Business partnerships are a great way to combine expertise and knowhow, conquer new markets and just survive in the highly competitive environment where even the giants of business are not immune from crises and hard times. That is why there are so many big name partnerships reported in the news: everyone wants to succeed, and sometimes teaming up with a strong partner is the only way to thrive.
A strategic alliance or partnership always involves strategic cooperation between organizations, aimed at reaching goals that one party is unable to reach on its own. When a business is lacking rigor, a partnership can help the company whip itself into shape by having a strong partner to aspire to and work with.
In the majority of cases, partnerships are a positive business move for the following reasons:
A good example of a mutually beneficial partnership is the alliance between Apple and Microsoft, where Microsoft promised to release Microsoft Office for Macintosh while investing US$150 million into Apple and setting Internet Explorer as the default browser on the Macintosh. This was a case where both partners gained from the business alliance, and it also shed new light on the nature of competition and the ‘winner takes it all’ mentality. It was a business situation where both partners were motivated to do an excellent job, stimulated in part by the high expectations of one another, which brought their efforts to new levels of quality.
There are many reasons to form partnerships, but the most common ones are knowledge exchange, market advantage and business efficiency.
Companies begin partnerships because they want to learn something new, obtain news skills, knowledge or knowhow and share valuable Intellectual Property in order to either create new products or services or innovate and update existing products or services. The two partners can enrich each other expertise-wise by filling the gaps in knowledge that may otherwise bring them down. The exclusive partnership between Apple and IBM is an example where both companies bring their expertise (IBM’s big data and analytics; Apple’s hand-held devices) to take enterprise mobility to the next level thanks to a new generation of business apps. The two companies coming together will hopefully produce results with a potential to transform mobile-led business, which would be impossible had each company worked without the knowledge of the other.
Companies join forces to enter new markets geographically or new market segments within the region they already work in. Sometimes it is impossible to enter new markets without the expertise of the partner, and a partnership may help both sides to launch and popularize the brand successfully. An example of such a market-advance partnership is a potential research partnership between Google Inc.’s Calico LLC life-sciences company and drug maker AbbVie, where Google tries to extend its reach onto an industry heavily influenced by technology but having little to do with its search engine beginnings. This is an example where an Internet technology giant is entering a market completely unknown to it, where it needs the expertise of its partner (AbbVie) to succeed.
Some partners start working together to bring the costs down and increase their efficiency and profitability. This move may also be advantageous in terms of offering a better customer experience and transforming the initial businesses into innovative enterprises through effective collaboration. The two parties work as a system optimizing their efforts and maximizing their potential as a united business force.
Most partnerships are started for all of the above reasons. One good example is a partnership between Nokia and the Microsoft Corporation. The main reason for the partnership is to gain a marketing advantage in the so-called ‘three horse race’ between Microsoft, Apple and Google for the hand-held devices market. By joining forces with Microsoft, Nokia is able to survive on the mobile and smartphone market, which it helped form, popularize and innovate in the first place. According to the Guardian and Forbes, another reason for the alliance is knowledge exchange where Nokia will share its expertise in hardware design, mapping and imaging to help better the Windows Mobile Platform, while Microsoft will lend its Windows Phone 7 OS and also provide search services that will be integrated with Nokia devices. Efficiency is the third reason where both companies are hoping to gain global reach and scale while increasing their profits.
Research states that from 20 to 80% of business partnerships fail. Before starting a partnership, it is important to understand why so many alliances fail and make sure the same mistakes are not repeated. For some companies almost half of their revenue is based on alliances, therefore putting business alliances in risky situations may cost these enterprises their mere existence.
On average, business alliances succeed in 50% of cases. According to the 2012 study by the Association of Strategic Alliance Professionals (ASAP) companies that follow a structured alliance management plan succeed in 80% of cases. Those partnerships that take a more relaxed approach have only a 20% success rate.
Business partnerships may fail for the following reasons:
To navigate these problem areas successfully it helps to take the time to think over the management and structure of the future partnership and make the necessary preparations before anything is set in stone. Knowing the risks is part of avoiding them, and studying the successes and failures of similar partnerships may be a good way to learn and safeguard their future.
What are your thoughts on partnerships? Can they stimulate both parties to be better than they are on their own? What advice would you give someone about to enter a partnership? Please share your wisdom below to make our business efforts more efficient.