Changing product, marketing and channel strategies have forced many Vars to examine their existing relationships and pursue new partnerships, not only with vendors but with other Vars. Strategic partnerships are an attractive option in view of current business realities: global competition, increased focus on quality, short product lifecycles and the need to cut costs in spite of such imperatives. A recent report in Inc Magazine found that alliances between businesses large and small are commonplace in the general mid-1990s corporate environment: The number of formal alliances has grown by about 25 per cent annually over the last decade, according to Securities Data Corporation, a Newark, New Jersey company that tracks alliances. Among technology companies, partnerships are growing much more quickly.
Evidence is accumulating that strategic alliances pay off for the partners. According to Alliance Analyst, the 25 Fortune 500 companies which have the most strategic alliances - with IBM at the top of the list (by some accounts the company maintains 20,000 business alliances worldwide) - have generated returns to their shareholders of 17.2 per cent since 1990. By contrast, the average return for the Fortune 500 was just 7.7 per cent over the last five years.
The kind of partnerships that work best may be the ones based on 50:50 arrangements. According to a study by consultants at McKinsey & Co, such evenly divided alliances had a 60 per cent success rate compared with 31 per cent for the unevenly split joint ventures.
Joining forces with another company offers various benefits, some more obvious than others. A partnership offers more security than going it alone, in the form of increased logistical support, combined assets and expertise and doubled networking possibilities. Partnerships can be short-term, to handle a large customer project, or have a longer lifespan, particularly where product development is involved. Carefully structured, strategic partnerships also offer fresh opportunities for Vars to reach new markets without extending themselves beyond their core competencies.
But watch out: building a partnership with another Var is fraught with as many potential problems as perceived benefits. Much like a marriage, the success of that partnership depends on shared goals, clear responsibilities, mutual trust and willingness to negotiate. Var World offers some guidance to make your strategic partnership initiative a successful one.
Ask for help
Where do you start looking when you want to form a partnership? The answer is close to home: your existing customers and vendors. Ask customers about other Vars they are working with. If they praise that Var relationship perhaps there are opportunities for both of your operations to target other companies with similar needs. It is also in vendors' interests to foster partnerships because they spread the variety of value added services their Vars can offer to customers. Some vendors, like Lotus, provide forums where prospective partners can meet. Lotus' Global Electronic Marketplace is a clearing house for building such relationships. It is an electronic database where Vars can post notices regarding their needs and competences. Also important is to check your potential partner's track record. Does it pay its suppliers on time? Are there County Court judgements against them or customer lawsuits relating to bad service? Running these types of checks should help you decide whether or not to proceed.
Synergy is better than similarity
Carefully weigh up the qualities and strengths of your business and compare them with those of your potential partner. This involves looking not only at the other company's technical skills and market positioning but also its business ethos. The making or breaking of a partnership is often what can termed a 'personal' issue, in the same way as staff personalities or working styles. But that doesn't necessarily mean you should partner up with a company whose structure and ethos is a black and white copy of your own. It will be far more productive to look for complementary skills than identical ones.
Early warning signs
A common question potential partners ask themselves is, 'who benefits most?' Clearly, the partnership should offer benefits to both, otherwise its purpose is unclear. But partnerships are not about exploiting another company, they are about mutual advantage. Equally, greed is a motivating factor for many companies but it is equally possible that a successful partnership will not derive immediate financial advantage. Penny wise but pound foolish, many companies focus on financial gain. Equally important are market exposure and the access to new markets which a partnership can provide. In addition, if there are fundamental problems with your core business don't expect a partnership to resolve them.
Mutual understanding of expectations is a key factor for success and these expectations should be laid out right at the beginning. An agreement may be mooted on a verbal basis but work out the details on paper. People's memories after meetings can change, without any malice involved. In the absence of a written agreement it is far easier to have misunderstandings, change the goalposts and get into nasty disputes. Under such circumstances the only evidence is one company's word against another's.
Draw up a plan
When are ready to formalise an agreement, reassess your goals. What products are included and who handles installation, training and support? The agreement should include how the partnership can be terminated, how expenses and profits are shared, who makes what decisions, how funds are handled and distributed, how major financial decisions such as sourcing and purchasing are made, and the management structure for customer account control.
Foster trust but value caution
A legal contract or written agreement offers safeguards. It is important to decide what access your partner will have to your assets - your technical expertise and customer base. Issues of intellectual property must be addressed in terms of licensing, access to code and other related issues (see boxouts). You must also decide how much information you will be sharing, particularly regarding existing customers and leads. Trusting your partner is important, but limit your exposure and ensure there is balance in information and technology exchange. Seek expert legal advice to secure these objectives.
Share the blame
It's far too easy to point the finger at your partner when things go wrong. If it's a matter of changes in the market affecting the partnership, say a competitor is delivering the product you and your partner are jointly developing, share the blame: you both should have seen it coming. Gracefully sharing responsibility not only indicates maturity but will also shore up trust in the partnership.
Self-preservation: intellectual property
In a technology partnership, safeguarding intellectual property should take first priority. Ann K Moceyunas of Technology Law Associates of Atlanta, Georgia, provides these tips:
- Write the intellectual property points into your business plan, provide long-range planning, provide checklists for short-range activities and budget for any costs and legal fees.
- Educate everyone on the team about the seriousness of protecting intellectual property as an asset of the business.
- Hesitate before revealing confidential information or trade secrets, not afterwards.
- Know where the information came from and where it is going.
- Consult with experienced legal counsel before there is a problem.
Businesses that create, sell or use techhnology deal with intellectual property (or
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