Learning to Partner and Partnering to Learn

by Michael Maccoby

Research Technology Management, Vol. 40 No. 3 May-June, 1997. pp. 55-57.

Increasingly, managers talk about "partnering" with customers, suppliers, allied companies and people from other departments within their own organizations. But when asked to define partnering, managers give different definitions.

In fact, there are different types of partnering and they require different kinds of relationships. Even dictionary definitions of partnering range from long-term commitment (like marriage) to short-term teaming (doubles partner in tennis.) Understanding these different types of partnering is essential for adapting to the changing business environment, where few companies can by themselves marshall all the resources they need to succeed.

Recently, I brought together executives of three companies that are exploring opportunities for partnering with other companies: ABB (Asea Brown Boveri) of Canada, a part of the global electrical engineering giant; Swedbank, the largest retail bank in Scandinavia; and Westell, a supplier of information technology systems. In the course of two workshops, these participants and the potential partners they invited asked themselves the following questions. Why should we partner? What are the benefits and risks? What kind of relationship does partnering require? How can we best develop it? What issues does partnering raise and how should they be addressed?

From the supplier point of view, a main value of partnering is to avoid becoming a commodity supplier, competing solely on the basis of price and availability with ever diminishing margins. A potential benefit for a company like ABB is to establish a strategic partnership. Instead of bidding against competitors to meet the customer specs, the strategic partner jointly addresses the customer's needs and together they seek the most cost effective solution. This avoids a costly bidding process with an uncertain outcome. Partnering also allows a supplier to gain a better understanding of how to add value by helping a customer succeed. Strategically, it can position a company in a way not easily copied by competition.

From the customer point of view, partnering can gain a quality supplier dedicated to understanding its problems, proactively helping to find solutions, and participating in new ventures. Such a supplier has a strong interest in the long term effectiveness of its products or solutions, as contrasted to a supplier who only provides what is agreed to contractually.

The Partnering Continuum

During the first workshop, the Westell team proposed a continuum as a way of differentiating partnering relationships between companies according to variables of complexity, value and maturity of relationship. This continuum has soft boundaries and the stages may be interrelated. The other companies found the continuum useful for mapping their customer relationships.

The lowest level is the commodity supplier. In this pre-partnering relationship, bid specifications and requests for quotations are the norm within a framework of contractual and legal requirements. The preferred supplier is the next level up, typically on a short list of companies recognized as providing certain quality or competencies superior to other suppliers. However, the framework for this relationship remains framed by administrative processes and legal requirements.

Next is the value added supplier which is recognized for distinctive competencies relative to the customer's own needs or capabilities. Customizing or service may be value added parts of the package. A company might outsource functions like telecommunications or electrical energy production. Product performance as opposed to product features may be required. However, contractual processes still bound the value added supplier-customer relationship.

Alliances call for a higher level of relationship beyond contract. Two or more companies may decide to partner together on a single product or project. (see Murray R. Millson, S. P. Raj and David Wilemon,"Strategic Partnering for Developing New Products," RTM, May-June 1996, pp 41-50). Although alliance partners share goals and information, the relationship is typically limited by the project which has an end-point. However, an alliance might be spun off or integrated into a new company. This has happened often in the computer industry.

Cooperation implies a more open-ended relationship. Partners jointly understand certain market requirements and are committed to joint problem solving or in James Moore's term, co-evolution. The partners share information and ideas and commonly coordinate activities for mutual benefit. Intel and Microsoft are a notable example. United Airlines and SAS are another.

Strategic partnership is the most mature, valuable and difficult type of these relationships. The partners have a broad understanding of each other's needs and visions, and share important values. There is a high level of trust and mutuality, with open information sharing, gain sharing, and concern for mutual well-being. Because the partnership shares so much, it is adaptable to change and transcends tactical difficulties.

