Part one in a two-part series
May 2015 — PEER INSIDE the portfolio of a global company, and chances are that you will find at least a few partners touching many parts of the enterprise. At General Motors, the portfolio contains a long-standing strategic relationship with Japanese automaker Isuzu that stretches from vehicle design and manufacturing, to engine making, to sales and distribution across several emerging markets. GM’s portfolio also features a deeply strategic relationship with SAIC of China that includes 11 collaborations and joint operations – one of which recently expanded into Indonesia – and collectively accounts for more than 20% of GM’s profits globally (Exhibit 1).
Exhibit 1: GM’s Partnership Portfolio
At Microsoft, the portfolio is peppered with product development, marketing, and client service alliances and ventures with Hewlett-Packard, Intel, Dell, and Accenture. Meanwhile, at ExxonMobil, the portfolio holds more than a dozen ventures with Royal Dutch Shell. ExxonMobil also has partnerships with Russian oil giant Rosneft, which includes ventures in the Russian arctic, as well as Rosneft participation in 20 Exxon blocks in the Gulf of Mexico, and projects in Texas and Canada.
Managing this web of ventures and other liaisons with a corporate partner demands more than managing each touchpoint in isolation. Do it well, and the company will discover new whitespace opportunities with known and valued partners – and improve its ability to influence these partners across multiple ventures. Do it poorly or not at all, and the company will be riddled with collisions across uncoordinated internal teams and ventures. Getting it right, of course, requires some new forms of organizational gymnastics, including striking the right balance between individual business unit autonomy and centralized, corporate coordination. It also requires avoiding some of the traps that have plagued many corporate partnerships, including GM-Peugeot and BP-Statoil. In 2012, for example, GM and Peugeot entered a multi-faceted strategic alliance, including at least three joint vehicle projects, a cross-equity stake, and a purchasing JV and logistics platform – but GM scaled back the relationship to one joint vehicle and logistics cooperation as Peugeot’s performance waned.
The purpose of this note is to provide an overview of the benefits that can be gained by more deliberately managing these corporate relationships, and to illustrate a set of practices that enable companies to reap these rewards.
A DIFFERENT LENS
In a benchmarking study of more than 40 large natural resource companies, Ankura found that 55% employ some form of corporate-level partner management – and that several major oil and mining companies have recently dialed-up their focus in this area. Their actions follow in the decades-long footsteps of leading hi tech companies like IBM, Oracle, and Cisco – who established corporate alliance management functions in the 1990s.For further information on these and other firms, including Corning, Hewlett-Packard, IBM, Oracle, Eli Lilly, Xerox, and Federal Express, please see James Bamford, Jossey Bass, et al., Mastering … Continue reading
The starting point for good venture portfolio governance is an understanding of what ventures are in the portfolio – and then identifying performance patterns, risks, opportunities, and management needs for different classes of ventures and partners. Today, leading companies deploy a number of useful ways to categorize their portfolios. Unfortunately, such mapping and segmentation tends to focus on key attributes of individual ventures (e.g., age, geography, business line, partnership structure, level of company ownership). A different – and complementary – lens looks at the portfolio from the perspective of partner companies, and identifies patterns, risks, opportunities, and management needs for different classes of partners.
A simple tool to do this is the Partner Pyramid (Exhibit 2). Done well, the pyramid establishes a hierarchy of partners, based on their overall strategic importance to the company, as well as the location and complexity of each relationship.There are other useful ways to categorize partners: By industry position (e.g., global competitor, technology provider, customer), ownership structure (e.g., public, private, state-owned), and … Continue reading On the top two rungs of the pyramid are corporate partners – firms whose relationships are material to the company overall, and whose diverse collaborations with the company span geographies, functions, business units, and product lines. One rung down might be strategic business unit partners – firms whose relationships are largely isolated to a single business unit within the company, and thus can be managed within that unit. At the bottom of the pyramid might be tactical partners – companies that are in one or two ventures, or that are in smaller, less important relationships, and can be managed at a local, product, or functional level.
