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By BARBARA LEWIS and DAN OTTO
In today’s economy of rapid change, many entrepreneurs will consider partnering as a source of competitive advantage.
Unfortunately, research indicates that as many as 70 percent of all strategic partnerships may not work. If strategic partnerships can provide your company with a competitive advantage, and yet statistics reflect a high percentage of failures, how can you ensure that a needed partnership will be successful?
The answer is careful investigation in a number of areas so that an optimum “fit” will occur.
A solid partner relationship should be symbiotic one in which both parties benefit not parasitic. You’re not looking for a 900-pound gorilla that is so strong on every front that it will overshadow and potentially consume your business. And you’re certainly not going to team up with a 90-pound weakling that you’ll have to carry into the unforeseeable future.
Your objective is to find a match that complements your strengths and fills in for your weaknesses. When selecting a strategic partner, there are several factors to weigh. Take a hard look at the following characteristics of your potential partners and your own company:
– Long-range goals and strategic intent. Where do you want to go, and will your potential partners join you for the ride?
– Market share and growth rates. Judge them within the contexts of expansion of products into new markets and new products for existing markets.
– The value chain. This includes every process and operation, from marketing analysis through manufacturing and servicing.
– Infrastructure, which includes support functions such as organizational structure, human resource management, finances and control.
– Personnel, in terms of their backgrounds, style, reputation and, most importantly, the chemistry between major players in the partnership.
After gathering the information listed above, you will probably have a gut reaction on certain partner choices. Resist the temptation to end your analysis at this point; we favor making decisions with analytical tools.
There will be far more than five criteria on which you will base your decision. Remember, the operative word in choosing a strategic partner is “strategic,” and no effective, long-term strategy was ever formulated with the words, “I feel like …”
To start your analysis, you need to examine your company to determine weak spots in which a strategic partner can add value. We have found that a graphic representation of this process makes decision making easier.
Set up a grid. On the horizontal axis list your company (you will later line up potential partners A,B, and C on this same grid). On the vertical axis, list the criteria (and sub-criteria) on which you are judging yourself and your choices. Now rank your own company based on these criteria.
For example, if you were to use the criteria listed at the top of this column, you might have several members from various disciplines in top management individually rank your company on each criterion on a scale of 1 to 5.
Knowing how to read the numbers is crucial. Do not average the results when there is a wide range of scores because this may cloud the real significance of the votes. If, for example, your marketing manager ranks the company’s sales force with a 2, but the production and accounting managers rank it as a 5, the resulting average score will be 4, a pretty high score. Of course, the marketing manager knows his or her sales force better than anyone and thus, this opinion should carry more influence.
You will also want to weight each of the criteria such as personnel, marketing, or operations according to its importance to the success of your business. After weighting each area, you can quickly see where strategic partners are needed.
For example, if you rank an area as a weakness, yet it is weighted high, then it’s important to find a strategic partner that is strong in that area.
Once the internal evaluation is completed, you are ready to begin analyzing your strategic partner. The same procedure is conducted with the potential partners. Rank and weight the partners’ dimensions based on the same criteria. Then compare all potential partners with each other to determine which one adds the most value to your company.
Using the powerful tool of a computer model, you can develop a matrix of rows and columns on the strengths and weaknesses of your company’s dimensions and the values upon which you have decided. With a little extra work, you can assign colors to the values (green for strength, yellow for neutral and red for weakness). Then you can easily visualize the areas where a partner is needed to improve your business.
Whether you’re looking for a growth opportunity or a potential exit strategy, your best choice for a partner will likely begin with a reasoned analysis of the facts.
Barbara Lewis and Dan Otto are co-founders of Centurion Consulting Group, which helps businesses solve problems through the use of computer models. They can be reached at CenConsult@aol.com.
Entrepreneur’s Notebook is a regular column contributed by EC2, The Annenberg Incubator Project, a center for multimedia and electronic communications at the University of Southern California. Contact Dan Rabinovitch at (213) 743-2344 with feedback and topic suggestions.