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Working Toward Truly Strategic Partnerships

Written By: Bill Petersen
Published On: December 23 2005

Introduction

You may not have heard the term, but the concept of "Barney relationship" brings the same image to everyone. I love you, you love me, and we dance off into the sunset together. But, so what? What does it really mean to either one of us? In a Barney relationship, the answer is that it means nothing: all fluff and no substance. Unfortunately, that is also a good description of most of the partnerships that are formed in our world of software technology.

If good partnerships seem to be a rarity, true and lasting relationships that benefit both parties are downright unique, and this is clearly to our collective detriment. Unless you are an SAP or Microsoft, with virtually unlimited research budgets, you can not afford to stay at a tier-one level across the breadth of a major offering such as enterprise resource planning (ERP), or supply chain management (SCM). Your only option is to employ a set of strategic partnerships to fill the areas of functionality that you lack.

If the need is so great, why are there so few of these strategic alliances that really work? To understand why truly productive and mutually beneficial partnerships are such a rarity, one needs to look at what is required to make them successful.

Requirements

Common interest
This is the most basic requirement. If there is no mutually beneficial reason to come together, why bother? A common interest could include market penetration, increasing sales, expanding a product line, etc.

Complementary support
The products and services of the potential partners need to fit together in such a way that each partner fills a gap found in the other's offering. This can take the form of technology, market access, financing or any one of a number of business issues. This union of products or services does not have to be perfect, and there is even room for some competition among the joint offerings. However, the fewer overlaps the better.

Synergy
What the two companies can bring to the market jointly needs to exceed what they can bring individually. While offering "one throat to choke" may be attractive to some customers, it, by itself, is not a compelling reason to go to market together.

Communication
No partnership between two companies can remain viable without good communication. This needs to take place at multiple organizational levels, and across the various functional groups. Common organizational structures, values, and technologies all serve to aid this process.

Respect
Successful partnerships require that each party feels comfortable in the other's ability to fulfill their responsibilities. Their expertise was acknowledged when the partnership was formed: they know that area of the business best so they need to be left alone.

Trust
Companies are made up of people and people are imperfect—they look at things from different viewpoints, and they make mistakes. When problems come up, both parties need to feel comfortable that their partner still values the relationship, in spite of how things may appear on the surface. They need to take the time to understand the situation from both sides, and not be so quick to run to their lawyers.

These six characteristics of a good partnership were given in this order for a reason. Much like Maslow's hierarchy of needs, partnerships evolve from the satisfaction of the most basic needs for survival, on up to higher-order activities. And, just as in Maslow, the greater good comes at the top of the scale.

As illustrated in the diagram below, the first three characteristics could be viewed as innate and binary. They are either there, or they are not. For the most part, they do not have to be developed, but are none-the-less essential requirements on which to build any successful partnership.

Communication is a higher-order development on this evolutionary scale. And, for the first time, it requires that a commitment be made by both members for some activity to take place. However, the benefit it brings is huge in terms of the probability for long term success

The highest order of partnership development comes with satisfaction of the last two characteristics, respect and trust. However, this will not be possible unless you have already established a successful communication process. Nor will it be worth the effort unless you have already satisfied yourself that the innate characteristics of common interest, complementary support, and synergy are indeed in place.

This illustration uses three types of partnerships, each one quite different from the other. The most basic form can often be found in the world of inanimate objects, and gin and tonic makes a perfect example. The common interest is to produce a beverage that tastes good, satisfies a thirst, and provides a pleasant feeling for the user. The complimentary factors include the tonic's ability to smooth out the gin, and the gin's ability to provide impact to the tonic. For synergy, the carbon dioxide in the tonic allows the user to metabolize the alcohol in the gin that much more effectively. And, at least in theory, the quinine in the tonic allays some of the negative effect of the gin. So, if they are strong enough, you can have a mutually beneficial partnership that has been recognized around the world for the last 135 years, all based on just the first three requirements.

