Current methods of judging the value and performance of a partnership generally address the traditional time, cost and quality perspectives. They include scorecard approaches, quality systems, risk assessments, project plans, value chain analyses and financial devices such as balance sheets and investment appraisals. These focus on highly detailed aspects and often use historical, subjective data. Unfortunately, methods that take in the full gamut of relationship dynamics and their underlying causes are missing because they are generally considered to be too difficult to construct and deliver. However, performance spirals tap the key components of partnership success and failure and if metrics are applied, it will be possible to understand where improvements should be made.
Furthermore, if this is used to direct the right questions to managers, the detailed diagnostics that are needed to implement change will be revealed. In reality, alliance managers will report a spectrum of success and failure dynamics that span their commercial relationships.
Equality: The limitations on freedom and choice a collaborative relationship entails can engender feelings of confinement and pressure. This is a ?win-lose? philosophy; firms struggle to overcome their natural reticence to discuss mutual opportunities and contributions. This can be overturned by incentivising a quality relationship where the gains are both shared and highly rewarding.
Successful negotiations can be identified where firms have explored, detailed and documented their respective cost and profit models, thereby facilitating discussions and enabling creative solutions to be agreed. In a win-win environment the partners feel empowered to strive dynamically for the mutual good and, true equity in the relationship will overcome any power imbalance.
The essence is creating a win-win relationship that can be evaluated against the following criteria:
* The gains from this relationship are equally shared between both parties.
* We do not feel imprisoned within the current relationship.
* We are willing to invest more, that is, money, time, information and effort, in the current relationship.
* We are happy that our future is bound to the success of our relationship partner.
* The other party is genuinely concerned that our business succeeds.
Operations: On the failure side, opportunism is where a firm unscrupulously seeks to serve its self-interest at the expense of its partner. It is a damaging tendency but can be reversed by strengthening the relationship through creating a more reliable business infrastructure. A focus on the quality of the relationship outputs including operational efficiency is key, as is clarity over the boundaries of the relationship. A creative approach to conflict and problem solving helps to sustain impetus. Finally, the development of goodwill, trust and commitment by incrementally building on achievements through resource commitments creates a virtuous circle. Thus the emphasis here is concentrating on service and product delivery, lowering joint costs and risks and building up trust:
* The quality of the contract outputs, that is, spares, repairs and services, is entirely satisfactory.
* The quality of service delivery, that is, delivery times, billing and payment, is entirely satisfactory.
* The relationship is characterised by a continually improving quality ethos.
* Problems are solved in a joint, open constructive manner.
* Such is the goodwill in the relationship, the other party would put himself out to adapt to changing requirements.
* We trust the other party to act in our best interests.
* The responsibility for making sure the relationship works is shared jointly.
* The other party provides cost reduction and quality improvement ideas.
* The other party is open and honest.
* The other party always does what he says he will do.
Innovation: Bounded rationality is the concept that individuals are rational and logical beings, but only up to a certain point. At this point rational actions are overtaken by emotional and conditional behaviours as well as by their limited information processing and communication ability. These behaviours can lead to irrational or illogical decisions, particularly, under pressure. The negative influence can be reversed by enabling mutual creativity through approaches such as open contracts, joint innovation, applying stretch targets, focusing on quality, ensuring disputes are resolved quickly and fairly, and by taking a long-term view of the relationship. This is the ?spark? that generates the enthusiasm to innovate and go the ?extra mile?:
* The relationship encourages the achievement of high performance by both parties,on-time delivery and forecasts.
* The relationship encourages us to be innovative in the way we do business.
* Performance measurement is used to raise standards.
* Disputes and problems are resolved quickly and fairly.
* The other party is reliable and consistent in dealing with us.
* The other party is dedicated to making our business a success.
* When an unexpected problem arises, both parties would rather work out a solution than hold each other to the original contract terms.
Investment: Uncertainty and complexity factors have an unsettling effect on the attitudes of partners. The main consequence of environmental uncertainty is adapting to changing circumstances and overcoming the associated inertia and the costs. For example, a manufacturer which, because of competitive entry, must modify the design of its product, also may need to modify the design of the purchased components that constitute the end product. Unless a comprehensive contract can be written with its supplier that specifies in advance the required component designs and the associated terms of trade, the manufacturer may be involved in ongoing, costly negotiations that undermine its efforts to progress in the new market. This negative behaviour is usually compounded by the problem of discovering if your partner has done what he has said he will do.
In a partnership, where there is ?strength in numbers?, by achieving relationship stability and creating a framework for successful business it is possible to construct an effective shelter against uncertainty. This involves working more closely with fewer partners and pursuing mutual objectives through value creation, joint investment and harmonised processes. It is necessary to actively manage the relationship interface through proactive relationship management, to use innovative procurement processes and, through co-operative behaviour, build interdependence between the partners. By synchronising objectives and investing in people, processes and infrastructure, the foundations of a successful relationship can be established:
* The other party displays a sound, strategic understanding of our business.
* The objectives of both the parties are compatible.
* Both the parties cooperate.
* The relationship provides a dynamic business environment within which both parties can seek rewards.
* I have complete confidence in the intentions of the other party.
Communication: Information impactedness is where one party has access to partnership-related information and knowledge that cannot be acquired by the other party without considerable cost and effort, and will use it to its own rather than joint advantage. This situation might occur because of greed or mistrust and will seriously hinder the efficient management and growth of an alliance. The potential consequences can be defeated by creating a communication environment optimised for success. This involves implementing multiple communication links at all levels between firms, including systematic relationship management, IS, sharing business and design data, objective performance measurement, transparency in jointly managing risk, and responding quickly to the needs of your partner. This is not just about communication frequency and quality: It also involves creating an open environment where ?cheating? will be dissuaded because of the difficulty of concealing it:
* Where the other party has proprietary information that could improve the performance of the joint business, it is freely available.
* We would welcome a shared data environment where planning, technical and pricing information is freely available.
* We understand the information requirements of all participants in the support chain, from sub-contractors to end-user.
* Exchange of information in this relationship takes place frequently and informally, not just as per specified agreement.
* Objective performance measurement is important.
* We are aware of the performance requirements for all participants in the support chain.
?Reprinted with permission from Viva Books
Book: Strategic Alliances & Marketing Partnerships
Author: Richard Gibbs and
Andrew Humphries
Price: Rs 395