In the previous blog Why Partnership is important for Growth? , we covered the importance of business partnership and the types of partnerships. Strategic Partnership plays a vital role in most major revenue-generating channels like sales and marketing. Therefore, we will introduce you "Everything you need to know about Strategic Partnership and how to achieve one'' in this article.
Key Points
Strategic partnership must have three characteristics unlike other partnerships, It creates Values for each party, both sides Manage all process and Share risk and reward.
Basic Three Elements to Achieve a Strategic Partnership, people, process and technology.
Strategic Partnerships are Tricky to Manage and have High Failure Rates.
We will cover the following topics in this blog:
What is Strategic partnership?
How Strategic Partnership is difference from other Partnerships?
Common Strategic Partnership Types
Three Major Laws for Strategic Partnerships
How can you achieve Strategic Partnerships?
Basic Steps and Essentials of Strategic Partnerships
How many Strategic Partnerships we need and Why ?
Why Strategic Partnerships are Tricky to Manage?
Conclusion
1. What is Strategic Partnership
A strategic partnership is a business partnership that involves the sharing of resources between two or more individuals or companies to help all involved succeed. Strategic partners are usually non-competing businesses and often share both the risks and rewards of the decisions of both companies.
They are usually formalized by a contract. Not every partnership requires a legally binding agreement, though that is recommended if money is changing hands for referrals or revenue shares. The goal of a strategic partnership is to create value for each company by offering information, services and other resources that the other company otherwise either has no access to or could only access through a financial exchange.
2. How Strategic Partnership is difference from Other Partnerships
Strategic partnership has has the following features which is difference from other other business partnership:
It creates Values for each party.
Both sides Manage the work during the partnership.
Partners Share both Rewards and Risks.
Here from the Earning-Learning Matrix, we can learn what a strategic partnership is. By looking at the matrix, it is clear that not every partnership we make is considered a strategic partnership. In those conditions where the revenue and profit we get from the partner is high but at the same time if the chance of the partner developing the core competencies of the business is still low, the partnership is not regarded as the strategic partnership. It is stated that a partnership can be said to be strategic only when the chances of both getting profit and developing the core competencies are high.
3. Common Strategic Partnership Types
All strategic partnerships can be classified into five different types as follows:
Alliance agreement: two entities agree to work together for a project or a series of projects without forming a team
Joint R&D agreement: two parties work together to solve a solution or provide a new product by doing researches
Co-Marketing agreement: two parties come together to promote a product or a service.
Minority agreement : an agreement where one entity holds the majority shares in the joint venture company while the other holds minority shares
Equity Joint Venture: two or more parties come together to set up a separate company and manage the Joint Venture
4. Basic Three Elements to Achieve a Strategic Partnership
Now that we have proved that only a few could succeed in building successful partnerships, don’t be afraid to build one of your own. People think they should have a lot of things prepared just for making partnerships. Meanwhile, there are only three basic necessities which are:
People
Process
Technology
People
It is certain that a business cannot run alone, just with the owners. It needs a group of talented and dedicated members or employees to keep the business running towards its goals. It goes the same with the partnerships too. For a partnership to be successful, each party has to provide a certain number of people and one or more supervisors to keep the team achieving its aims and goals. It is also necessary for the supervisors to make sure that members of both teams are working harmoniously.
Process
The processes of the partnership should be clear and understood by both members of the partnership. And also, it is needed to measure the processes in certain times to ensure whether the processes are running well or need some improvements.
Technology
Even before the partnerships, the businesses are using the best technologies that are suited for their processes to keep up with the trends these days. So, it is essential for all the members of the partnership to have access to the ideal technology during a partnership and the partners must be able to catch on to the latest technologies to end up with the best result from the partnership.
5.Three Major Laws for Strategic Partnership
The following laws might not seem realistic to people seeing these for the first time. They would think these are not making sense or if there is something wrong with these laws but surprisingly, these are all true and we will explain the reasons why.
(1) 1+1= 3 (creating new value together)
Here, it means that whenever we make partnerships, we should make sure that we are creating more value together than when we do things separately.
(2) 1+1=1 (work together in harmony)
This is the management equation which means that partners should manage things and solve the solution together as if they are one.
(3)1+1 =1.4+1.6=3 (sharing the returns fairly)
1+1=1.3+1.7=3
For this value sharing equation, the overall numbers should sum up to 3. Here, the parties must divide the values they have created together fairly. It can be 40%-60% or 20%-80% instead of equal shares. What counts most is that the partners get enough return from the partnership.