A popular mixed drink may be a good example of a successful partnership without people being present, but that hardly applies to companies trying to form a business alliance. To do that, you have to have communication between the individuals involved, and it is the absence of that critical factor that causes most business relationships to fail. It is communication that allows a relationship to rise to the higher levels. By taking the time and effort to understand one another's needs, the first three characteristics can be strengthened, conflicts resolved, and the relationship can grow as it matures. In our technology world, this should go far beyond building more efficient integration between software programs. It must include an understanding of each other's markets, sales strategies, financial needs, and a host of other business-related issues. It means that multiple groups in both companies have to commit to make the partnership a success.

Unfortunately, most business partnerships barely reach, much less go beyond, this middle ground of establishing effective communication. After the press release is sent out, and perhaps a high-impact deal or two has been signed, both parties revert back to the pursuit of their own self interests, and the partnership is just one more piece of old news. However, there are examples of companies that have worked together for many years, and have provided each other with long-term strategic benefits.

One such example can be found in the twenty-five year relationship between Enterprise Software Incorporated (ESI) and Personnel Systems Incorporated (PSI) (these are both fictional names but the facts of the following story are true). Enterprise had an outstanding product for the services sector of the ERP market, but could not seem to develop the tier-one-level solution that was required for their human resources (HR) component. PSI had healthy market for its stand-alone HR product, but needed to leverage their limited sales and marketing resources. So the first set of criteria, the innate characteristics, was in place; the common interest was to gain revenue through the sale and support of business process software into the Fortune 1,000 market. The complimentary aspect was satisfied by ESl's need to bolster its weak HR offering, and PSI's need to gain access to a larger class of prospects. And, there was synergy between the two companies: separately, neither one of them had a complete solution for the market they wanted to serve, but together they had something that was fully competitive.

At this point, they signed co-marketing agreements and entered into a reseller relationship, and began to enjoy some success. They were at that gin and tonic stage where so many software partnerships end up. But because of the nature of the product they both sold, their prospective customers demanded to know more about how the two systems worked together, and that forced the two technical groups into a closer relationship. This lead to a much tighter plug-and-play integration scheme, and a decision was made by ESI to start shipping PSI's software on it compact discs (CD), to be turned on by PSI when the customer signed their contract as well.

Now that the technical sides of things were running so smoothly, marketing got involved, and joint campaigns were built and launched. These brought inquiries on both products to both companies, and the two sales groups began to do cross training. Over time, as the companies began to work together at these multiple levels, the relationship began to move over toward the right-hand side of the diagram. Respect came as they learned just how good they each were at what they did, and trust was built as they survived several rough bumps in the relationship.

The first such test came when ESI decided that they wanted to concentrate on the higher end of their market, and leave smaller prospects to a reseller channel. To be an enterprise systems architecture (ESA) reseller, you had to take over the entire process: implementation, training, and support. PSI already had people that implemented and supported their product, and because of their relationship with ESI, they had learned a great deal about ERP software as well. So the decision was made to become an ESI reseller. The first thing they did was hire some expensive people to do these longer and more difficult implementations. Then, they built, equipped, and staffed a new facility to handle the training for this new class of customers. Finally, they hired more sales and marketing people to handle the new product line. All of this took about a year to accomplish, but it finally came into place and began to produce results. That is when the bad news came from ESI: management had changed priorities and now wanted to concentrate on revenue, regardless of source, so it was taking the lower tier market back. In most software relationships, this situation would have been resolved by attorneys, not executives. Instead, because the relationship now went to that level, meetings were held so that both parties understood what had happened, and arrangements were made to mitigate the pain.

