Building Strategic Partnerships: Benefits and Risks
Written by Srijani Chaudhuri
Every organization has diverse set of qualities. They have certain agenda, priorities, values and resources. The basic idea of a partnership is to club these dissimilar characteristics and build a particular mission and vision to accomplish sustainable development.
The core reason behind entering into a partnership is ‘self-interest’. Each party perceive a set of benefits that in turn motivates them to enter into the collaboration. These benefits are measured specifically to determine whether the partnership can be persistent over time. But these benefits also bring a pool of risks. This blog looks into the effectiveness of partnership along with the risks attached to it, and what measures can be taken to avoid it.
The benefits of partnership are plenty and remains almost the same across industries. Firstly, collaboration of knowledge helps in understanding the market conditions and reduces the chance of potential mistake. For example, IBM- Apple partnership in 2014 brought together analytics expertise of IBM with sophisticated user experience of Apple products to deliver advanced business value. Thus, it broadens the hemisphere of skills, expertise and networks. Secondly, it helps in focusing the target audience and build effective and relevant products. The Alexander Wand and H&M partnership helped in figuring out the potential consumers, who aspired to purchase high end fashion pieces within a limited time. Thirdly, it enhances efficiency by avoiding duplicity and supporting innovation. Finally, a good partnership is capable of creating significant positive impact on the reputation and credibility of the organizations. In December 2016, TrustYou, the guest feedback platform, partnered with ASKA Hotels, Turkey. It was observed that as a result of the partnership, ASKA witnessed increased online reputation, growth in guest sentiment, and increase in direct bookings.
Partnership analysis should be an integral part of the company’s agenda before entering into a collaboration as there is a necessity to assess the associated risks. At times the partnering costs are extremely high in terms of finance, analysis and management. The first problem that arises is loss of individuality and autonomy. Also, there might rise a conflict of interest where a particular decision affects the individual party’s sentiment. For example, the partnership between Starbucks and Kraft Foods for distribution of Starbucks coffee in grocery store ended with multiple accusations in the courtroom. Additionally, it can lead to the drainage of valuable resources like energy and time. For instance, Costco and Coke had entered into a partnership selling hotdog and coke for US$1.50 in 400 locations. The partnership went on for 27 years, when finally Costco announced that it was replacing Coke with Pepsi. Finally, there lies problem of negative reputation, which can be extremely detrimental for the company’s future image.
The foremost stride for risk mitigation is defining the objectives of the partners which the parties should agree upon before entering into a partnership. Make sure that both the parties are open to changes and have sufficient flexibility to accept alterations. It is extremely essential to develop a business outline that clearly marks the scope of the partnership along with an agreement on performance management framework. Organizations must agree upon partnership risk strategy, specifically regarding the costs of partnership. Moreover, an effective governance structure should be in place with the mutual understanding of problems and issues. Finally, a detailed assessment of financial and non-financial impacts of the new structural arrangement is necessary.
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