If we translate this framework into General Motors’ world, Peugeot, SAIC, and Isuzu would sit at the top of the pyramid, industry peers like Toyota and Nissan as well as strategic suppliers like Fanuc might be in one of the next two levels; and parts makers like Hitachi, Nihon Radiator, and NHK Spring might be classified as tactical partners, being in just in one or two non-material collaborations with GM.
Exhibit 2: The Partner Pyramid
When developing a Partner Pyramid, a few points are worth keeping in mind. First, partners should be placed according to their current and future importance to the company, and the organizational reach of their relationships. This means avoiding the temptation to place large partners high on the pyramid simply because of their size – a mistake that will lead to under-investing in smaller partners that are (or could be) material to the company.
Managing the web of ventures and other liaisons with a single corporate partner demands more than managing each touchpoint in isolation
Second, in determining where to place a partner, the company should look at all forms of collaboration – not just joint ventures. Such collaborations might include direct equity positions; co-investments; non-equity alliances in research, logistics or marketing; and commercial relationships, such as strategic supply agreements, licenses, and customer relationships. Third, and most important, the pyramid should outline how and where different types of relationships will be managed. For corporate partners, this will mean answering questions like: Who is responsible for watching over the overall relationship with a strategic partner? How will business units and functions working with the same partner in different endeavors and locations communicate and coordinate with one another? And how do we ensure that we are capturing the full value of the relationship with these partners, including identifying new opportunities to work together?
Because of their strategic importance and interwoven relationships across the company, corporate partners toward the top of the pyramid should be managed in an integrated way
BENEFITS OF MANAGING THE TOP OF THE PYRAMID
Because of their strategic importance and interwoven relationships across the company, corporate partners toward the top of the pyramid should be managed in an integrated way. In so doing, companies can generate various benefits, including:
- Improved performance and risk profile of existing ventures. When a company understands what is happening across all its ventures with a corporate partner, it is able to gain an enhanced understanding of the partner’s strategic drivers and constraints, technical capabilities and gaps, key stakeholders, and the effectiveness of its own communication and influencing tactics – all of which can be translated back into individual ventures to improve performance or reduce risk. At one major oil company, for example, this corporate-level perspective enabled it to identify an emerging pattern of process-safety gaps in two joint ventures operated by the same corporate partner in different parts of the world – and to use that insight in a third venture as it was developing its risk assessment and influencing plan for the coming year.
- More “whitespace” opportunities with the partner. The active management of a key corporate relationship inevitably will lead to new ideas for collaboration between the companies – including those around new market entry, technology or product co-development, cost sharing and reduction, co-funding of new projects or businesses, or coordinated influencing of regulators or other external stakeholders. At Xerox and Corning, identifying such whitespace opportunities has been a main objective of the annual executive summits that each holds with corporate strategic partners.
- Better managed country risk. To the extent that a partner holds a privileged position in a specific country (e.g., China, UAE, Saudi Arabia), the active management of that relationship can improve access to regulators, suppliers, and other business partners, and help the company better calibrate and manage country risk. Companies like Boeing and Bechtel have built long-standing insider positions in Saudi Arabia – which have helped them manage country risk. Bechtel’s Middle Eastern business has a strong relationship with the house of Saud, Saudi Arabia’s ruling dynasty. Bechtel’s long-running, deep, and personal bonds with the royal family were initiated in the 1940s through a deliberate strategy of building connections with members of the family and the businesses they controlled.
- Improved due diligence. Because corporate partners are involved in multiple existing collaborations with the company, the process for evaluating and performing due diligence on new opportunities with that partner is more efficient and effective, because a fact-based and integrated understanding can be applied when conducting due diligence on that partner’s capabilities, strategic interest and fit, and other factors. For example, one European energy company has created an accelerated gate-review process when a joint venture is with an existing partner, which draws upon what the company already knows about the partner’s capabilities, interests, internal approval processes, etc. We have also found that the active management of such partners allows dealmakers to be more creative and efficient in their work, since negotiating with such partners provides a much broader array of influencing “currencies” to trade, including things to offer or receive outside the narrow confines of the specific deal that draw from the multitude of pre-existing relationships.
