by Tiffani Bova
It isn’t realistic to think that everything will always go right with a partnership, so you must plan for when things go wrong. The best thing you can do is fix it quickly, of course, but if that’s not possible, then you must communicate with your partner(s) right away. Remember, strong partnerships require trust, fairness, and mutual benefit—if any of those three fall short, you risk negating all the progress previously made.
Put in place the appropriate partner and change management systems to avoid issues like this from arising, or at least arising again. Case in point: The infamous open letter from Taylor Swift came in June 2015. Then it happened again in May 2017. Apple had announced that it was going to change the commission rates for iTunes affiliates (i.e., its partners). It was reported that all rates (for Mac and iOS app purchases, and for in-app purchases on both operating systems) would be cut from 7 percent to 2.5 percent. There was an immediate outcry from affiliate partners and Apple quickly backtracked. The good news is that Apple responds quickly when issues like this arise. The bad news is . . . they haven’t fixed the underlying problem of how this could even happen in the first place.
PUTTING IT ALL TOGETHER
A strong relationship with your vendors will help keep you at the forefront of changing market trends. . . . Our dealer network generates extraordinary and timely market intelligence. It’s a rich source of information that enables us to introduce new products and support services successfully.
—DONALD V. FITES, former chairman and CEO of Caterpillar, Inc.
ANY EFFECTIVE PARTNERSHIP DEPENDS ON understanding where the value is. That comes from defining what each party brings to the table. Once you know that, you can begin to define what success looks like, what kind(s) of partners you may need, and what type of partnership arrangement you should form.
With the advancements of digital technology and the Internet, the emergence of powerful ecosystems has shaped entire industries and fueled growth for many companies. Some partnerships are so critical to the success of a business that without them, the future of the business is totally at risk. However, many companies lack the knowledge, connections, and management capabilities to realize the full potential of partnering. Others can capitalize on partnering in one part of their business and not know what to do in another. Or worse, they have strong partnership chops and forget those critical tenets of trust, fairness, and mutual benefit.
The unfortunate result is that many partnerships are approached as an afterthought, either because the company feels it doesn’t need them because of its size or scale, or it’ll launch and “fix it later.” Either way, the challenges it will face aren’t because the initial concept and intent weren’t right. Rather, it comes down to overlooking the value of working with external parties (companies, people, ecosystems, etc.) because of its own inwardly focused agenda. It’s all about what “they” want, not what’s best for both companies.
Nonetheless, I don’t anticipate the rate of partnerships slowing down anytime soon—especially as businesses struggle to react quickly to ever-changing customer expectations and growth demands. Striving to outmaneuver competitors these days requires many more external partnerships to support evolving growth initiatives.
WHAT WORKS—AND POTENTIAL PITFALLS
Any company choosing Partnerships as a growth path must understand that, regardless of the type of partnership it chooses to pursue, there is rarely a fixed destination. Partnerships should continue to evolve over time, as new opportunities are uncovered. While some partnerships prove to be fleeting encounters, lasting only as long as one partner needs the other, some partnerships become the very fabric of the two companies’ success and can last for decades. The Partnership growth path, as you might imagine, offers opportunities beyond what a company usually would be able to create on its own and also offers a banquet of potential subsequent growth paths for the companies who pursue it. Here are three examples.
COMBINATION: PATH 8—
Partnerships + Path 3—Market Acceleration
The right partnership introduces you to a new market opportunity while saving you much of the expense of developing that market. The right partner has already competed in that market, undertaken the expense of prospecting it, staffed a team of developers, experienced all of the potential pitfalls, and developed a body of loyal users. Who wouldn’t want that starting advantage? Of course, your partner is probably doing the same thing to you, so you had better make sure you are getting the deal you want.
COMBINATION: PATH 8—
Partnerships + Path 4—Product Expansion
The same is true with the Product Expansion path. Your partner has undertaken the expense and effort to develop a product specifically for its market. It has overcome various obstacles, perhaps failed on several occasions, and refined that product to be best suited for its potential customers. Why wouldn’t you want to have access to that acquired wisdom? Something even more valuable can be access to your partner’s intellectual capital, such as patents and copyrights, that you otherwise would not be able to use, much less duplicate. Indeed, saving the licensing costs may be worth the entire partnership.
COMBINATION: PATH 8—
Partnerships + Path 6—Optimize Sales
When we think about optimizing sales, it is usually as an internal activity. But with a partnership you can increase the size of your sales force and also its quality. Especially in a new market for you, your partner’s sales operation can bring fresh talent, in-field experience, better lead generation, and specialty selling tools, and it can sometimes serve as a source of fresh best practices that you can implement in your own operation.
PATH 9
CO-OPETITION
CO-OPETITION
No one can succeed by themselves. . . . The only way you can achieve something magnificent is by working with other people. There is lots of co-opetition.
