Collaboration

Taking great strides together

Summer 2009

By Andrew Humphries & Richard Gibbs

In a business environment where global sourcing is the norm, partnering is at the forefront of business strategy. One could say individual businesses no longer compete; rather it is the interconnected activities of supply chains and alliances that are the real competitive features of a company. Whether the objective is to extend your reach and coverage or to innovate and gain an operational advantage in the market, if you are not skilled in managing complex, networked activities across enterprise and national boundaries, you are unlikely to succeed.

In our book Strategic Alliances and Marketing Partnerships: Gaining Competitive Advantage through Collaboration and Partnering (Kogan Page, London), we take readers step by step through the process of evaluating their important business relationships and locating them within the Gibbs+Humphries (G+H) partnership types. This article, which outlines our research, aims to give CPOs a new and more powerful frame of reference for understanding their strategic alliances and supply chain partnerships so they can manage them more effectively. We describe an innovative way of characterising these key relationships using the G+H partnership types. We demonstrate how it provides an objective way of unlocking the comprehensive knowledge contained in highly complex business situations and show how you can significantly improve partnering performance to achieve competitive objectives.

Through collaboration, businesses can improve operational processes and reduce costs and time to market. Partnerships enable the value offering to the end customer to be enhanced and, crucially, they can be the source of long-term competitive advantage by delivering high returns on investment, better gross margins and above-average growth.

Strategic alliances can be used to bring new skillsets and capabilities into the organisation, which in turn generate new opportunities, innovation and enable the development of new products and services. They allow firms to initiate and accomplish objectives that, on their own, they could not even consider.

The reality is that many partnerships don’t live up to expectations and some 40 per cent are dissolved in the first year. In some cases, the effects can be catastrophic. You only have to look back to the UK motor industry in the 1990s where bad behaviours caused production to be moved offshore and opened the door to firms such as Nissan and Honda from the Far East that really understood how to collaborate effectively.

The opportunities to fail in supply chain relationships are legion. Many of us would recognise that much of a manager’s knowledge is about managing inside their organisation. Finding ways to work in teams and collaborate across the functional areas of a single business is a recognisable challenge. In larger organisations, it is not unknown for divisions to have serious squabbles between themselves – and they are part of the same team.

Looking outside one’s own organisation and working with other businesses is not something that many of us are trained to do. In fact, the natural, competitive instinct of any organisation is to work close to home and to be wary of outsiders, be they suppliers, customers or partners. After all, this is why we have contracts containing detailed terms and conditions. This wariness translates itself into a series of behaviours that, it can be argued, predestine partnerships to be unsuccessful.

Beyond these cultural issues, alliance management is an often-misunderstood concept. In many organisations, the function is diffused among commercial, sales, operations and senior staff. Who is the point of contact to facilitate and co-ordinate the activities within a firm that serve a relationship with another? Who centrally carries out co-ordination, problem resolution, performance management and planning for the joint enterprise?

This problem is compounded by the many business schools that  continue to teach supplier relationship management and key account management, which  promote a self-centred approach, rather than alliance management, which focuses on collaboration. Companies must adopt appropriate, objective governance measures that fully recognise the strategic value of their partnerships, otherwise they will invite failure.

Negative emotions

The steps in the failure of a relationship can be represented as a dynamic feedback loop or spiral with value being the main casualty that falls from its core (see figure 1, above).

 Problems may begin with the partners feeling trapped and under pressure. This confinement is brought about in many situations, even when the companies have free choice. Simply electing to work with one firm can make a company feel trapped because it has deselected or consciously removed the opportunity of working with other businesses. This feeling of entrapment grows and leads it to take a very self-interested view of the arrangement, focusing on its own objectives to the detriment of the other party. This can often be the basis for adversarial negotiation as managers look to protect their own by gaining concessions and commitments from their would-be partner.

We have often seen what we describe as “partner envy” where companies impose their business model on the partner and then imply that the other is getting more revenue, more profit and more benefits from the deal than they actually are. This self-interest leads businesses to do as little as possible to stimulate the partnership. There can be a focus on the minutiae of agreements and action plans. Investment of time, energy and resources is kept to a minimum. Dealing with the other business is seen as a risk because it has its own shareholders, employees and agendas, which means it cannot be trusted. Companies start to take a short-term view, sacrificing the long-term profitability and potential of the partnership for short-term gain and benefit.