These partnerships can have different forms and meanings in different cultures. In Japan, strategic partners may comprise a family of companies (keiretsu.) While this has the advantage of close ties and common financial interest, it may also impede the innovation and productivity stimulated by market competition. In Latin America, "partnerships" which substitute friendly agreements for an open bidding process are commonly seen as corrupting.

Sharing Strong Values

Healthy alliances, cooperation and especially strategic partnering demand a high level of trust. But this trust should not be based on Mafia-like bonds. (see M. F. Wolff, "Building Trust in Alliances," Research * Technology Management, May-June 1994, pp 12-15.)

ABB of Canada brought Cominco, a large mining and metals producer with headquarters in British Columbia, to the workshops. These two companies seek a strategic partnership and over the past year, they have been learning what this requires of them. Both companies share strong values. They are entrepreneurial with a focus on measurable results. They both value honesty and relationships of trust and are willing to open their books to each other. Furthermore, they are both committed to finding better ways to protect the natural environment.

Their budding partnership has already borne fruit. ABB has been able to avoid the costs of bidding. However, when Cominco requested a power rectifier, ABB analyzed their need and recommended a much less costly solution, an action that reinforced trust and was a factor in Cominco's decision to bring ABB along as a suppler to new operations in South America.

Cominco recognizes that competitive bidding has advantages for the customer, but it also brings with it some risks. The advantages include freedom of choice, exposure to the market and opportunities for maximum cost control. The risks can include purchases of the wrong technical solution because of the customer's sole accountability for scope. Also, the supplier may compromise quality to meet the competitive pressures of the bidding process.

ABB and Cominco have been developing measures to evaluate and justify the partnership, such as business process efficiency and life cycle costs of products. They also have proposed practices to make sure that the customer benefits from technical advances, even if the innovations come from ABB competitors. They agree that the benefits of partnering should be clear and persuasive to their own organizations and shareholders.

ABB and Cominco do not have a partnering contract. The relationship is sustained on the basic of long-term mutual benefit, but either party can end the partnership at any time. This freedom has actually stimulated the parties to show that they can achieve more on the basis of good will and understanding than if bound by contract and administration procedures.

The partnership has been architected at the strategic levels of both companies, with executive sponsors and partnership managers. The sponsors are visionaries, synthesizers who think in terms of systemic development. (see Michael Maccoby, From Analyzer to Humanizer -- Raising the Level of Management Thinking, RTM, Sept-Oct. 1994 pp. 57-59.) They recognize that to sustain the partnership, they must educate and involve the operational levels of both companies. They understand that the partnership will not be sustained by directives or procedures, but rather by joint development of partnership processes and sharing of personnel such as an account manager who is supported by both companies or a joint development project such as air pollution control.

Networks Without Boundaries

While ABB and Cominco have begun to discuss joining R & D ventures, Westell and the two partners they brought to the workshop ‹ Alantech and Scientific Generics ‹ came together for just that purpose. They see themselves as a strategic partnering network without boundaries, sharing resources to learn together and create innovative products.

All the participants recognized that strategic partnering demands considerable time and executive energy. There is a limit to how many a company can handle. ABB set out to create partnerships as a strategic decision. In seeking to partner with their strategically most important customers, managers ranked companies according to level of current business, estimate of potential business, the customer's interest in innovation, and the quality of their relationship to ABB. The customers who scored highest on these variables were invited to explore partnering.

The partnership with Cominco was the first to develop, and it has served both companies as a social laboratory for learning about partnering and learning better ways to satisfy customer needs. ABB has learned that partnering is an opportunity to develop effective strategy interactively with customers as opposed to analyzing more or less accurate market information at headquarters and producing plans that may or may not be implemented. Cominco has learned new and less costly ways to solve energy problems. Thus, the partnership creates knowledge for both companies.

What ABB and Cominco are also learning is that while their partnership requires trust, this is gained not merely by friendly meetings and shared ideals, but also by good faith actions and hard measurements that testify to mutual benefit.