Five Rules for Strategic Partnerships in a Digital World
Leading companies know that the future depends on the capabilities, functions, channels, and insights they can tap by working with others.
Partnerships have always been a critical strategy for businesses looking to grow in unfamiliar markets, tap new customer segments, or sell additional products or services. They have also always been notoriously tricky to make work. Too bad, because in today’s hypercompetitive, hyper-connected marketplace, partnerships have taken on even greater strategic importance and complexity. Both business-to-consumer and business-to-business companies are in an arms race to develop innovative user experiences, expand distribution, and capture new sources of monetization. Digital leaders are discovering that their future depends not just on what their own companies can do, but on the capabilities, functions, channels, and insights they can tap by partnering with others.
Through our work with leading companies, and in thoughtful discussions with more than 300 senior leaders who gather regularly in forums conducted by Digital Services at Strategy&, we’ve developed five key rules for successful partnerships in today’s digital world.
Rule 1. Never innovate alone.
Companies can rarely reimagine their business for a digital world within their own four walls. Whether via joint ventures, acquisitions, strategic investments, or ad hoc collaborations, partnerships are now essential to scaling the talent, investments, and other innovation-focused resources required to support transformational new businesses, products, and user experiences. More open source development is a related imperative. This stands in stark contrast to traditional siloed approaches to innovation.
Example: Citigroup is actively using its Citi Ventures unit and its relationship with the venture capital firm Andreessen Horowitz to source disruptive startup opportunities that have the potential to create significant value for the company. Citi is focused on six key areas: data monetization, big data, security, mobility, emerging IT, and next gen banking/financial services.
Rule 2. Understand that no single company has a lock on user preferences.
Consumers are moving targets. Companies need to realize they don’t have all the killer insights or data by themselves, and must engage with others that have complementary information assets. Partners are now essential to building market advantage through superior knowledge capital, and robust information exchange is fast becoming the new normal for high-performing partnerships.
Example: General Electric and Intel created a joint venture, CareInnovations, to aggregate more than 6.8 billion patient data points and provide insights to players in healthcare that can improve care delivery, reduce costs, and drive behavioral changes.
Rule 3. Focus first on a great user experience, not the value exchange.
Today’s most valuable partnerships are built around creating great user experiences, not just exchanging value between companies. Embracing this approach requires a human-centered design emphasis that pushes the partnership to solve a real user problem, versus concentrating entirely on transactional benefits.
Today’s most valuable partnerships are built around creating great user experiences, not just exchanging value between companies.
Example: Roku, a leading provider of devices and channels for streaming video and other media, has partnered with the home electronics manufacturer TCL to produce a simplified “smart TV” built around the Roku operating system. The result is an integrated video user experience that combines Roku UX/UI capabilities in personalization, curation, and video discovery with TCL expertise in hardware design and manufacturing.
Rule 4. Strike the right balance between scale and customization.
Creating a broad network of partnerships can be expensive, because major partners will typically demand differentiated solutions that are unique to their needs. Developing a partnering approach that combines scalability (maximum reach) with low-cost customization (something special for each partner) is critical. Here, designing technology and tools such as apps and software development kits around specific partnership objectives can give your company a broader and longer-term advantage.
Example: As Netflix has expanded its member base and the number of devices it supports, the company has evolved its API (application programming interface) strategy to meet its business objectives. During the early stages of its successful transition from a distributor of mail-order DVDs to an Internet streaming service, Netflix had an aggressive public API program designed to encourage third-party developers to create new offerings based on its data. Now, with close to 50 million global subscribers. Netflix has reassessed its API program and is focusing more on working with a smaller group of private partners, reducing the cost and complexity associated with a more public approach.
Rule 5. Treat your partnership like your business.
Too many strategic partnerships never come close to achieving their intended outcomes. Why? The partners never dedicate the resources, ongoing commitment, and ownership needed to drive meaningful impact. Achieving success with joint go-to-market or product development collaboration is hard work. It takes time. It costs money. And it doesn’t happen overnight. To get it right, you have to run the partnership more like a true business and less like a deal.
Example: Acxiom has prioritized expanding its partner ecosystem to support growth of its Audience Operating System (AOS), which is key to its overall strategy as a provider of marketing and enterprise data services. Acxiom has invested in partnering with Publicis Groupe’s Starcom MediaVest Group (SMG) as a channel partner in order to reach more customers. And as of September 2014, Acxiom had trained about 400 SMG employees to use AOS, which accelerated the adoption of the AOS platform with SMG clients.
The strategic importance of reinventing approaches to partnerships cannot be understated. If it’s not already on every leadership team’s agenda, it should be. As customers or users jump from experience to experience with increasing speed, and traditional sources of scale and differentiation decline in value, the need to build capabilities for managing and delivering against these new partnership rules has never been greater.
What are the biggest challenges you have in building fruitful strategic partnerships? How are you making these investments work? Share your thoughts in the comments.