The final step in the downward spiral is the withholding or manipulation of information to gain advantage. Blatant, deliberate misinformation is often an outcome. This is one aspect that we see frequently in failing partnerships; it can be endemic in many environments where this “information economy” sets the scene from day one. This sorry situation then feeds back into the feelings of entrapment and the cycle starts again; nobody gains from this and the only outcome is value disappearing down the drain.

In the 1970s and 80s, the UK government didn’t trust its defence contractors and fixed their profits while paying variable costs (the cost-plus policy). The contractors worked hard to creatively inflate their customer’s view of their costs so the government put inspectors onto the production lines. In response, the contractors cut corners in design, knowing they would be paid in future to repair unreliable equipment returned from the front-line users.

When viewing relationships using these super factors and matching them to perceptions of success or failure, some clear patterns emerged. There were partnerships where the performance against all of our indicators was very high. Similarly, at the other end of the scale, failing partnerships were characterised by the poor ratings of the critical success factors. We were able to confirm that nearly all partnerships fell into one of eight partnership types (see figure 3, above). Most importantly, each type had a clear, individual “character” whose features were possible to understand including the general and specific performance and management challenges each represented. Each of the G+H partnership types, therefore, takes on a personality: good and bad, productive or challenging. In much the same way that Myers-Briggs types describe people’s personalities, we are able to describe partnerships and as such we have named them to reflect their main tendencies.

Evangelists: Looks like a marriage made in heaven and usually good collaborators, but the partners may be prone to rest on their laurels.

Stable pragmatists: Tend to be in a tough business but recognise that they are in the same boat and soldier on doggedly, sometimes for many years.

Rebellious teenagers: Almost your worst nightmare. A great partnership but challenging, annoying and very heated discussions.

Evolving pessimists: Continually focus on what is not working rather than what is working well. They have good intentions but effective service delivery is some way away.

Captive sharks: Partnership hostages who work together because they have to. Usually aggressive.

Cherry-pickers: Only in it for the money and the short term, despite appearing at times to be committed.

No can dos: In this relationship, the businesses are simply pulling in opposite directions with no common ground. A history of bad behaviour and outcomes has poisoned the atmosphere.

Deserters: This stage typically precedes dissolution of the partnership or litigation.

It is important to recognise that, like people, partnership personalities do not fit neatly into a continuum. The complexity of their make-up shows that while we see types morphing over time, we need to think of them as transitions rather than a straight line from best to worst. Somewhere within this are the partnerships and alliances that you are working on today. Possibly for the first time this represents a specific tool for alliance managers.

So what are the general principles of discovering which G+H partnership type fits your strategic alliance? As we have mentioned, each one is defined by an extensive set of metrics but it is possible to get an approximate answer by considering a particular partnership in the light of the following three factors:

References: Our partner would provide us with a positive and flattering reference to a key customer or buyer.

Effectiveness: In the past six months, we have increased the level of satisfaction of our customers as a direct consequence of this partnership.

Value: We have seen a real cost advantage, margin gain or both as a result of working with this partner or we represent a significant share of this partner’s business.

Next plot your answer using a subjective high, medium, medium/low or low assessment into the following matrix:

Having found your relationship, what next? Of course, this will depend on which one you have identified. However, in general terms it is vital to share your findings with your partner and even better if you have carried out the exploration exercise together. You must then review your strategic objectives and ensure that you have a common understanding of how the alliance fits in. This may require some realignment, both jointly and individually.

Next follows a tactical review. Carefully identify the sources of friction that undermine the effectiveness of the partnership: negative spiral behaviours. Often fixing minor operational issues will go a long way to restoring confidence. Put in place projects to address more fundamental problems; the overall aim is to improve effectiveness by cutting costs and inefficiencies. The alliance is doubtless missing opportunities to capitalise on its strengths resulting from the positive spiral behaviours. Key to achieving these benefits is establishing good relationship management practices such as joint regular performance monitoring, problem-solving and planning activities. Providing a focus for the joint enterprise will ensure that continuous improvement replaces fire-fighting and stagnation. 

Andrew Humphries (andrewhumphries@gibbshumphries.org) is CEO of SCCI, based in the UK, and Richard Gibbs (richardkgibbs@gibbshumphries.org) has over 20 years of operational management experience at multinationals such as Xerox and Novell