by Mark Brigman
Procurement & Sales vs. Strategic Partnerships
Let’s be reminded that a strategic partnership is a contractual relationship between two or more companies where the mutual intent is to create a competitive advantage.
If you have a strong background in procurement management, this definition probably seems a bit of a curveball. That is, traditional procurement managers generally use terms like “vendor” or “supplier” instead of “partner.” They rarely think of creating a competitive advantage and almost never consider how the relationship may align with the other party’s strategic goals. Instead, a traditional procurement manager’s job is to purchase products or services needed by their firm. Their major emphases are on price and service level agreements for delivering the purchased commodities.
Procurement managers work in the world of commodities where there are generally few unknowns (clear expectations are set) and overall risk levels associated with the products or services being supplied are relatively low. That is, the suppliers or vendors—as they are called—specialize in delivering particular products or services to companies based upon a negotiated purchase order. Strategic partnerships, on the other hand, involve the mutual development of products, services, markets, and/or other opportunities that promise a financial return that is significantly above status quo. Strategic partnerships are forged when companies agree to collaboratively leverage their individual strengths to deliver a product, process, technology, or knowledge innovation that creates a paradigm shift in a market.
By definition, strategic partnerships are forged between two companies who seek to create something new, a differentiation in the market—a competitive advantage. In order to accomplish this, a tolerance for the unknown is required and a mutual level of trust and respect is imperative so that the purpose of the relationship is eventually realized. If there is one thing that procurement managers do not like, it is risk. This is why master service agreements at many companies are as thick as a college textbook.
Please do not misunderstand my depiction of the traditional procurement manager; it is not intended to be degrading because there is no doubt that procurement and supply chain functions are absolutely critical for companies to operate. Their job is not an easy one. I am simply drawing a clear distinction between the short-term, transactional approach used in sales and procurement versus the longer-term, strategic approach that is used in business development and strategic partnerships. They are both needed by organizations. One is not better than the other, they are just different.
It is imperative, though, that company leaders can clearly see if their organization is correctly aligned. If within your company walls, every company that supplies your organization with a product or service is referred to as a vendor, you are either misaligned or you have no strategic partners.
Does your company have a dedicated person or team that is responsible for developing strategic partnerships? If yes, are they great practitioners of their craft? That is, do they clearly understand the differences between commodity relationships and strategic relationships? If you think you are a part of a strategic partner organization and you use the word “vendor” to describe your counterparts, this is your first clue that you are wrong.
When you think of a vendor, think of a vending machine. It is a box that you walk up to, insert four quarters, and push a specific button based upon the given commodity that you want to receive—cola for example. If you push the cola button after inserting four quarters and nothing happens, what do you do next? You probably push the cola button with a little more force as you grow irritated. If nothing is still delivered, you give the button a little love punch and mutter a few words in disgust. Finally, if no cola drops to the vending door, you throw a haymaker punch and shake the machine from side to side, praying that your cola drops into the dispenser.
Can you relate with this anecdote? We might laugh when we read it, but the sad fact is this is how we treat many of the companies that supply products and services to our organization. Does this approach sound strategic, healthy or like an opportunity that will create a competitive advantage? Buying and consuming commodities is a critical part of every business. Actually, it is a major expenditure for most companies. Organizations need computers, cars, software, office supplies, real estate, raw materials, professional services, and many other items to thrive. The purchasing and management of these relationships is the responsibility of procurement specialists, as it should be. But PLEASE, do not make the mistake of having your procurement specialists be responsible for your strategic partnerships. If you do, they will fail. Many business leaders, even multi-national Fortune 100 firms, make this mistake.
The desire to achieve exponential growth by leveraging strategic partnerships is a strategic play. That means it takes time, discipline, commitment, and plenty of energy to continually nurture their success. The short-term, transactional nature of procuring commodities to achieve incremental growth requires a “sprinter” mindset. The long-term, methodical, strategic play for exponential growth requires a marathon mindset. In our “instant gratification” world, sometimes we lose sight of the fact that lasting business relationships take effort to build and to maintain, but when done correctly, the results are phenomenal.
People who specialize on the collaborative side of this continuum think and act very differently when compared to the transactional side. This is not to say that salespeople or procurement specialists cannot be collaborative or strategic, but their approaches are strikingly different. This begs the question, can someone be a great salesperson and a great business development specialist? That is, can someone be a specialist in both ends of the Business Growth Continuum? The answer is no.
A person’s mentality to “deliver success” is either transactional and short-term or it is collaborative and longer-term. Similar to track stars, either your DNA has you pinned as a sprinter or a marathon runner, but nobody is great at both specialties. More insights will be shared on the dichotomy of short-term versus long-term business growth strategy in later chapters.
