Strategic Partnering for Maximum Success
Find out how companies are teaming up with suppliers, customers and even competitors to maximize profitability and growth.
A sports bar owner wants to hold a special event involving an autograph signing by professional athletes, so he forms an alliance with his suppliers to share the cost - and the publicity - of the event. A printer supplies her best customers with proven copywriters because she knows it will increase the effectiveness of the customer's marketing campaign, thus leading the client to purchase more envelopes, paper and other materials. A jewelry retailer partners with a direct competitor to share leads in exchange for a percentage of sales. The result? The retailer turns the competitor into a profit center for himself.
These win-win scenarios are taking place every day across all industries and between businesses of all sizes. In the past, adversarial relationships with suppliers and competitors was traditional to the business exchange. Today, companies are building lasting relationships with these unlikely business partners, as well as with their customers, to boost their revenue and increase their profits. The "old way" saw companies getting everything they could for themselves, with both buyer and seller "besting" each other and focusing on short-term benefits. Today, companies from one-person, home-based operations to corporate giants and major manufacturers, are all finding success in the building of interconnected strategic relationships.
The Partnering Theory
For years, companies have acted as comparison shoppers in their buying habits by making decisions concerning where to buy parts, supplies and services based solely on price. Soliciting bids from several suppliers, selecting the lowest one, switching from supplier to supplier in search of a better price, and even querying multiple suppliers at the same time in an effort to intensify price pressure and "keep suppliers on their toes" were common practices. Simply put, the emphasis was on scoring the one-time sale.
Today, these companies are turning their attention to what consultants refer to as "relationship marketing," to meet the challenges of boosting profits, increasing market share, and enhancing competitive position in an increasingly global and cost-conscious marketplace. As a result, companies are looking at suppliers not as adversaries, but as partners in cost-reduction programs. The process, which calls for building long-term connections to suppliers and customers, is making companies rethink their whole approach to purchasing and selling.
Rather than focus on price alone, purchasers are scrutinizing more closely whom they buy from, what they buy and how they order, as well as what they pay. By partnering with key vendors to reduce costs, some companies have managed to shave millions off of their bill for purchased goods. In addition, many of these companies, acting as suppliers to their own customers, are using the same tactics and forming similar relationships with their valued customer base.
"Strategic partnering is simply an alliance formed between two or more businesses in which everyone involved comes out advantaged in some way," says Michael Cooper, former president of Alton, Ill.-based Excalibur Consulting Group. "Alliances can be formed with suppliers to obtain funding for an upcoming project, and if they're suppliers themselves, those companies can also turn around and form alliances with their own customers by supplying them with funding, specialized services or other benefits."
Cooper, whose growth-strategy firm helps companies and professional practices expand business, increase profits, and achieve growth, says alliances are usually formed between companies who have complementary products or services in order to offer a broader range of benefits to customers. "Alliances can even be formed between direct competitors, thus transforming an adversary into a profit center," he adds.
Who Makes the Best Partners?
For manufacturers, partnering with suppliers often makes the most sense. Many manufacturers currently spend 50 percent or more of their revenues on purchased products and services, and that amount has been growing since the 1980s as companies have outsourced an increasing amount of work. Through partnering, large vendors can get their smaller counterparts access to people they might not otherwise be able to reach, and provide them with broader exposure through cooperative marketing events or co-sponsorships that they couldn't otherwise afford.
"We've found that partnering with our customers is a long-term and ongoing process," says Tom Karvasale, director of marketing and technical services for Tullytown, Pa.-based A-Lok Products, Inc., a manufacturer of industrial production equipment. "It involves developing both personal relationships and technical assistance. We partner with our customers by positioning ourselves to provide both constructive input and value-added products to every phase of their business, and we've positioned ourselves to understand the businesses that our customers serve, such as the contractors and specifying agencies." According to Cooper, an increasing number of businesses are forming alliances that provide the expansion and growth opportunities that the firms would never have achieved on their own, while also giving them the opportunity to better serve their own customers. He adds: "As a result, businesses can better compete with their competitors in a way they never could before, thus capturing more market share for themselves."
At Baltimore-based Strescon Industries, a pre-cast concrete manufacturer, Joe Fleischman, marketing/MIS director, says he finds little advantage in partnering with suppliers. "While we do have good working relationships with all of our suppliers, there's not much advantage to partnering with, say, a cement supplier because you can get the product anywhere, and no one's prices are better than anyone else's. Supply is the biggest issue," he says. StresCon does, however, regularly partner with its customers, Fleischman explains: "In design-build situations, we often partner with the general contractors. We also like to work directly with the property owners, which is the easiest way to find out exactly what they want, rather than having that vital information filtered through a third party. When we work directly with an owner, everything works out great."
When it comes to citing the advantages of such alliances, Fleischman sees improved communication, the probability of repeat business and cost savings (not immediate, but definitely in the long run) as the biggest perks.
