. Similarly, when the real estate market is examined, commercial estate developers & builders collaborate with landowners to develop real estate properties. Such an alliance can be termed as a vertical alliance.

In several situations, firms that are at the same level in the supply chain form horizontal alliances. These firms have to potential to compete with each other. HP and Kodak, for instance, elected to collaborate with each other to develop HP printers. The photo-paper compatible printers turned profits for two companies who were on equal footing, and both gained considerable advantages from the alliance.

At times, firms form direct relationships with customers through surveys and interviews. Such relationships often benefit both firms and customers. Firms will get a chance to understand what the customer wants and redesign their products accordingly. The customer, then, gains a better product when the firm exclusively develops solutions for the customer’s needs. This sort of relationship is very useful for both the firm and the customer.

Alliances can potentially fail because of a number of issues. First, working with other firms increases the complexity of the project. Decisions have to be made jointly and as more teams put their mind share, decision making comes to a halt. Issues such as incompatible corporate cultures, lack of attention, inadequate resources allocated to taking the relationship forward, etc badly affect the outcome of most alliances.

Second, loss of trade secrets is another hurdle that companies have to deal with. The partnering company can learn the business secrets, break the partnership and become a competitor. Firms that form an alliance should trust each other to ensure a successful relationship. Finally, strategic alliances face the risk of Federal anti-trust prosecutions. US antitrust laws are very tough on corporate relationships especially when large corporations are involved in the relationship.

Partnerships, however, can succeed if the partnering firms take certain steps to ensure a secure relationship. First, all the firms should be interdependent. All parties must be dependent on the others for some vital resource that is difficult to obtain elsewhere. Second, all the partnering firms should have a commitment or the desire to continue the relationship into the future. This is an important element for successful strategic alliances.

Third, partnering companies should be able to trust their allies. Trust leads to more effective information sharing and a willingness to allocate scarce and sensitive recourses to shared efforts that benefit all the partnering firms. Fourth, the corporate cultures of the partnering firms should be compatible with each other. For example, RedHat and Microsoft can never form a partnership because of their corporate philosophies and cultures differ too strongly to create an effective alliance. Finally, conflicts should be resolved using industry-standard negotiation techniques.

At times, some partners try to coerce other partners to make them fall in line, going as far as threatening partnering companies who do not adhere to the leading company’s wishes. Partnerships will be successful only if all the partnering firms adhere to the true spirit of cooperation. If alliances can be made to function well, firms can make business wonders possible.