How to structure a strategic partnership

How to structure a strategic partnership

In general, larger corporations have defined strategies to systematically work with partnerships to address new business within industry verticals related to their own existing core business. Common main criteria are that partnerships must be based on sustainable business and act as a lever for growth. For these partnerships to turn out well, strategies around ownership structures, financing, business models and risk management are essential.

Strategic challenges, what, when, how … ?
The creation of a strategy would be simple if we had a clear understanding of all causal connections between actions and outcomes. But this is not how the world works. We generally don’t have such information when designing a strategy. And therefore, the creation of strategy goes beyond determining goals and decision-making. The development of strategy is a type of problem-solving, and as with all problem-solving it helps to have structures that address the problem at hand. When going into structured partnerships there are quite a few “problems” in need of answers:

  • Objectives

    • What do you want to achieve long term?

    • Which markets do you want to address?

    • What position do you want to take in the value chain?

  • Ownership

    • What responsibility do you want to take?

    • What risk is acceptable?

    • Company structure?

  • Business Structure

    • How do you structure your business to best achieve your goals?

  • Investment Format

    • How to finance participation?

      • Available support? Other financing options?

      • Quantitative perspective

      • Balanced/Optimized

      • Regulatory perspective

  • Business models

    • How do you create the right business conditions?

      • Risk/Reward

  • Risk management

    • Risk identification

    • Steering

    • Exit strategy

Other, more generic, challenges also need your attention
Partnerships can offer various strategic advantages, but they also come with a set of challenges that must be navigated effectively for the venture to succeed:

Misaligned targetsIPR
Cultural differencesRegulatory compliance
Inequality Resource allocation
Coordination communicationTechnology integration
Governance issuesMarket changes
Risk managementEmployee integration
Exit strategiesCompetitive dynamic – Separate interests outside the joint venture that may lead to competitive tensions

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Distributed functions and mandate structures

A common mistake among companies of different sizes is the failure to distribute functions and mandates. Thus sub-optimizing resource utilization and creating silos, undermining the capability for identifying potential synergies and performing cross-functional business projects.

As an example, company X, with a distinct hierarchical organisations structure, heavily influenced by operative work but having identified the need to become more business focused in an attempt to reach further market segments and opportunities. In this structure the line managers holds the mandate to make decisions on strategic, tactical and operative level not realizing the conflict of interest and limitations it creates. While this structure provides an information path, however limited, it tends to remove the business expertise from the decision making process.

Imagine a operations unit and its line manager constantly under pressure from maintaining an efficient operative level suddenly receiving a request to take on new business projects. This request includes evaluating and deciding what the best strategic and tactical approach will be. From a resource perspective there is likely no room for these activities within the operations unit in question, while from a corporate perspective it is essential to work strategically and tactically to ensure the success of these new business opportunities. To further add complexity said opportunities are most likely dependent on cross functional capabilities. Not to mention the fact that the poor line manager, with all his or her mandates, is asked to perform on a superhuman level.
Among mature business focused companies it is readily identified that strategical and tactical skills are not necessarily the same as the social and problem-solving skills required from the traditional line manager.

From a corporate perspective it might still seem as if there is progress, mostly because strong individuals will come up with new business ideas and follow through on those. The question is, – are those the right business ideas? Are they based on the right strategy and the right analyses? Have the right professionals met with the customers and has business development been involved in the process? Is there sufficient information to make a prioritized choice?
Not withstanding, there is also a significant risk that these business ideas are not taking cross functional synergies into consideration, since there is no formal information path other than the current hierarchical structure. Moreover, the strongest business opportunities might not even be visible, again due to the effects of silos and their evident lack of cross functional information flow.

There is a simple solution to the problem, – distributed functions with dedicated business development and sales resources throughout the operations units required to achieve growth and profitability, independent of where in the organisation such units can be found. Duplicate the hierarchical structures of line management to create new information, decision and mandate structure for business development and sales respectively.

Set the requirement that business related decisions within the operations may only be made if there is consensus between line management (operative leadership), business development (strategic leadership) and sales (strategic and tactical leadership) at the level where the decision need resides.
Let the financial level decision-making mandate be guided by the defining business, its budget and current investment mandate. Escalate to the level above if the scope of the issue exceeds the mandate or consensus is not achievable.

The change does not imply a new organization, but rather an adaptation of the existing one in order to achieve growth and profitability.
It has a number of advantages, e.g. minimal disruption to ongoing activities, dedicated business management roles provide support and continuity to the operations, sales resources with unique insight into operations providing new business channels and direct business intelligence, broader collaboration with synchronized strategies and harnessed synergy effects as well as improved risk management.

Simple!? How? Ask us!

Roger Öhlund, ArctInc

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