"In our industry, things can get designed and put on paper that truly have no basis in reality," he explains. "We can stop much of that by being part of the process. Whether we're working with the general contractor or the owner, being a part of the design team means a lot less problems."
Alliances With the Competition
In the '90s business world, change is inevitable. With new technologies cropping up all the time, new business opportunities coming out of the woodwork and new strategies being used by companies of all sizes, one never knows where a great partnering opportunity may arise - even if it means teaming up with a competitor. Cooper refers to one such strategy as, "Getting Your Competitors to Pay You." Your competitor is not the enemy, he says. On the contrary, they present a partnering opportunity that many companies don't consider. Much like the jewelry retailer mentioned in the beginning of this article (a client of Cooper's), who tried his hand at selling products to a list of prospects that his competitor wasn't able to close, if done correctly, competitive alliances can often result in a win-win scenario.
Sharing your customers with other businesses, what consultants refer to as "cross-over marketing," is also becoming increasingly popular. Under this strategy, a restaurant and a movie theater, for example, will get together to offer joint discounts: With dinner, a customer gets 10 percent off the price of a movie ticket; with each movie admission, the movie-goer gets a 10 percent discount at the restaurant.
Getting Started: Commitment Is the Key
Before business partnerships can work properly, all involved parties should spend time deciding exactly what they expect from such an alliance; what they're willing to give in return; and most importantly, how much time and resources they're willing to commit. This commitment can involve trusting a supplier with proprietary technology and other sensitive information, an uncomfortable proposition for many companies. The level of discomfort of partnering companies can be decreased in this situation by insisting on the use of nondisclosure agreements. Partnering can also require short-term investments based on the promise of long-term payoff. But commitment is a choice that can offer high return.
According to Cooper, the first step a company should take involves realizing that it is not in business alone, and that there are numerous individuals and companies that have an interest in its success. "The sooner this old myth is shattered, the better," he says. He advises asking yourself what other parties benefit, either directly or indirectly, from your company's success?
"Once your have these companies identified, decide exactly what you need from them," Cooper continues. "But remember, they must also profit in some way themselves. Then, approach the supplier, competitor or customer and present your idea. Tell them about the projected result and most importantly, what they will get out of the alliance."
For example, when a manufacturer makes a real commitment to a supplier, the supplier then can be encouraged to share in the commitment by investing in the manufacturer's business and its products. And whether that commitment is in people, machinery or technological upgrades, when a supplier makes a direct investment to better service a key customer, both can enjoy a sustained competitive advantage as a result.
"When presenting your proposed alliance, think to yourself, 'It's all about them, never about me'," Cooper emphasizes. "Not everyone will want an alliance, but if yours is well thought out and aims to benefit all involved parties, then it has a great chance of succeeding."
Before You Partner: Pitfalls to Avoid
Overall, partnering relationships have met with mixed success. Some companies find that anticipated savings aren't realized, or that new approaches don't stick. So-called preferred suppliers can end up disgruntled, feeling that for them, the word "partnership" has meant little more than opening their books to a customer, only to be told, "Cut back here." Other companies may find that while they do realize savings from partnerships, the savings are marginal, or even worse, they're one-time deals that can't be replicated year after year.
To avoid such pitfalls, it pays to do preliminary research and legwork prior to signing a contract with a potential business partner. Businesses will find it beneficial to examine a potential ally's track record, and their participation in and support of their specific industry or business sector. To evaluate suppliers, experts suggest that you first ask yourself the following questions:
- Is the company competitive? Where does it rank in comparison with its competitors?
- Can the supplier meet our needs?
- Is the partnership an "easy fit," or do business philosophies clash?
- What is the company's success rate, and what is the quality of the management team?
- Will we be able to communicate on an effective level with this company, especially in urgent or crises situations?
- What is their track record for payment (for customers)?
- Will they be willing to join in major decision-making for large or complex contracts?
- Does it have in-house engineering or technological expertise that can add value to my product?
"You should look for companies you can trust to pay what they agreed to pay; trust to do what they said they would; and trust to treat your customers professionally (if applicable)," says Cooper, of Excalibur Consulting. "And always have a business lawyer examine any contracts before you sign them." According to Cooper, the first rule of business partnering is that there are no rules. He explains: "Alliances are formed when two companies can help each other reach more goals, more prospects, more profits or more growth. The only limit to the type of companies you can form alliances with is only limited by your own creative imagination."
A Look Ahead
Regardless of how business alliances are structured or utilized, it's no secret that companies worldwide realize that strategic partnerships make sense. In fact, by the year 2000, business alliances are expected to account for better than 20 percent of the average company's revenues. Whether the goal is to shorten channels, increase efficiency, speed up processes or take some of the burden off a company's in-house staff, business partnerships with vendors and customers are proving themselves beneficial in a variety of ways.
Copyright © 2009 by Virtual Advisor, Inc. All rights reserved.