Wednesday, October 26, 2022

An Overview of Strategic Partnerships

 Strategic partnerships are contracts between independent companies to cooperate in different business areas. The partnerships take different forms, including joint ventures, minority equity investments, and nontraditional contracts, such as those about joint research and development (R&D). Companies often look for partners with complementary resources or capabilities to gain access to new markets or technology. Companies also may want to share infrastructure and intellectual property or reduce risk.

Strategic partnerships offer each partner the chance to increase business and reduce expenses. The partners remain independent, but both types are noncompeting businesses that often share the rewards and risks of the decisions made by both companies. A strategic partner usually offers services that the other party lacks or can extend to the clients of the other.

Strategic partnerships can expand service functionality, customer base, and overall reach. As such, these partnerships can be beneficial to both startups and established companies. NestlĂ©, for example, changed its strategy to a partnership-based model in R&D and innovation to fight product imitation and growing competition. Starbucks and Google have worked together for mutual benefits, as have Coca-Cola and McDonald’s. And the pharmaceutical and automobile industries have many examples of partnerships that have grown out of need, leading to mutually beneficial relationships.

Another benefit of a partnership is creating and increasing brand awareness. Partnering with well-established companies offers new companies more branding and logo exposure. Such strategic partnerships create curiosity among consumers. Also, strategic partnerships can enhance brand trust. When people see that a company can work well with partners, their trust increases.

Some companies that appear to have nothing in common have formed strategic partnerships that creatively expand their audience. For example, although Spotify’s music-streaming service does not seem to have anything in common with Uber’s ride-sharing app, the two companies formed a partnership. Uber riders can manage their music with Spotify, while Spotify extends its unique service into a new and busy marketplace.

Although strategic partnerships can be a good way to learn from leading firms in a given industry or field, inevitably, they involve challenges that must be sufficiently addressed to ensure the success and longevity of the collaboration. Conflict areas may include isolating proprietary knowledge, processing multiple knowledge flows, poor governance processes, and disagreements about the central goal of the relationship.

Other potential partner conflict areas include language and culture, poor communication between partners, the inability to identify and adapt when circumstances or markets change, and misrepresenting or even lying about the competencies partners bring to the table. The worst scenario is when one partner fails to commit to the partnership or doesn’t use their complementary resources for mutual benefit.

The solution lies in defining the lines of engagement for the partnership well in advance and taking proactive steps to nurture them. The partners must invest considerable energy and time to create a successful and durable alliance. The partners must develop a comprehensive plan that outlines expectations, benefits, and requirements. Examples include emphasizing accountability and using pre-determined metrics to gauge the success of the partnership. In addition, the partnership must be periodically reviewed to ensure the objective is still relevant or whether a revision of the partnership terms is needed.

The Office of the Comptroller of the Currency Responsibilities

  A managing director at an investment firm in St. Louis, Missouri, James Giaicin leads strategic initiatives to raise capital for insuranc...