Collaboration with accountability is probably at its starkest when two or more businesses agree to work together. Businesses are accountable to their owners for delivering prot growth, yet sometimes organic growth or acquisition are not viable options. Instead, when cost, time and risk are taken into account, working with others can emerge as the best solution.
For example, with Europe’s weak economic climate, looking to other continents for growth is becoming increasingly attractive. So a UK business creating a joint venture (JV) with a local business overseas minimizes the risk of entry by combining UK capability with local knowledge and assets. For example, Home Retail Group has created a joint venture with Haier Group, one of its Chinese suppliers, to develop an Argos branded multi-channel, general merchandise retail business in China.
But collaboration can come in other forms beyond the formal ownership structure of a JV. One major success story is that of the Star Alliance of 25 airlines who share capacity and customers under common standards of customer service, security and technological infrastructure.
Then there are looser networks such as the Silicon Fen where a combination of The University of Cambridge, venture capitalists, software, electronics and biotechnology businesses have located in one geographic area to make the most of their combined capabilities and funding.
And even the Third Sector has identified the benefit of collaboration with the recent creation of “Partner-Up” – an independent marketplace where charities, social enterprises and housing associations can safely explore partnership options and receive support in deciding which organisations to approach.
Figure 1. Increasing Need for Collaboration (Adapted from Chesbrough & Teece -1996)
In all cases, the common theme is that businesses are seeking to build something new, fresh and better than what they can do alone. But as Fig. 1 below indicates, as the incentive to take risks increases through the use of partnership arrangements, the ability to settle conflicts and coordinate activities decreases. Hence the need for a strong capability in collaboration.
If your business finds it difficult collaborating internally, then think how difficult it will be to collaborate externally. Indeed, the internal cross-functional behaviours you see within your organisation can often be a good predictor of how good – or poor – you will be at collaborating with others externally.
Based on our own research and experience, we work on the premise that there are three interconnecting pillars to building effective partnerships:
- Strategic Alignment
- Contractual Management
- Relationship Management
So let’s look at each of these three pillars in turn.
1. Strategic Alignment
This is about building a very clear business case that defines the investment requirements and benefits, which is attractive to the owners of each partner. Over the years I have seen three business partnerships fail because the business case had not been thought through sufficiently at the start, with it only coming to light after a large dose of time, energy and money had been thrown at the collaboration, trying in vain to make it work. When the balance of risk and reward is out of kilter, then the partnership will at some point fall over.
So the process of building the business case should actively flush out what are the true objectives for each partner. For example, is it short-term prot generation, long-term customer relationship development, or capability development? The partners probably will have differing objectives, so the trick is working out how to align them. And then there is the time dimension: over time the market and/or your own objectives may change, and so impact on the original business case. J. Golding, previously at Hewlett Packard, once cited that “fewer than 33% of alliances go beyond the first product”. So being clear about your objectives and when you wish to achieve them is important.
One CEO of a JV reflected:
there is a need to re-examine all three pillars regularly between partners, to ensure that alignment of strategy, contract and relationship still holds, and to be explicit where any adjustments have to be made. Management teams change, people at the top move on (as has been in the the case of our JV partner), and corporate strategic priorities evolve. One partner’s ambition for the JV may grow while the other partner’s might diminish. Ensuring the relationship is good enough to recognise and address this at the time would seem important, and making appropriate contractual adjustments where required.”
2. Contractual Management
The next step is to turn the business case into operational reality by helping establish performance measures and expectations, and the rules of the partnership game. Turning words into metrics is a good way of ensuring nothing is lost in translation. Also where accountabilities sit for delivering on these targets, clarify who makes what decisions, and how the decisions are made to ensure clarity of roles for when the partnership commences. The rules should also build in dispute resolution and the exit strategy. Be realistic and don’t expect a marriage made in heaven.
3. Relationship Management
Contractual management is a necessary, but on its own not sufficient, requirement for partnership success. The rules of the game should just be a safety net, which are only activated when things become problematic. What partnerships really seek is to operate beyond the contract, and generate a level of trust between each of them, which gives confidence in truth, reliability and worth of each partner.
This is why differences in country and organisational cultures can either inhibit or enable the performance of a partnership. So understanding and addressing where there is a difference in what is valued and what people focus on, can help prevent future difficulties.
Relationship management also requires an ability to influence rather than control others, managing the stakeholders of the respective partners, and being open with each other about the level of commitment, expectations and performance.
In our experience, these three pillars need to work alongside each other. So getting them right before any partnership is created is important. In one of our development programmes, we help senior executives effectively manage their joint ventures by addressing these three pillars:
- Clarifying how the partners’ strategies align, and what each partner expects over the short, medium and long-term
- Defining the metrics for the partnership, and identifying where accountabilities and decision authorities lie
- Understanding each others’ ways of working, and building the capability to influence rather than control.
Working hard on these three upfront, and keeping a close watch on them as the partnership develops will increase the chances of partnership success.