- Increased deal flow and reputation as the “Partner of Choice.” When a company actively and successfully manages its most important partners, it will inevitably improve its reputation as a Partner of Choice within the industry – which in turn leads to better overall deal flow, and share of “first knocks” by those with the most compelling opportunities. An analysis of the pharmaceutical industry we conducted a number of years ago showed that companies at the top of the industry’s Partner of Choice league tables, including Eli Lilly, were also the most sophisticated in managing corporate relationships.
- Better execution across multi-function alliances. Alliances between automakers often span model development, engineering, production, and sales – and sometimes generate twin models sold under different brands. Because these functions involve a different set of stakeholders, executional challenges, and requirements to succeed, a system that promotes cross-company collaboration with a partner will naturally improve the workings of such multi-function alliances.
Active management of partners allows dealmakers to be more creative and efficient in their work, since negotiating with such partners provides a much broader array of influencing “currencies” to trade
For one hi tech company, this kind of approach to strategic partnering helped grow a new business unit from $1 billion revenue in its first year of operations, to more than $4 billion by Year 5. At the core of its approach, the company laid out 30 best practices for building scalable, repeatable relationships across industry sub-sectors and vertical markets. As the company developed these relationships, management tracked its progress against key metrics tied to the 30 best practices, and reported these metrics in joint governance reviews and joint business plans to promote broader awareness. The process of creating multi-initiative partnerships quickly became formalized and well-ingrained across the company.
Companies at the top of the industry’s Partner of Choice league tables are also the most sophisticated in managing corporate relationships
PRACTICES TO MANAGE THESE RELATIONSHIPS
We have found that companies that excel in optimizing relationships with their corporate partners employ a dozen core practices (Exhibit 3). These practices relate to governance and accountability, strategy and planning, partner intelligence and analytics, and tracking. Some practices – such as creating an Executive Sponsor, or developing a Partner Capabilities Assessment and Playbook – will be done by the company on its own. In contrast, other practices – such as establishing a Joint Steering Committee, or developing a Strategic Roadmap and Annual Plan – will be done with the partner.Additionally, what happens at the corporate relationship level is informed by – and informs – practices at both the individual venture and broader corporate levels. For example, if a General … Continue reading
Exhibit 3: Best Practices in Managing Corporate Partners
Governance and Accountability. No corporate partner will be well-managed without a senior executive named and accountable for the overall relationship. At a major oil company, each of the company’s ten most senior executives, including the CEO, is tagged with one or two corporate relationships. The Executive Sponsor is responsible for setting the tone, building top-to-top relationships, identifying and advancing new opportunities, supporting the resolution of issues (and preventing problems in one area from contaminating the broader relationship), and advocating for the partner within the company.
Companies that excel in optimizing relationships with their corporate partners employ practices related to governance and accountability, strategy and planning, partner intelligence and analytics, and tracking
Recognizing that such executives are extremely busy, many companies will create Corporate Relationship Managers to support the Executive Sponsor. At the major oil company mentioned above, each Corporate Relationship Manager covers two corporate partners – and are thus 50% dedicated to each relationship.
Xerox has deployed a similar structure for its 6 to 10 most important corporate partners, placing these alliance managers into a Third Party Arrangements unit overseen by an SVP. In general, Corporate Relationship Managers are responsible for understanding what is going on across the company with that partner, including, at a detailed level, the performance, issues, and opportunities in the different ventures and collaborations around the world. They are also responsible for developing a Strategic Roadmap for the relationship, tracking performance and health, ensuring a clear and up-to-date understanding of key stakeholders in the partner company, and providing other planning, analytics, and support.
