The Value of Strategic Partnerships

An interview with Thomas Edwards,

Q: How would you define strategic partnerships?

TE: A strategic partnership a long term relationship that is a cornerstone of your business. Too often however, the term is loosely used in business in that strategic connotes importance. We're talking about a partnership that's part of each company's strategic plan, where both companies see it as having significant value to their businesses.

Q: What kinds of benefits can companies derive from strategic partnerships?

TE: There are a wide variety of benefits. For example, an alliance which leverages a partner's existing channels can dramatically reduce your customer acquisition costs, and also build revenues because you are talking to an existing base of customers. An alliance which gives your customers access to additional products or services can deliver benefit in terms of greater loyalty and customer satisfaction. It's far easier to build upon existing opportunities than to try and start a value creation process from zero. It's important to be able to see benefits beyond dollars. One piece of advice I offer to clients is not to miss the opportunity for purely cash reasons. Just because the alliance doesn't involve a direct payment doesn't mean there isn't significant value, whether in exposure to potential customers, or use of a partner's channel to enhance your business. Similarly, there are many partners you can use for your benefit that don't cost you anything. I've been using this methodology for the last 15-20 years, and more often a company's ability to identify the non-cash opportunities is the skill that creates the greatest value.

Q: Do you think that skill is present in most companies?

TE: In many cases companies have difficulty assessing these opportunities. I sat in meeting recently where one company was unable to evaluate and clarify how much value their access was bringing the other company; they couldn't monetize it, so it fell apart.

Q: Many high-profile partnerships fall apart. What are some of the other pitfalls to avoid?

TE: Both companies need to make the partnership a priority. Too often deals become one-sided because there is no focus on the partnership. Frequently this happens immediately after the deal is done, and the partnership does not grow. That's where they fall down most often. A partnership also needs to have top-down focus. Each company needs to create business and management objectives to manage to their partnerships. If there are no MBOs that say there are objectives, written into the partnership, then the alliance peters away. You also get the situation where there is a budget for partnership, but it is not attached to the objectives in the partnership. This is a waste.

Q: How do you define a partnership's success?

TE: Success may be measured in revenue growth, customer acquisition and satisfaction, margin improvement, nearly anything. What's important is that managers determine what success is prior to creating the partnership or there's no reason to go into the partnership. It depends entirely on each company's needs.

Q: So what are the critical success factors for a partnership?

TE: The following list is a good start, and these aren't difficult to implement, as along as there is significant benefit for both sides. It's also a good idea to write as many elements as possible into the partnership agreement:

Setting expectations of what is strategic to each partner
Agreeing upfront on what defines a successful endgame, identifying what must be accomplished for mutual success
Setting milestones for the partnership
Placing ownership at the highest levels possible in the corporation, things that aren't focused top-down and bottom up usually don't succeed. Priorities at top and bottom can vary, so strategic partnerships need to be a senior management priority.
Tying strategy to business objectives, which need to be tied to management objectives · Acknowledging that the alliance may have multiple goals, different for each company
Holding regular meetings to discuss progress
Reviewing and modifying the plan as business and needs change
Speaking the language of the partner. Every business speaks in a different way, so it is imperative that you go in and speak the language of whomever you deal with.
Avoiding over-commitment
Q: What kinds of companies in which industries would benefit most from strategic partnerships?

TE: The only ones who do not benefit are those who don't know how to capitalize on a partnership, those who lack vision. AOL/Time Warner is a good example of a successful alliance. If you look at what Bob Pittman has done versus what was going on previously at Time Warner, you see significant value creation. Even in big companies, alliances can exist among business units, and Time Warner is a good example of that. Where you once had units competing against each other for the same business, now you see promotion across properties. Alliances can exist synergistically both inside of existing companies, as well as in separate companies. Enormous opportunity exists in getting business units to talk to each other, and in bringing other corporations together. But to reiterate my earlier point, if you do not have the top-down focus, this will never happen. Bob Pittman has said to his organization, "If you cannot play together, you will not be around for long." And he has successfully cut costs by doing it. Infighting and working in silos is the norm; unfortunately most CEOs aren't drilling down into their own companies to stop it.

Q: How does THUNDER FACTORY help clients develop partnerships? Does it focus on all the elements we touched on, or just strategy?

TE: We at THUNDER FACTORY, bring to the table not just ability and experience in developing and growing partnerships, but an understanding of our client's business and relationships we've already developed that we can leverage on our client's behalf. We also bring a clear, external perspective that helps us take clients in new and profitable directions. Often times it's just a matter of getting them to focus on what is important.

The THUNDER FACTORY approach focuses on all the elements of making a partnership successful, well beyond strategy. We don't just tell our clients what to do, we help ensure that it goes right from start to finish, and that the organization learns from the process.

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