Another issue arose over a question involving intellectual property. Because the relationship now included close ties between the two technical groups, sometimes decisions were made that made perfect sense from that perspective, but may not have been best from a business sense. One instance of this came about when PSI created set of applications for ESI to support some new payroll tax requirements. The new tax module worked perfectly and was sold successfully for several years. Unfortunately, no one in the front office of either company knew that it was built by PSI engineers using the ESI toolkit. When that was discovered, questions arose regarding ownership and royalties on both sides. But, once again, because of the depth that the relationship had reached, a longer term view was taken. PSI agreed not to use ESl's tools anymore, and ESI grandfathered PSI's rights to the software.

Both of these stories are illustrative of the kinds of situations that can break a less established partnership. If the level of communication between the two companies had not become as pervasive as it was, they never would have achieved the degree of trust and mutual respect that allowed them to work things out.

So what can you do to help your company partner more effectively?

  • Internal discussion: Regardless of where the first contact between the two companies occurs, bring other groups in as soon as possible to get their viewpoints. If the first contact is in the field, bring marketing in to confirm the innate characteristics. If that checks out, bring engineering in to see if the two systems can be integrated. Get management involved early to see if you have their support as well.

  • Existing customers: Go to your customers to get their reaction. These are companies that know your product—would they feel it would be more attractive to them if it included the functionality that your partner would bring?

  • Prospects: Talk to a prospect in a current sales cycle. If you were able to add your partner's capabilities to your value proposition, would that put you above your competition for that deal?

  • Market experts: Find out how the analyst community would feel about your plans. While you think that a partnership would be sufficient to fill the gap in your solution, the experts may not agree.

  • Think long term: Explore ways for both parties to profit over the long term, including the question of an exit strategy. Would a buy-out make sense? If so, how would the valuation be determined? When would these options become available, and to whom? If these issues are not covered, it will be difficult to build the level of trust required to put up with small changes in strategy by either side.

Conclusion

In conclusion, strategic relationships require the satisfaction of certain criteria (the innate factors), hard work (communications), and dedication (building respect and trust). The first stage takes analysis, the second takes planning and execution, while the third takes time. All three were required to build a truly effective relationship like the one enjoyed by ESI and PSI, and it was not always easy. But, twenty-five years of closing deals that could not have been won by either company on their own has more then repaid them for their efforts.


This article is from Parallax View, ChainLink Research's on-line magazine, read by over 150,000 supply chain and IT professionals each month. Thought-provoking and actionable articles from ChainLink's analysts, top industry executives, researchers, and fellow practitioners. To view the entire magazine, click here.

About the Author

Bill Petersen Vice President (VP) - Channels and Alliances Precision Software Bill Petersen has over twenty-five years of experience in SCM. Working within the advanced research facility at Texas Instruments in the late eighties, Bill Petersen was responsible for bringing the artificial intelligence-based decision support software (Expert Systems) to the market. At CSTaR, the research center for Anderson Consulting (now Accenture), Bill continued in a similar role. Since leaving the research community, Bill Petersen has worked for several of the "best-of-breed" providers of warehouse and transportation management systems including Manugistics, Red Prairie, and JD Edwards.

Bill Petersen joined Precision Software in 2004. He plays a pivotal role in marketing their global Logistics solution TRAXi3.

Bill has been awarded a bachelor of science (BSc) in operations research from Long Beach State University and a master in business administration (MBA) in marketing from St. Edwards University.

Contact information:
Telephone: (1) (361) 779-8195 Fax: (1) (312) 334-8606
E-mail: bill.petersen@precisionsoftware.com

Previous speaking engagements Bill Petersen is an accomplished speaker in the supply chain domain. In the past twelve months, he has presented at Council of Supply Chain Management Professionals (CSCMP) 2004, Nasstrac 2005, Quest 2005, and at the University of Ackron, Global Supply Chain Strategy & Technology seminar (November 2005).

Previous publications Contributor to Parcel Shipping & Distribution Magazine (US) and Manufacturing & Logistics IT Newsletter (Europe, the Middle East, and Africa [EMEA])

Memberships and affiliations Active member of CSCMP and former member of the Metric's Committee for Supply Chain Council


 
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