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The Value of Strategic Partnerships
An interview with Thomas Edwards,
Chairman of THUNDER FACTORY |
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Q: How would you define strategic partnerships?
TE: A strategic partnership a long term relationship
that is a cornerstone of your business. Too often however,
the term is loosely used in business in that strategic
connotes importance. We're talking about a partnership
that's part of each company's strategic plan, where both
companies see it as having significant value to their
businesses.
Q: What kinds of benefits can companies derive from strategic
partnerships?
TE: There are a wide variety of benefits. For example,
an alliance which leverages a partner's existing channels
can dramatically reduce your customer acquisition costs,
and also build revenues because you are talking to an
existing base of customers. An alliance which gives your
customers access to additional products or services can
deliver benefit in terms of greater loyalty and customer
satisfaction. It's far easier to build upon existing opportunities
than to try and start a value creation process from zero.
It's important to be able to see benefits beyond dollars.
One piece of advice I offer to clients is not to miss
the opportunity for purely cash reasons. Just because
the alliance doesn't involve a direct payment doesn't
mean there isn't significant value, whether in exposure
to potential customers, or use of a partner's channel
to enhance your business. Similarly, there are many partners
you can use for your benefit that don't cost you anything.
I've been using this methodology for the last 15-20 years,
and more often a company's ability to identify the non-cash
opportunities is the skill that creates the greatest value.
Q: Do you think that skill is present in most companies?
TE: In many cases companies have difficulty assessing
these opportunities. I sat in meeting recently where one
company was unable to evaluate and clarify how much value
their access was bringing the other company; they couldn't
monetize it, so it fell apart.
Q: Many high-profile partnerships fall apart. What are
some of the other pitfalls to avoid?
TE: Both companies need to make the partnership a
priority. Too often deals become one-sided because there
is no focus on the partnership. Frequently this happens
immediately after the deal is done, and the partnership
does not grow. That's where they fall down most often.
A partnership also needs to have top-down focus. Each
company needs to create business and management objectives
to manage to their partnerships. If there are no MBOs
that say there are objectives, written into the partnership,
then the alliance peters away. You also get the situation
where there is a budget for partnership, but it is not
attached to the objectives in the partnership. This is
a waste.
Q: How do you define a partnership's success?
TE: Success may be measured in revenue growth,
customer acquisition and satisfaction, margin improvement,
nearly anything. What's important is that managers determine
what success is prior to creating the partnership or there's
no reason to go into the partnership. It depends entirely
on each company's needs.
Q: So what are the critical success factors for a partnership?
TE: The following list is a good start, and these
aren't difficult to implement, as along as there is significant
benefit for both sides. It's also a good idea to write
as many elements as possible into the partnership agreement:
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Setting expectations of what is strategic to each
partner
� Agreeing upfront on what defines a successful endgame,
identifying what must be accomplished for mutual success
� Setting milestones for the partnership
� Placing ownership at the highest levels possible
in the corporation, things that aren't focused top-down
and bottom up usually don't succeed. Priorities at
top and bottom can vary, so strategic partnerships
need to be a senior management priority.
� Tying strategy to business objectives, which need
to be tied to management objectives � Acknowledging
that the alliance may have multiple goals, different
for each company
� Holding regular meetings to discuss progress
� Reviewing and modifying the plan as business and
needs change
� Speaking the language of the partner. Every business
speaks in a different way, so it is imperative that
you go in and speak the language of whomever you deal
with.
� Avoiding over-commitment
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Q: What kinds of companies in which industries would benefit
most from strategic partnerships?
TE: The only ones who do not benefit are those
who don't know how to capitalize on a partnership, those
who lack vision. AOL/Time Warner is a good example of
a successful alliance. If you look at what Bob Pittman
has done versus what was going on previously at Time Warner,
you see significant value creation. Even in big companies,
alliances can exist among business units, and Time Warner
is a good example of that. Where you once had units competing
against each other for the same business, now you see
promotion across properties. Alliances can exist synergistically
both inside of existing companies, as well as in separate
companies. Enormous opportunity exists in getting business
units to talk to each other, and in bringing other corporations
together. But to reiterate my earlier point, if you do
not have the top-down focus, this will never happen. Bob
Pittman has said to his organization, "If you cannot play
together, you will not be around for long." And he has
successfully cut costs by doing it. Infighting and working
in silos is the norm; unfortunately most CEOs aren't drilling
down into their own companies to stop it.
Q: How does THUNDER FACTORY help clients develop partnerships?
Does it focus on all the elements we touched on, or just
strategy?
TE: We at THUNDER FACTORY, bring to the table not
just ability and experience in developing and growing
partnerships, but an understanding of our client's business
and relationships we've already developed that we can
leverage on our client's behalf. We also bring a clear,
external perspective that helps us take clients in new
and profitable directions. Often times it's just a matter
of getting them to focus on what is important. |
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The THUNDER FACTORY approach focuses on all
the elements of making a partnership successful, well
beyond strategy. We don't just tell our clients what to
do, we help ensure that it goes right from start to finish,
and that the organization learns from the process. |
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