Written by: Subir Palit
About the author: Business leader | Motivational Speaker | Former COO, CMO | Current Country Head – Greenply Industries. He has over three decades of experience in marketing in consumer electronics and building materials industry
Today only a few organisations have all the resources & infrastructure to tackle new market opportunities or competition independently, maintain economies of scale, cost efficiency and deep network penetration. Going it alone only, may lead to unreasonable investments and an infrastructure which may require dismantling afterwards. Business partnering can actually be cheaper and more flexible than a merger or acquisition.
“Strategic Business Partnering”, here is in context to an organisation which have manufacturing facilities but still enters into an alliance with another manufacturer for mutually beneficial goals, viz, capacity utilisation for one and for the other catering to the market demands without additional infrastructural fixed investments.Here we are not discussing of relationships viz, of a manufacturing company with trade, financial institutions or a venture capitalist.
Generally, strategic partnering helps an organisation to find an outlet for excess manufacturing facility or service one’s customers through controlled outsourcing of products through registered vendors, achieve economies of scale, gain access effectively to new markets etc. Such strategic partners helps and results in maximising the benefits through complementary skills and competences, spreading risks and maximising the benefits. These partnership agreements are normally only for a defined period of time with high level of commitments from both side and strict checks and control mechanisms.
A supplier or vendor relationship is primarily transactional—you reach out to each other as needed. A partnership, however, is more value added and moves you toward being part of strategizing and deliberating before, during and after the transaction is needed. You build a relationship, a knowledge of each other’s working styles, and a natural rhythm of communication that’s not based entirely on scheduled meeting times. It is these types of partnering that can enable companies to grow quickly, efficiently and successfully, and bring positive results on the bottom line of all.
An action checklist helps in planning phases of strategic partnering, structuring the partnership and selecting an appropriate partner.
The action plan can be divided into phases -:
Phase – 1- Preparing for the Strategic decision.
- Analyse the Changing market place: Understand which market trends are beginning to dominate and how the market is likely to develop in future. An introspection is needed to understand how you got where you are there today. Does one need to invest further in its manufacturing capacity or technology base or new markets? Does future market volatility or stability suggest for an investment on manufacturing? A detailed study needs to be done on what competition is doing to compete on innovation, service and enhancing value for their customers.
- Imagine the future: This means that one needs to come out of thinking and replicating only the past models and articulate a clear vision for the future. The need is to remodel and rethink the business one is in and adjusting focus on one’s core strengths based on current market dynamics. Thereafter the vision needs to accepted and observed by all in the organisation as a driving force.
- Evaluate Process at micro level: When considering a strategic partner or an outsourcing partner one must be very clear and conscious of what is inside your own organisation, your strengths and weakness. Identify your ability to smartly respond to market changes. Identify the key skills one need to develop and improve. A core competence and knowledge of minutest details of the business one is in will be its greatest bargaining chip in negotiation to enter a partnering agreement for outsourcing.
Phase -2 – Structuring the partnership.
- Decide on the dimension of collaborations: A strategic partnership can be of two forms.
- Horizontal Partnership: Are we contemplating a partnership for R&D purpose? Horizontal partnership is usually formed with competitors in the industry.
- Vertical Partnership: Are usually formed with suppliers, outsourcing vendors, distributors, marketers etc.
- Decide on level of Cooperation: One will need to consider how formal the structure needs to be between the two partners – the legalities, communication procedures and process, control mechanisms and organisation structure.
- Search for the right fit: Full information and clarity on,
- Whether the prospective partner have successfully produced similar items in the past?
- Can the prospective partner ensure best value sources and continuity of supply?
- How will the prospective partner ensure quality assurance?
- Checks and control mechanisms: All partnership agreement needs some kind of checks and control. Like which activities which partner will control and how will they exercise their control. The variance limits and boundaries are to be clearly defined and structured.
Phase -3 – Selecting the partner.
- Examine strategic fit: It’s important that both sides share a broad business philosophy along with shared short terms and long-term goals. A broad agreement needs to be there on belief systems, business plans, partnership structures and times scales.
- Latent dangers and threats: Most importantly one will need to safeguard from hidden dangers such as cultural incompatibility and management styles. These seemingly inconsequential details are many times over looked and not paid attention before final selection resulting in severance of agreements.
There is a popular saying that goes: “If you want to go fast, go alone. If you want to go far, go together”.
Strategic partnerships play a critical role in enabling an organization to address key business challenges and respond to emerging trends effectively. The direct benefits of strategic business partnering come from a greater competitive advantage of achieving a shared objective. Strategic partnerships can lead to better opportunities for revenue, improved and new products, while reducing the brand owner’s financial investment. The success of any business relationship lies in trust. One will need to be confident that the partner can deliver desired benefits. In anticipation and a desire to get the promised benefits, one may be tempted to micromanage and disrupt the process. The problem with such behaviour is that it might hinder the progress & the efforts of the partner.
Instead, the best thing for one to do is to modulate the expectations and trust that the partner will meet or exceed those expectations. Besides, one can always check or request updates/results from time to time to know if the partner is delivering quality work.
There are many important factors to consider when choosing the right strategic partner. However, the key to choosing the right partner is to choose someone who thinks like you and shares beliefs what you believe. Once you find someone, who is culturally aligned, whom you trust,you have to be flexible and understand that you are building something together.