SEVEN THOUGHTS ON SUCCESSFUL PARTNER NETWORKS

Contents INTRODUCTION ........................................................................................................................................................1

WHAT ARE PARTNERSHIPS .......................................................................................................................................2

WHY HAVE PARTNERSHIPS .......................................................................................................................................2

HOW TO MANAGE PARTNERSHIPS – THE SEVEN THOUGHTS ..................................................................................2

CASE FINPRO .............................................................................................................................................................6

ABOUT FINPRO .........................................................................................................................................................7

Editor

Markus Ranne Partner Manager, Finpro Helsinki Tel. +358 40 3433 453, markus.ranne@finpro.fi

INTRODUCTION Partners and partnerships are in a key role in many of the internationalization services provided by

Finpro. This is especially true, when our client companies are aiming at emerging markets. The most

popular of Finpro’s services is actually our Partner Search.

During the development of our own representative network and related processes Finpro has had to

have a broad look at partnering. This has meant reviewing global partner practices of supply and

distribution in parallel. One of the conclusions of this review process has been that, regardless of the

perspective taken (supply or distribution), many statements are applicable to both cases. This is also

visible in the seven thoughts described later in this document. The result is quite logical in business

environment as most partnerships within a value chain are formed between a supplier and a

distributor.

WHAT ARE PARTNERSHIPS Definition of a partnership: A partnership is an arrangement where parties agree to cooperate to advance their mutual interests.1 Definition of a partner: A partner is one that is united or associated with another or others in an activity or a sphere of common interest.2

Both above definitions contain the concept of mutual interest, which is at the core of any partnership.

However, in our view, a more general view has to be taken, on sharing, when defining a partnership.

We feel that without fair sharing of both risks and rewards, any partnership will remain a hollow shell,

despite the common goals.

WHY HAVE PARTNERSHIPS The essence of a true partnership is the integration of the partners’ activities in a way, which

combines the core competencies of each partner into a virtual organization. By combining the core

competencies of each partner, the virtual organization is able to provide a competitive advantage

over its competitors.

Partnerships and partner networks offer organizations the possibility to grow beyond their own

resources and acquire competencies, which are either too expensive or otherwise impossible to have

in-house.

HOW TO MANAGE PARTNERSHIPS – THE SEVEN THOUGHTS While looking into our own way of managing partner networks, we came across some findings, which

are summarized here into seven thoughts, originating both from academic and business life. We feel

that any organization wanting to either start developing a partner network or wondering why the

existing network is underperforming should go through the below list and see if there is still some

room for improvement on these issues.

The referenced literature is mainly supply oriented but in the spirit of partnership, it is applicable also

on the distributor side of value chain.

1. It is a common assumption that stable supplier relationships make suppliers more complacent.

This assumption encourages buyers to change suppliers as soon as a better one can be found.

However, long term relationships are actually very demanding on both parties as they create

1 http://en.wikipedia.org/wiki/Partnership

2 http://www.thefreedictionary.com/partner

tension when supplier and buyer disagree on an issue. The tension creates conflict, which

promotes creativity.3

The typical way of subcontractor management in many organizations is still to end a

relationship at the first sign of trouble. Partnerships, however, imply a long term commitment

on both sides and upcoming problems are addressed together for mutual benefit. This is not

the easiest way but offers the possibility of establishing a strong relationship in which the

partners can trust each other also in difficult times. Instead of running away from problems

the partners will learn new ways to solve them.

The long term commitment of a partnership means also, that all tools and processes, used in

managing partnerships, have to be designed to support operations over a long period of time.

2. Supply chain relationships must consist of more than just sharing information and having a

focus on total supply chain cost. The buyer and supplier must jointly develop their strategy

and tactics. The relationship between the buyer and supplier has to be such that both get their

share of risks and rewards. This means that organizations must change the behavior, where

they try to minimize only their own risk and maximize their rewards. They must also focus on

their own core competencies and outsource other activities to supply chain partners.4

Joint planning and development are signs of a true partnership. In this way both partners are

able to make their voices heard and the chances for misunderstanding the goals of the plan

are minimized. Combining the knowledge of two organizations already in the planning phase

helps also in preventing organizational shortsightedness of both partners.