—REID HOFFMAN, venture capitalist and cofounder of LinkedIn
WHY CO-OPETITION MATTERS
Creating partnerships or collaborative arrangements with other firms is the primary type of transaction that 50 percent of CEOs expect to undertake to increase shareholder value.
Eighty-five percent of CEOs see such cross-sector coalitions and partnerships as essential to accelerating transformation, and a further 78 percent believe that these partnerships will help them deliver positive outcomes in the next five years.
WHAT’S OLD IS NEW AGAIN
Ever wonder why your USB cable works on any device, built by any manufacturer? Or your earbuds will plug into almost every device so that you can listen to music or take a phone call? You can thank the standards developed by the computer industry to ensure that customers have a more seamless experience using its PCs, smartphones, and desktops.
Co-opetition is a newly popular but actually quite venerable concept. The word itself is a portmanteau, combining “competition” and “cooperation.” Logically, it is a contradiction, but in the real world it has been shown again and again to work, often brilliantly. It’s a great survival strategy for small companies, especially if they find themselves in a growth stall, and a good expansion strategy for even the largest enterprises.
While the law may be sometimes hard for the individual, it is best for the race, because it ensures the survival of the fittest in every department.
—ANDREW CARNEGIE
The first known use of “co-opetition” dates back to the beginning of the twentieth century—but it is generally acknowledged that the modern principles of the field have evolved from game theory and from the Nobel Prize–winning work of John Nash (the subject of the movie A Beautiful Mind).
At the heart of the Co-opetition path is the notion that even competitors can find ways to work together to accomplish ends that they would be unlikely to achieve alone. Indeed, working with competitors can be more successful than traditional partnerships because, while the latter
can often suffer from indistinct boundaries and mission creep, co-opetitive relationships, because they are based upon a “partial congruence” of interests, typically have both distinct boundaries and precise rules of engagement.
The most common form of Co-opetition is one in which two competitors work together in basic research and the development of applications, even product platforms to open or expand a market, while still competing with each other for customers and market share. One example is a memorandum of understanding (MOU), a non–legally binding partnership.
The most notable example of Co-opetition can be found in the technology industry, where hardware and software companies work together on standards and compatibility and form joint distribution (bundling) agreements with each other’s competitors.
At the philosophical heart of Co-opetition is a reaction against the notion that a particular market sector represents a “zero-sum” game: an economic pie of fixed size from which competitors are reduced to cutting out slices of market share from their competitors, and vice versa, in a winner-takes-all scenario. By comparison, the goal of Co-opetition is to find synergies and common ground between those competitors in the hope of growing the size of that pie. If it can be done, everyone wins—and that makes it worthwhile even to work with your “self-proclaimed competitor.”
For purposes of this growth path, we focus on the co-opetition aspect of partnerships, specifically product development and intellectual property (IP).
FUTURE NEEDS REQUIRE FUTURE PARTNER MODELS
To sustain a population of 9.7 billion people by 2050, the world is going to need a different approach to innovation. Key industry sectors such as food, energy, water, agriculture, and transportation are already under pressure to move to more sustainable methods of production and consumption, and they are struggling to keep up with both consumer demands and the pace of technical change.
If we keep trying to tackle these big challenges with the same approach to innovation, we may find ourselves asking the same questions a decade from now, with little to no progress. One of the biggest opportunities for business lies in how it manages the creation and ownership of inventions and ideas. A protectionist approach to IP is designed to protect and prolong the life cycle of existing technologies, allowing innovators to maximize returns on their investments. While that may have been the preferred approach in the twentieth century, in the twenty-first century it makes it harder for new and more sustainable technologies to be developed and adopted quickly so that they can have the greatest impact.
Elon Musk, CEO of electric car manufacturer Tesla, “shocked” the world in 2014 when he announced that his company was joining the open source movement and giving away its patents for free. Admirable, but this was a change from its original philosophy about innovation. Originally Tesla developed a patent portfolio to protect its technology from its global car manufacturer competitors. Tesla was concerned that the production of electric cars was going to take off—and keeping its technology close to the vest was a competitive decision.
Instead, the electric car market hasn’t gotten bigger than single digits. The stagnation led Tesla to rethink its approach. It changed its strategy from trying to prevent others from competing against it to using its technology as a catalyst to encourage and enable the market to grow faster. Co-opetition was the path forward. Opening up its intellectual property could actually benefit Tesla with another product it has developed—batteries and charging stations. If more electric cars were manufactured, more batteries would be used; if more batteries were used, more charging stations would be needed. Whether it was a competitor or a Tesla vehicle, Musk wanted a larger piece of the total pie.