A Corporate Relationship Manager is not just a strategic account manager – but also has the time and skills to directly assist teams at the local level. For example, in a major oil company, a Relationship Manager played a critical role supporting the restructuring of a major JV in Asia with the corporate partner. The venture was experiencing sustained performance problems, suffering from severe misalignment and deteriorating personal relationships – and was at risk of being unwound. Because the Relationship Manager had advanced negotiations skills – and had direct experience with what worked in other ventures with the partner – he spent time over several months with the local team, where he helped them perform root-cause analyses, conduct scenario planning and war-gaming exercises, generate restructuring options, and develop an influencing strategy to turn things around.
A Corporate Relationship Manager is not just a strategic account manager – but also has the time and skills to directly assist teams at the local level
Corporate partners also need some mechanism for shared governance and direction setting. In more formal corporate relationships, companies might create a Joint Steering Committee or alliance Board, as GM and Peugeot have done. In other instances, companies might simply choose to convene an Annual Partnership Summit. Either way, such steering structures are co-led by the Executive Sponsors from each company, include other executives, and are focused on discussing strategic themes, identifying new initiatives and whitespace opportunities, managing issues and risks, and monitoring the overall performance and health of the relationship.
Strategy and Planning. To optimize the relationship with a corporate partner, the company and the partner need a Strategic Roadmap for where to take the relationship. While it is certainly possible to develop such thinking quickly and informally, the best companies develop a more analytically rigorous plan, containing structured areas of content (Exhibit 4). Developing such a roadmap is the work of the Corporate Relationship Manager, with guidance from the Executive Sponsor, and input from those across the company with perspectives on the partner. A draft version of this Strategic Roadmap and Annual Plan is used as an input into an Annual Partnership Summit or strategy-oriented Joint Steering Committee meeting.
Exhibit 4: Annual Corporate Strategic Roadmap
Strategic Roadmap for [Partner Name]
Table of Contents
- Overview of Prior Year Plan and Progress vs. Goals
- Summary of Current State
- Inventory of ventures and collaborations
- Overview of performance and health of each
- Summary of cross-cutting issues
- Partner Strategic Context
- Financial position
- Key strategic themes and events
- Whitespace Opportunities
- Summary of potential opportunities
- Prioritized opportunities list – based on value, feasibility of securing agreement
- Key Risks in Corporate Relationship
- Corporate Strategic Roadmap for This Year
- Key initiatives to be pursued
- Resourcing requirements
- Milestones, targets, and accountabilities
- Partner Organizational Chart and Key Relationships
- Inventory of Company Influencing Currencies
- Summary of Influencing Plans for Key JVs
- Other Items
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In some corporate partnerships, the companies may benefit from defining key relationship parameters and expectations in a Strategic Cooperation Agreement. Typically, such cooperation agreements outline areas of mutual interest – and potentially define exclusivity, intellectual property rights, governance structures, and other matters. While these agreements can be highly beneficial in helping to bring coherence to existing relationships with valuable cooperation already happening at the local level, they tend to be much less effective in catalyzing strategic cooperation between partners with limited ongoing activities.For example, Royal Dutch Shell and Indian state-owned company ONGC established such a Strategic Cooperation Agreement, as did Daimler and Mitsubishi, and BP and Statoil. None have seemed to generate … Continue reading
Partner Intelligence and Analytics. The optimization of a corporate relationship also rests on numerous analyses and tools – forms of partner intelligence that can be leveraged at the corporate- and venture-level. These include Partner Capabilities Assessments, Strategic Partner Intelligence Reports, Stakeholder Relationship Maps and Engagement Plans, Internal Practitioner Networks, and a Repository of Legal Contracts.
Optimization of a corporate relationship also rests on numerous analyses and tools – forms of partner intelligence that can be leveraged at the corporate- and venture-level
Ankura recently worked with a large natural resource company to develop Partner Capabilities Assessments and Playbooks for four corporate partners. For each partner, performance data was collected, and then, leveraging an annual meeting of non-operated joint venture Asset Managers, we conducted a highly structured, half-day working session with 10 to 15 Asset Managers with direct experience with the partner to gather input on partner capabilities, risks, and influencing strategies and techniques. This input was then synthesized and packaged into an updated Partner Playbook, which was then made available to anyone in the company working with (or looking to do a deal with) that partner.
