Thursday 19th Oct 2017 - Logistics & Supply Chain

How’s your relationship going?

So how was it for you? A personal question? It shouldn’t be in a business world where, increasingly, partnerships are at the heart of many business models.

The world’s leading 500 companies each have an average of 60 major alliances. And those partnerships are often key to bringing core products to market. It’s vital they work well, but too often they don’t. They’re pursued mechanically by unenthusiastic managers with ‘us and them’ mentalities.

No one should doubt the business building potential of partnerships. A new study of 1,400 companies with partnerships by management consultancy Arthur D Little, reveals that companies with experience in partnering have a return on investment of 17 per cent – half as much again as those without. And partnerships are especially relevant in logistics where it is important to forge links both upstream and downstream in the value chain.

But while there are still companies out there who believe an inability to do everything is a sign of corporate weakness, there is a growing number that see real benefits of partnerships over mergers and acquisitions. The Little study found 60 per cent of companies thought partnerships were better at lowering financial risk and 58 per cent better at providing greater flexibility.

Measure success
But all this begs rather a large question. Partnerships only provide these succulent benefits when they work well – and too many don’t. Worse, top managers are often not aware that partnerships may be failing because there is rarely any objective measurement of their success. That’s because strategic partnerships are often forged at the top but then operated lower down the food chain. So the board loses visibility of the day-to-day working of the partnership. So how can it know what’s going on?

One company that has solved the problem is Siebel Systems, the e-business software development company that has set up a ‘scorecard approach’ to measure the progress of its 750 alliances.

Managers use the scorecard quarterly or twice a year to measure each partnership’s key success factors, such as finance, strategic fit, operational fit and relationship quality. Then they take steps to mould and improve their portfolio of partnerships.

Computer services company Unisys is another that believes partnership success can be measured. It has developed a ‘partnership value model’. One element of this model is measuring what participants feel about the effectiveness of a partnership. Managers complete a questionnaire that helps them to the status of the partnership. There are 20 questions and they focus on issues such as trust. The aim is to get a balanced view from managers on both sides of the partnership about how it is working. So assessment workshops are usually held with the same number of managers from each side – and on neutral territory.

Of course each manager provides a subjective view but Unisys has found a way to crunch the data from the assessment questionnaires to provide a benchmark of the partnership’s overall success.

The output of the Unisys benchmark is a bottomline score of from zero to one thousand – a scale similar to those used in the Malcolm Baldridge and other quality methodologies. Unisys is in a relatively early stage of applying this approach so most of the scores in its benchmark database come from partnerships where participants have made only a baseline assessment. The average score is around a lowly 350 – rated a ‘poor to good partnership’. A worldclass partnership kicks in when the score reaches 750. So the degree to which a partnership falls short of that defines an ‘improvement gap’. And the detail from the answers to the 20 questions will focus attention on the issues which managers must deal with to close it.

Yet while all this is useful, it’s difficult not to feel that the success or otherwise of many partnerships lies in the strategic intent behind them. The purpose of partnerships is to create value for both partners. So whether the partnership does that is the ultimate test which ought to transcend tactical considerations.

Arthur D Little’s research suggests that partnerships create value in three main ways: by teaming up with competitors, by bundling resources or by learning from each other. The three are not mutually exclusive. But it all comes back to purpose. Why does a company want a partnership?

The iron rule for successful partnerships is strategy first, deal-making second.

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