Clients frequently ask us about the formation of strategic partnerships- particularly when entering new markets or supplying new customer segments. If you are in the position of deciding on how to proceed with a strategic partnership (often referred to as an alliance), I suggest you and the target company first review 3 questions:
- Strategic Fit: How will this alliance fit into the long-term strategy of both your company and the company you are considering partnership with? Don’t settle for a marriage of convenience- consider the true alignment both now and in the future.
- Additional Value Generation: What additional value will be generated for both parties? While the term “synergies” has to be one of the most overused words in business language today, the potential partners should conduct an objective review of revenues to be gained- and lost. The business cases doomed for failure are those which only list the upsides- and not the downsides of a partnership.
As an example- recently two companies in a B2B industry announced a strategic partnership- triggering 3 of their largest customers to begin searching for an alternate supplier. Why would this occur? The purchasing departments of the customers were concerned about the concentration within suppliers- and as a result there was a loss of ~15 Million EUR p.a. in orders. The partnership was still positive from both short-term P&L and long-term strategic objectives- however if the business case had not anticipated the loss- there would have been some very difficult discussions within the company later.
- Correct Effort and Resources required for a successful partnership: What resources are required to make the partnership work to its fullest potential? The single biggest error we have seen is in the underestimation (or no estimation!) of resources required to make a partnership move from a contract to increased sales and service levels. A memo or letter to your customers and internal sales and production teams will not “move the needle” from current status quo to better performance. Be sure to have an accurate estimation from both parties and the commitment necessary to dedicate what it takes for the partnership to work.
This post was from Scott Newton, a Managing Partner in Thinking Dimensions for Europe.