We have also seen companies extend these practices to include intelligence activities at the next level of detail – through use of Internal Practitioner Networks to share insights and ideas gained from working with a corporate partner on specific issues. For example, one oil and gas major employs the use of an Auditors’ Club – an internal peer network of its internal auditors working on assets in which its strategic partners are either an Operator or non-operator. The Auditors’ Club meets periodically to share insights and findings with respect to financial issues (such as, for example, problematic practices regarding partner cost allocations, etc.), and to develop strategies around how to address these issues with its strategic partners across the company’s portfolio.
Exhibit 5: Corporate Partnership Scorecard – Siebel Systems
Tracking. Finally, the relationship with a corporate partner needs to be tracked and managed – and restructured or downgraded if the value is not commensurate with the added investment. Before it was acquired by Oracle, Siebel Systems established a Performance and Health Scorecard for tracking its major partnerships on four dimensions of fitness: Financial, strategic, operational, and relationship fitness (Exhibit 5). Siebel’s alliance managers updated this scorecard quarterly, and used it as the basis to jointly manage the relationship with the partner. In other companies, the scorecard for corporate partners may be more basic – simply tracking the status and value creation of the initiatives generated at the company-to-company level, and using this to gauge whether the added investment is worth the return.
Relationships with corporate partners need to be tracked and managed – and restructured or downgraded if the value is not commensurate with the added investment
Another tracking tool that companies often use to collect partner intelligence is a Strategic Relationship Management (SRM) System to track and analyze communications, meeting notes, and materials from key interactions with corporate partners. This record can be used to keep other team members informed of historic communications with the partner, and to manage and coordinate future partner communications and messages.
Getting the most out of any relationship is hard work – and relationships with your global strategic partners are no exception. A well-thought-out approach and a deliberate plan can help ease the pain, and allow you to maintain and create value from these important relationships.
Part two of this series offers advice for organizing at the corporate level to manage strategic partners, whether by expanding the mandate of an existing function or by establishing a dedicated corporate unit devoted to relationship management.
|↑1||For further information on these and other firms, including Corning, Hewlett-Packard, IBM, Oracle, Eli Lilly, Xerox, and Federal Express, please see James Bamford, Jossey Bass, et al., Mastering Alliance Strategy, 2003; and James Bamford and David Ernst, “Managing an Alliance Portfolio,” McKinsey Quarterly, 2002.|
|↑2||There are other useful ways to categorize partners: By industry position (e.g., global competitor, technology provider, customer), ownership structure (e.g., public, private, state-owned), and nationality – each of which might trigger different managerial implications. In addition to using a Partner Pyramid, one major oil company rates all its upstream partners on a five-point scale based on partner capabilities, performance, and strategic fit with the company. This rating is used to inform governance and assurance of ventures that the partner operates, as well as due diligence on new ventures with the partner.|
|↑3||Additionally, what happens at the corporate relationship level is informed by – and informs – practices at both the individual venture and broader corporate levels. For example, if a General Motors or ExxonMobil team in a specific venture operated by Peugeot or Royal Dutch Shell has developed an annual influencing plan, that plan should be connected to the company’s overall Strategic Roadmap and Annual Plan for its integrated relationship with its partner. Similarly, intelligence gained at the individual venture level should be included in the Strategic Partner Intelligence Reports developed as part of managing the corporate relationship. At the broader corporate level, companies with multiple corporate partners will likely need to establish practices, policies, and principles for managing corporate partners more generally.|
|↑4||For example, Royal Dutch Shell and Indian state-owned company ONGC established such a Strategic Cooperation Agreement, as did Daimler and Mitsubishi, and BP and Statoil. None have seemed to generate much value for the companies. In some cases, such as with Volkswagen-Suzuki, the global relationship and agreement led to violation of unspecific non-competes/exclusivities.|