While both roles are critical and valuable for organizations, it is important to understand their very unique and vastly different approaches. As stated, traditional procurement managers, as compared to strategic partner managers, are required to oversee a much larger pool of companies on behalf of the organization. In this role, the procurement manager is generally focused on price, delivery deadlines, quality, and how well the “vendor” is adhering to the contract that was signed.
In general, the procurement specialist utilizes master service agreements (MSA) that are intended to be bulletproof. The primary responsibility of the procurement manager is to eliminate all risks where possible and fully define every obligation that the vendor must deliver. These contracts are known in the academic world as “closed contracts.” This means that the parties to the agreement have full understanding and opportunity to define the intended outcomes of the relationship. That is, the commodity (product or service), price, terms, conditions, and delivery timelines are defined.
Procurement specialists issue a request for proposal (RFP) to potential vendors, negotiate contracts, manage winning vendors, and then “swing the stick” when the vendor does not achieve the performance levels outlined in the contract. If a vendor is not performing to expectations, the vendor is put on probation and more closely managed as a part of the termination process. Most procurement managers receive a vendor performance report on a regular basis that highlights non-performance issues that must reactively be managed.
On the contrary, strategic partner specialists typically do not manage RFP processes, although they do provide plenty of input regarding business requirements when applicable. Partnering specialists write and negotiate partnership agreements that follow a very different structure as compared to a RFP. Partnership agreements focus on innovations to products, services, processes, or operational opportunities that may result in a significant paradigm shift in markets that are se
rved. Rather than specifying a price, partners will frequently participate in a revenue share based upon the realized benefit.
Strategic partnership agreements will lack some or many of the “what” and “how” details because we simply may not know what needs to be included. That is because, the reason for the partnership is to embark upon a new territory that neither company has created individually. And the agreement must include flexibility to allow the parties to explore and further define the specifics as they are navigated. Prices and revenues are important, but they fall secondary to the opportunity to create a competitive advantage from the relationship. If we have the right partner and we truly achieve a competitive advantage, the pricing and revenues will make sense for our business. In the academic world, strategic partnership agreements are referred to as “incomplete contracts” because some elements are unknown at the execution date.
Fun fact:
Oliver Hart and Bengt Holmström, two university professors, won the 2016 Nobel Prize in Economics for their contributions to evolve “contract theory.” Contract theory is a science that continues to develop as companies and scholars try to find more effective ways to bring successful partnerships to the modern day economy.
Successful startup entrepreneurs are absolute masters at forging strategic partnerships. Why? Because they have to be in order to survive. For most startups, funding is very limited and entrepreneurs must find ways to create mutually beneficial relationships with companies that will not only generate revenue, but also give their product or service an advantage over other competitors who are already established in the marketplace.
When we hear business leaders say, “We need to be more entrepreneurial,” this is, in part, what they mean. We need to find ways to leverage the expertise of others in order to cost effectively offer increased value to our customers. Strategic partnerships allow companies to differentiate their products and services with innovative benefits. When this happens, we have achieved a competitive advantage because our competitors are not able to match our offering.
As you can imagine, all competitive advantages do come to an end. This is why it is imperative that companies have dedicated resources that are focused on the right side of the Business Growth Continuum, not just the left. Even if your competitive advantage is significant enough to be protected by a patent, you must continue to innovate. Patent shields exist only for a finite period of time. Besides, if a product is successful in the market, there is no shortage of inventors and entrepreneurs who stand ready to “build a better mouse trap.” If you can find a better way to solve a challenge, a patent does no good. Because all competitive advantages eventually come to an end, it is critical that companies build strategic partnerships to develop a steady stream of perpetual innovations.
Traits of a Great Strategic Partner
We have all been a member of a great relationship, right? Have you ever taken the time to actually list the attributes of the person with whom you share that powerful connection? If you are like most people, probably not; you just know your relationship seems effortless and natural. Thus, you seek that same feeling in future relationships.
In preparation for writing PARTNERNOMICS, I interviewed more than 100 executives with a wealth of experience in organizing teams and building strategic partnerships from the likes of Google, Microsoft, General Motors, Nokia, HP, and much smaller companies with far less famous brand. I felt it was important to consider a full range of perspectives.
I asked these seasoned business professionals to choose the top ten traits that best characterized the companies that made great strategic partners.
At the conclusion of the interviews, thirteen traits emerged as the most prolific attributes of powerful partnerships. Though I did not rank the traits given in any particular order, the most common cited trait of a great partnering company was trust.