Strategic partnerships are popular and powerful and at the same time, they may seem to be easy to be made and maintained for quite a long time. But it turns out that they are quite tricky to manage. During the partnerships, a lot of unexpected things and changes will be there and they are what makes the partnerships fail as most partners do not tend to keep up with the changes and solve the problems on their way.
The above three laws make sure that we can manage the partnerships to be successful if we are to follow the laws correctly.
6. Basic Steps & Essentials of Strategic Partnership
The following are some basic steps and essentials that help us to successfully follow the laws and achieve an ideal strategic partnership;
Clarify the needs
Evaluate the partners
Set the terms of the deal
Business Planning
Manage the partnership over its whole life
Earn the share
Clarify the Needs
Before making a partnership, we should firstly know why we want to collaborate with the partners and how it might affect the process. In this step, we should think of the big picture of the partnership instead of the details.
Evaluate the Partners
In this step, we should research the prospective partners. When we are researching the partners, we should not only consider whether we have complementary skills for each other but also understand how they fit into the business plan. To understand those things, we need to know the strength and weakness of each other. On the other hand, we should also give thought to their working styles, management styles, work ethics and value. It is necessary to identify the potential clashes with them at this step.
Set the Terms of the Deal
For this step, we should set the terms to maintain the partnership without conflict for the long term. The agreement should include the terms from name and type of partnership, roles and responsibilities to the dissolution. The essential terms for each and every partnership are as follows;
Percentage of ownership
Division of profit and loss
Length of the partnership
Decision making and resolving disputes
Authority
Critical developments
Withdrawal or death
Dissolution
Business Planning
In planning the business together, we must plan the whole business plan with SMART goals. We must as well plan the details and tactics for the goals we make. While planning, we should try to cover not only the specific tasks but also the overall business plan from the start to the end.
Manage the partnership over its whole life
After planning and setting up the partnership, we should make an effort to whip the partnership into shape. We must try to measure the success and the condition of the partnership from time to time. We must ensure that each and every member is performing well with his role and must also make sure whether the communication process is clear as we want it to be.
Earn the share
In business partnership, we can split the profit anyway we want under one condition which is how we agree to share the profits. The profit-sharing can be split equally or by sharing the returns fairly. We must include the sharing condition in the agreement from the start.
7. How many Strategic Partnerships we need and Why
When we are thinking about why we need a partner, we also need to figure out how many partners we need. For most purposes one partner will not be enough. We may need a whole ecosystem of partners like openfor.co partners ecosystem. We need to think about this ahead of time so that the partnership you set up doesn't conflict and instead reinforce each other. Here are two main reasons why we may need many partners.
The first reason is that our business has several parts. Each of which might benefit from a partnership. We may need supplies from different sources or we may want to sell into different markets. Usually we cannot find one partner that can cover all our business needs.
The second reason why we might want more than one partner is to avoid dependence on the other partner. This is known as second sourcing. It allows the buyers to have more than one source of supply while it also saves us from supply shortages and helps us get better prices from the competing suppliers. This seems to be an ideal partnership but this kind of deal is not always possible.
8. Why Strategic Partnerships are Tricky to Manage?
We have mentioned why companies need partners and the benefits of having business partnership in the earlier article “Why Partnership is important for Growth?. ”. Regardless of the benefits of having business partnership, Business Performance Innovation Network made a survey of 330 senior-level executives around the globe, bolstered by in-depth interviews with top executives in the realm of strategic partnerships. The survey shows the following
43% of business partnerships have High Failure Rates.
45% are unable to maintain long-term, successful relationships.
42% of partnerships are Not Well Leveraged.
67% of companies that agree to work together Lack Formal Partnering Strategies.
In order to succeed in the strategic partnership, it requires dedication by team, knowledge of how to develop the process and how to be scalable by technology. We will introduce you in the next article step by step how to develop a successful strategic partnership, frameworks and case studies.
9. Conclusion
From this article, we cover everything you need to know about the strategic partnership.
We really hope that this article will help the readers understand more about the strategic partnerships.
Openfor.co is a “Partnership Incubator” and we help businesses find strategic partners and collaborate with them for increasing revenues, reducing operational costs, and supporting global business expansions. If you need any kind of help about partnership development, please feel free to contact us.