Art of Partnerships (1): What kind of business relationship have I gotten myself into?

This blog series will focus on how to maximise the long-term value of a business Partnership (capitalized by design) by understanding and investing in relationship dynamics. The concept is: build a better Partnership and you’ll get more long-term value from it.

What does this mean in practice?

Partners are always asking things from each other. Some requests will always be accepted. Some requests will always be refused. The quality of the Partnership determines whether your partner agrees to the requests which fall in middle zone. (see image below)

There are requests to which a partner will always agree and requests they will always refuse. The quality of the Partnership impacts decisions which fall in middle zone.

For example, if Samsung is your major customer and they ask for a 5% discount on a single order to help them meet quarterly targets, you’ll happily agree. If Joe’s Phones is a small customer that’s always late paying invoices and asks you for a 20% discount, you’ll refuse. However, if Joe’s Phones has been a prompt payer, provides lots of notice when submitting orders and has given great Christmas gifts for the last 5 years, you may offer him a 15% discount to help him through a difficult patch. That’s the value of Partnership Management.

This blog argues that if you invest in building a better Partnership, you will be in a better negotiating position to submit requests. Future blogs will help you transform normal business relationships into Partnerships that really work but, first, we need to analyse the relationships we’re in.

The Difference between a Business Relationship and a Partnership

To build a Partnership, you have to appreciate the difference between a business relationship and a Partnership. Business relationships involve one party seeking another party to fill an immediate need. Partners make a longer-term commitment to contribute to each other’s success. It’s not Intel partnering with IBM to supply a CPU. It’s Intel and IBM embarking on a multi-year Partnership which involves joint R&D, long-term contracts and joint marketing. It moves the relationship from a zero-sum game to one where both parties strive for mutual long-term success (win-win).

In a typical business relationship, if one party is in financial distress or their existing product is becoming obsolete, the relationship slowly ebbs away. In a Partnership, pricing exceptions are made and partners actively explore joint product development opportunities to ensure that they remain relevant to each other.

Defining your Business Relationship

Only the most significant relationships should be transformed into Partnerships. The following factors will help determine whether your relationship should be transformed into a Partnership:

• Longevity of Interaction: Will my relationship involve multiple transactions rather than a single transactions?
• Commoditization: Would it be difficult for me to find another company to replace my partner? Or vice-versa!
• Ease of Replacement: If I find a replacement, would it require much effort to replace my partner? Or vice-versa!
• Reason for Relationship: Did I engage this partner because it was cheaper, better quality, more convenient, or the only option?
• Upside Opportunity: Is it likely that today’s relationship will grow significantly in the future?
• Impact on YOUR Business: Would it significantly impact my business if my partner stopped doing business with me?
• Impact on THEIR Business: Would it significantly impact my partner’s business if I stopped doing business with them?

If you answered ‘yes’ to most questions, the relationship is strategic and should be transformed to a Partnership.

Types of Relationships

Consider the power of each party in the table below in light of the factors discussed above. Clearly, the negotiating power of those in the leftmost column differs based on a combination of factors.

Consider the factors defining the power of each party in the relationships analysed above.

Evidently, there are some relationships where the power of the listed party is far weaker, say, an Office Cleaner, and others where it is far stronger, say, an Out-sourced R&D Vendor. However, even the Cleaner has areas where it can improve its negotiating position. A cleaning company can make itself more difficult to replace if the staff don’t steal and their service has adapted to the peculiar cleaning needs of the place they clean. A seemingly insignificant relationship can be turned into a Partnership if the Cleaner invests in the needs of its partner.

Your Challenge

This post was designed to encourage you to think about the kinds of business relationships that you have and identify which ones are suitable to transform into Partnerships.

Your challenge: Identify the 3 to 5 most important relationships your company has and ask yourself…

• Are you the stronger or weaker party?
• Which factors listed above define me as stronger or weaker?
• Have I done enough to make the other party appreciate the value I provide?
• Can I get more from the relationship if I transform it into a Partnership?

The second post is: Art of Partnerships (2): Tips to convert my Business Relationship into a Partnership

The third post is: Art of Partnerships (3): Techniques to grow your POWER