Traits of a Great Strategic Partner:
Trustworthy
Listener
Committed
Accountable
Transparent
Mutual Respect
Competent
Forward-Looking
Innovative
Adaptive
Understanding
Selfless
Solvent
Trustworthy: It comes as no surprise that trust is the top-ranked trait for great partners. It is also why my consulting company’s name is FIDELIS ONE. Fidelis means faithful in Latin. In relationships of any kind, trust is the absolute imperative. In his book The Speed of Trust, Stephen Covey describes how trust is the great economic engine because it allows businesses to grow at faster rates. When trust exists, less time is spent validating claims and people are less prone to stall on making decisions. Trust allows us to be transparent and vulnerable, enabling us to share issues and challenges that we face. When others understand our shortcomings, they have the potential to compensate for our area(s) of weakness. This is the essence of a fruitful partnership. It is critical that we partner with best-in-class providers so that we are able to leverage their industry expertise. Having trust in our partners allows us to offer a reasonable amount of grace when our partners do not fully deliver on an obligation. As long as the spirit of strong relations and positive intentions are present, trust will bridge any shortcomings. However, trust is a very fluid and dynamic element of a relationship and we must constantly work to build the bank of trust that we have with others.
Listener: We could be blessed to be partnered with some of the greatest companies in the world and still fail. Why? Obviously, there are a multitude of reasons, but the inability or unwillingness to actively listen ranks toward the top. In business, we have many good “hearers,” but very few great listeners. Sometimes we just hear what we want to hear rather than truly “seeking to understand,” as Stephen Covey taught us to do. In business partnerships, we must view ourselves as a servant/partner with our providers and understand that it is our duty as a strong partner to provide outstanding value back to our partner and their organization, just as we expect the same. How can we ever expect to provide tremendous value unless we understand what is needed and how they prefer to receive the value? We must be expert listeners!
Committed: A strong and unwavering level of commitment to your partnership is vital. If failure is an option, failure will be your result. As you can imagine, there are countless reasons why some strategic partnerships fail, and those scenarios will be covered later in this book. But a key aspect of failure is the lack of unwavering commitment by your organization and your relentless expression of confidence and commitment to your strategic partner. No partnership is free from challenges, obstacles, or conflict. Commitment means holding your organization and your partner accountable for their obligations. Continually delivering on commitments will fuel the short-term successes and continue to build trust between the organizations that ultimately lead to long-term success.
Accountable: In today’s hyper-busy business environment, companies do not have the time to micro-manage their partners. Providers that effectively manage their own responsibilities and make the necessary adjustments to stay on track with goals and expectations offer great value in their strategic relationships. Being accountable also shows that the provider is completely “in-tune” with what the partnership needs and they are competent and able to recognize challenges and effectively address them.
Transparent: When we are a part of a strategic partnership, hearing the word “surprise” from our partner is not usually appreciated. By definition, when we are engaged in a strategic partnership, our own company’s success is dependent upon our partner’s ability to perform their given duties. In many cases, we are truly co-dependent on our partners, and if they are ahead or behind schedule on a particular deliverable, we will likely need to make adjustments to our schedules and ensure we reset expectations with effective communications. Transparency means that our partners keep us informed of circumstances that may threaten or introduce risk to our collective goals. In or
der to be transparent, our partners must feel that they have vulnerability trust, as described by Patrick Lencioni in his book Five Dysfunctions of a Team. As partners, we must be willing to offer grace and understanding to our partners for their willingness to proactively show a potential threat to us. One of my business counterparts, Don Keeler, calls this “hiding the ball.” If our partners find that we are “hiding the ball” or withholding information regarding potential risks to our collective success, trust will erode—not good! Did your parents used to say, “If you withhold information, that is considered lying?” Our strategic partners feel this way. If we withhold information, we are lying.
Mutual Respect: In the end, strategic partnerships are built through relationships of mutual respect with those we trust. In business, we are frequently taught to “get leverage,” especially when negotiating agreements. Although we do have a duty to negotiate and execute agreements that protect our company, we also have an opportunity to forge an amazing relationship that will produce significant gains for our organization and our partner, if approached and handled properly. When working with feuding couples, relationship counselors look to estimate the couple’s “power level.” That is, the counselor seeks to understand if one person is dominant in the relationship. When this occurs, there is no “balance of power” and one party feels that he/she is fighting a leverage game and not focusing on the relationship’s core intent. All successful strategic partnerships contain mutual respect and power levels are within a healthy balance. Vendors that sell commodities have very little power because their products/services are based upon price. Traditional procurement management is the art of creating leverage against your vendor to garner the lowest price, with the best terms, by leveraging power. In strategic partnerships, an approach that ignores a reasonable balance of equality breaks down trust and shows that self-interest is key.