3. Supplier management is an investment, by the buying firm, which aims to reduce transaction

costs and develop a more cooperative relationship. Extensive management of partners may

include exchange of personnel, training and education of supplier’s personnel as well as

possible direct investments. The goal is to achieve the benefits of vertical integration without

the associated costs.5

Like in any investment project, without proper resourcing in both money and manpower it is

impossible to succeed in creating a working partner network. A partner network goes beyond

3 Axelsson, B., Wynstra, F., Buying Business Services, John Wiley & Sons Ltd, England 2002, Page 224.

4 Coyle, J., Bardi, E., Langley Jr., C., The Management of Business Logistics: A Supply Chain Perspective, 7th edition, South-Western,

Canada 2003, Page 25.

5 Carr, A., Pearson, J., Strategically managed buyer-supplier relationships and performance outcomes, Journal of Operations Management,

Volume 17, Issue 5, August 1999, Pages 497 -519.

purchasing and subcontract management by developing processes for example for training, IT

management and assessment. The aim of partnering is to reduce the boundaries between

organizations in order to increase their combined value creation.

4. Setting of common goals, adaptation of own processes to fit those of your partner’s and trust

are most significant factors contributing to a successful buyer – seller relationship. The impact

of these actions becomes better visible once the partners learn to know each other.6

Establishing trust requires time. It is possible only after practice has shown that both partners

can rely on each other to do their part also in critical and problematic situations. Companies

will seldom change their operational processes to fit those of a partner, whom they have only

just met. And equally, achieving the common goals through joint planning will require time to

be demonstrated.

Developing a partnership takes time as the partners get to know each other and develop social

capital from successful joint activities. It is important to know, which actions can make a

partnership successful but it is equally important to recognize that the results of the actions

taken, become visible only later.

5. Van Weele has defined a set of so called core values for a successful outsourcing relationship.

The same values provide a good guideline for any business partnership, be it on the supply or

distribution side of the company’s network. The core values are: 7

a. Shared goals and objectives - Both companies understand and share the same goals

and objectives, which have to be met in order to achieve end-customer satisfaction.

b. Mutual dependence - Both the buyer and supplier need each other. The business

between them is significant enough maintain interest on both sides.

c. Open lines of communication - Information flow between the companies is easy and

allows open discussion of problem situations.

d. Concern for the other’s profitability - Both companies have an interest in the others

well-being and they need each other in order to succeed in the market place.

6 Powers, T. L., Reagan, W. R., Factors influencing successful buyer – seller relationships. Journal of Business Research 60 (2007), pages

1234 – 1242.

7 Weele van, A., Purchasing & Supply Chain Management: Analysis, Strategy, Planning and Practice, 4th edition, Thomson Learning, United

Kingdom 2005, Page 131.

e. Mutual commitment to customer satisfaction - Also the supplier acknowledges that

what is ultimately important, both to the supplier and the outsourcing company, is the

satisfaction of the end-customer. Without this, neither of the companies can succeed.

f. Trust - Both parties rely on each other to do their part of the work and communicate

openly in case of problem situations. Problems impacting the supply chain

performance are solved jointly.

6. Assessment of a supplier should not only focus on the performance of the supplier but also the

relationship between the buyer and the supplier. 8

This means that in addition to the assessment of the suppliers ability to meet its contractual

obligations, companies should also assess such things as: the relative importance of the

relationship to both parties, the quality of communication, the atmosphere and the overall

profitability (taking into account the overhead of managing the relationship, not only the

price). Bad results on any of these areas can mean that, regardless of contractual performance,

the partner may be tying up too much management resources on the other side partnership.

Or alternatively, it may be causing cost impact in functional areas, which are not linked to the

activity and therefore remain hidden.