A shortsighted view can keep companies on their current path to growth and not think about how to approach the new market context in a different way. If more companies and more industries approached product level innovation with a cooperative mind-set, like Tesla, only then could Co-opetition flourish as a potential new growth path. Just as with Partnerships in the previous chapter, you have to believe that 1 + 1 = 3; otherwise, this path isn’t for you. However, if you are developing technology, products, and services that could benefit a wider segment of the market if you were more collaborative, why not? All the better.
STORY
1
FIAT CHRYSLER, BMW, AND INTEL
JOINING FORCES
In order to advance autonomous driving technology, it is vital to form partnerships among automakers, technology providers and suppliers. Joining this cooperation will enable FCA to directly benefit from the synergies and economies of scale that are possible when companies come together with a common vision and objective.
—SERGIO MARCHIONNE, CEO of Fiat Chrysler Automobiles
THE RESTORATION OF HARDWARE’S DOMINANCE in high tech has led to a renaissance in opportunities for companies to experiment with Co-opetition. The result has been some unlikely and unexpected partnerships. One of the most unlikely of such recently announced alliances is Fiat Chrysler Automobiles (FCA), BMW, Intel Corporation, and its newly acquired subsidiary, Mobileye, to develop autonomous cars.
After decades of battling it out with neighbor Mercedes-Benz, BMW was perhaps the world’s most innovative automaker. From design to manufacture, business organization to driver experience, BMW was considered the model for every other car company. Even its headquarters facility in Munich was studied around the world as a paradigm for integration of operations and automation.
As early as 1998, BMW became one of the first of what became a tidal wave of carmakers setting up offices in Silicon Valley to tap into that tech center’s expertise and to serve as a listening post for emerging new technologies that might be of value in transportation. BMW’s office, located in Mountain View, was just a couple miles down the Bayshore Freeway from Intel’s headquarters in Santa Clara. In retrospect, a partnership between these two legendary innovators seemed inevitable.
In July 2016, BMW, Intel, and Mobileye announced that they were teaming up to develop an autonomous vehicle, targeted for production by 2021. The immediate goal of the trio was to deploy forty autonomous test vehicles on the road by year end. But something was still missing from the co-opetitive relationship: mass and scale. BMW is a major carmaker, but it operates largely in the luxury market. Unlike, say, Mercedes, it doesn’t make trucks or other mass-market vehicles. Its product line extensions have largely been other luxury vehicles featuring hybrid and electric motors, motorcycles, and niche vehicles such as the Mini and Rolls-Royce. What the team needed was one more partner, one targeted at the mass market, especially global customers—even if it meant that partner might be a potential competitor of BMW.
It found that partner in August 2017 with Fiat Chrysler, one of the world’s largest automakers. According to Dean Takahashi of VentureBeat .com, “The companies are talking about creating both co-pilot driver assistance technologies and full-blown self-driving cars. They will leverage each other’s strengths and resources to do so and will co-locate engineers in Germany to do joint work.”
According to A. T. Kearney, all told, the apps, equipment, and vehicles related to autonomous driving will pull in $282 billion in revenues by 2030, which represents about 7 percent of the total automotive market. The numbers get much bigger from there. They expect the market to almost double to around $560 billion between 2030 and 2035 and represent 17 percent of the global automotive market.
Why would BMW let a company like FCA join the party? According to a statement by BMW AG chairman Harald Krüger, “The two factors that remain key to the success of the cooperation are uncompromising excellence in development, and the scalability of our autonomous driving platform. With FCA as our new partner, we reinforce our path to successfully create the most relevant state-of-the-art, cross-OEM [original equipment manufacturer] Level 3-5 solution on a global scale.”
Just because they can agree to work together doesn’t mean that, in pract
ice, they actually do so. Automobile companies have traditionally wanted proprietary chips from their semiconductor partners—something a company with Intel’s history will likely never agree to do. The same goes even for Mobileye: with the vast world of computer vision calling, it is unlikely to divert too much of its precious resources to this project only. But maybe with the moves from Tesla, other car manufactures are seeing the benefit in being more collaborative in lieu of protecting technology that can move the entire market forward.
A new technology revolution—autonomous (self-driving) cars—was beckoning, and a new set of powerful players was spending huge sums to dominate it, companies like Google, Apple, and Tesla. And the traditional automobile industry—the sector most at risk from a new transportation paradigm—wanted in, if only for self-preservation.
Intel wanted in, too. As the microprocessor industry had evolved over the previous decades, Intel had long stayed the dominant player. It had supremely benefited from the dot-com boom, at one point becoming the most valuable manufacturing company in the world. But then Intel zigged when it should have zagged. It chose to throw its immense financial resources and technical skill in the pursuit of the networking business as the next big thing. That proved a huge mistake because the real game turned out to be in the mobile business. In other words, Intel had chosen to chase big, expensive chips when it should have gone after small, cheap, and low-power versions to stick in smartphones and laptops. Sharp new competitors such as ARM and Qualcomm were quick to fill the void left by Intel.