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Organisations of all sizes are getting in on the act, considering partnering a key element of their strategy.
'Chrysler Presents Reorganization Plan to Congress... To further enhance its product portfolio, support growth, and improve its cost structure, Chrysler continues to aggressively pursue strategic alliances and partnerships.' CEO Robert Nardelli - Online News Desk (Nov 18, 2008)
The Chrysler-Fiat is one recent alliance example:
'A Chrysler/Fiat partnership is a great fit as it creates the potential for a powerful, new global competitor, offering Chrysler a number of strategic benefits, including access to products that complement our current portfolio; a distribution network outside North America; and cost savings in design, engineering, manufacturing, purchasing and sales and marketing' Jan 20, 2009.
But not only business organisations think alliances are a positive strategy, academics such as Peter F. Ducker consider that 'The greatest change in corporate culture - and the way business is being conducted - may be the accelerated growth of relationships based... on partnership.'
If all this real life examples have not convinced you yet, here are six reasons why you should consider partnerships and alliances in these uncertain times:
1. Share, spread and minimise risks. As organisations become more conservative in their approach, partnerships are a lower risk strategy to offer broader capabilities to existing loyal customers in a shorter timeframe. This strategy can help your organisation to drive referrals, build customers loyalty and repeat business, instead of the daunting scenario of your customers seeking a new provider with broader capabilities.
Partners whose capabilities complement each other, but don't compete, will allow you to grow, without the risks and costs of buying or building internally the capabilities you seek. It also offers organisations a live look at a potential merger/acquisition partner.
Recently, United Airlines was actively searching for a merger partner to help create economies of scale in reaction to rising fuel costs and industry restructuring. They courted Continental Airlines and US Airways, but ultimately decided to partner with both in order to gain many of the same benefits of a merger but to avoid the high costs and risks of acquisition and integration.
2. Develop new business and grow revenue cost effectively. Many new opportunities are opened up when partnering which include increased market reach/visibility, ability to reach a wider audience, capitalise on brand strength or increase brand awareness. Partnerships enable an organisation to:
- Penetrate new markets
- Customer segments
- Geographical expansion (local and international)
- Establish new distribution channels
- Drive footfall or improve retention of customers or members
- Accelerate market entry
- Stimulate usage of loyalty / credit / account cards
3. Create more value for customers. With businesses and consumers becoming more careful with spending, your proposition must provide compelling value and solve your customer's real problems. Well-crafted partnerships are built around customers' compelling needs and help differentiate your business from the competitor's offering.
For some businesses, working in partnership enables you to offer a greater range of solutions that will not only serve your existing customers but will attract new ones. By providing a one-stop-shop with a better-integrated solution you will benefit your customers by saving them time and money, they will not have to search for additional providers. This will help your business relationships grow stronger.
This opens great opportunities for businesses to partner, by pooling their skills and capabilities to offer better-integrated solutions cost-effectively without having to carry the cost or risk of setting up or buying the entire infrastructure. For example, Cisco Systems maintained their investment in alliances during the .dot bubble burst and refocused those partnerships to create differentiated go-to-market solutions. They consequently saw an increase of 12% revenue in their partnership related revenues, while revenues across the company over the same period of time remained flat.
Some ways in which partnerships can bring more and differentiated value are:
- Grow revenue by developing new revenue streams
- Sell a new product or service to core customers (brand extension)
- Creates new value to a new segment of customers
- Drives field engagement and sales development
4. Harnessing economies of scale. This kind of leverage is critical when cash flow is tight. Establishing effective partnerships and alliances can replicate the benefits of the most common economies of scale (purchasing, managerial, financial, and marketing). For example, an organisation choosing to leverage all their marketing efforts through partners, will also share the costs of marketing and the prospect and lead lists to generate sales for all companies involved. This strategy will also reduce their costs of production and distribution.
Partnerships and alliances will also bring economies of scale that include:
- Increased access to resources
- Attract public funding where policy requires partnership bids and evidence of partner ability to deliver joint projects
- Strengthened negotiating power
- Reduce overhead expenditure by sharing facilities and pooling resources and the costs of common functions (in promoting and delivering services, in common systems etc)
- Expand resource capability without major financial investment
- Share marketing costs and maximise marketing spend return on investment
5. Leverage new sources of innovation. Innovative new products or services developed out of the partnership, which serve unmet customer needs, can create new sources of revenue often at lower costs and shared risks. No organisation can do everything, so partnerships have become a powerful means to extend your core competencies by entering into relationships with organisations that have capabilities that complement your own. Proctor and Gamble, for example, was a company that was struggling in 2001 with a dearth of new products in the pipeline. They adopted an innovation strategy that sourced 50% of their new products from external sources. While the business press touted this as a break through innovation strategy, an alliance professional readily sees this as a partnering strategy as well. Partnerships bring:
- New perspectives and challenging views within the partnership
- Learning from seeing things differently, through others’ eyes
- Improved intelligence about needs and opportunities
- Access entrepreneurial talent and develop key personnel
- Technical know-how and intellectual property
6. Drive Up Investor Returns. Organisations that use best practices in partnering (and are recognised as a partner of choice) make more money and reward shareholders with superior returns. A partner of choice is reputedly the best partner in an industry or business sector and they can deploy the partnering or alliance model more safely, consistently and repeatedly. Being a Partner of Choice means achieving greater efficiency and effectiveness in your partnering activity.
- Efficiency drives the ability of the partnership to add and create value to the extent that higher levels of return on investment and gross margin can be enjoyed
- Effectiveness is the ability of a partnership to actually deliver upon the original objectives
'Premier alliance-builders also tend to reward shareholders with superior returns. Pfizer, BP Amoco and Intel, all frequently cited as partners of choice, boast a five-year total return to shareholders 1.5 times that of competitors. While obviously not due to alliance success alone, the pattern persists across industries-preferred partners are superior performers.' Outlook - Becoming an alliance partner of choice, Accenture 2001.
If you want to learn more about how partnerships could be beneficial for your business Contact Us.
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