7. Companies should not focus their support on the top performers and lost causes of their

partner network. The most gains can be made through developing the middle layer. 9

It is a common tendency to focus on the extremes of the existing partner spectrum. The top

performers are easily rewarded by excessive attention and support, just because it is

considered important to keep them happy. On the other hand, there may be a will to help

under-performers to succeed at any cost just because the situation “has to be fixed” and there

is no willingness to recognize that in some cases an error has been made by selecting an unfit

partner in the first place. Having long term commitment does not mean that a company has to

allow itself to be held hostage of a bad partner forever.

The forgotten midfield offers usually the best chances for lasting improvements. These are the

companies, which are already doing fine but could be coached into even better results with

some additional support. In order to facilitate the coaching process it is worth while to have a

look at what differentiates the current top performers from the midfield challengers and focus

on those issues.

8 Axelsson, B., Wynstra, F., Buying Business Services, John Wiley & Sons Ltd, England 2002, Page 177 - 178.

9 Gorchels, L., Marien, E., West, C., The Managers Guide to Distribution Channels, McGraw-Hill 2004, Page 86.

Even though partners and partnerships are not new phenomena, it still seems that companies are having

problems to understand what being/having a partner means and how to benefit from it. The above steps are

anot the only ones to be taken when aiming at successful partner management. However, they are a good start.

CASE FINPRO Finpro is a globally operating expert organization, which helps Finnish companies in

internationalization. It has 400 professionals who work in 68 offices in almost 50 countries. Finpro’s

service offering is a combination of industry sector and target market knowledge, foresight service

and internationalization process expertise.

A large part of Finpro’s funding comes from public sources. It is part of the Ministry of Employment

and Economy group. As the public part of the funding is not going to grow in the future, and is

actually becoming less, Finpro has to both look at ways to increase its private income through

assignments and new innovative ways to provide services to its clients cost effectively. The backbone

of Finpro is its global network of trade centers, which gives Finpro global presence and an ability to

provide real time connection to foreign markets for its clients. Opening a trade center abroad

represents a major investment to Finpro. Because of budgetary pressure the network has become a

zero sum game, where opening an office means closing another. At the same time there is growing

demand for Finpro’s services in new countries, especially in the emerging markets, where Finpro also

sees the growth potential for Finnish companies.

In order to be able to expand the network, despite budgetary limitations, and meet the demand for

services in new markets, Finpro has started to enter into partnerships with external consultants. The

idea being that these representatives will be able to support Finnish companies without the

investment into a Finpro office with Finpro staff.

At the end of 2011 the network (in 44 countries) consisted of:

45 Trade Centers

6 Representatives

5 Project Offices

Target for 2015 is to be present in 90 countries using different operational modes: own Trade Centers,

Project Offices, Representative offices, and (audited) subcontractors.

Finpro’s representative network will in the future provide a large share of Finpro’s services. The

representatives will have to be integrated into Finpro way of working so that services provided

around the globe have the same feel. Finpro’s representative network has to be managed so that

both Finpro and its clients get the maximum benefit. The management model will also have to

facilitate co-operation between representatives and Finpro’s own consultants without creating

harmful competition.

Use of representatives makes Finpro faster and better equipped to react to changing market situation. Use of

representatives, especially as a permanent feature of Finpro’s global office network, will require new

competencies and well defined and commonly shared working methods, which are currently being addressed

by the development of Finpro’s Global Partner Management Model.

ABOUT FINPRO Finpro is a global organization promoting the growth and success of Finnish companies in international markets.

Both locally and globally, Finpro’s networking benefits our clients and our partners. We have 400 professionals

in 68 offices in almost 50 countries.

Finpro opens up future business opportunities in international markets. The expertise and services we provide

boost our clients’ success in the different phases of internationalization, enabling them to be in the right

markets at the right time with a competitive concept and offering. In addition to internationalization services,

Finpro manages important international initiatives such as Cleantech Finland, a network of top Finnish

cleantech companies, Future Learning Finland, a national education export cluster and FinNode, a network of

Finnish innovation organizations.

For more information please visit www.finpro.fi