Corporate partnerships can serve to expand the pie of joint benefits, improve profits, and gain sustainable competition, but successful partnerships don't often last or come easy. Despite the good intentions of both parties, partnerships often don’t pan-out as intended which leaves both sides frustrated and unable to reach their full potential together.
Sandy Jap joins the Goizueta Effect Podcast to discuss frenemies in business, including how you can take your partnerships to the next level. She is a Sarah Beth Brown Professor of Marketing at Emory University's Goizueta Business School. Prior to this, she held faculty positions at MIT's Sloan School of Management and the University of Pennsylvania's, the Wharton School. She has published widely on topics such as strategic partnering and organizational relationships, go-to market strategies, and e-procurement. She is the author of Partnering with a Frenemy, a book on the dark side of business relationships. Her work has been featured in the Wall Street Journal, CFO Magazine, and Harvard Business Review.
This episode of the Goizueta Effect was co-created in partnership with Emory student Scott Masterson.
A Successful Partnership
Partnerships are exceedingly important in today’s competitive business environment. A successful partnership often creates a “1 + 1 = 3” scenario: an outcome where both companies are better off collaborating than existing separately.
Business collaboration comes in many forms. Most simply, you can think of manufacturers working with distributors, distributors with wholesalers, and retailers with suppliers.
All distribution activity in the US accounts for over $3 trillion or about 30% of our nominal GDP. In essence, the sales activities that happen between firms that are often the basis of partnerships represent a huge amount of money in our nation and our economy.
If there is such a great incentive for upholding the “1 + 1 = 3” principle, then why are partnerships so difficult to maintain?
A Not-So Successful Partnership
Once harmonious partners often become frenemies – organizations that pretend to be friends, but that are also enemies and/or rivals.At the beginning of a partnership, often both parties get a lot out of collaboration, but many times this dynamic turns a corner and starts to unravel. The souring process can be rapid or lengthy.
For example, Google and Samsung have collaborated for years to maintain a large market share in the cell phone market: Google provides the operating software for the cell phones, while Samsung is the manufacturer of the phone itself. The partnership resulted in beating Apple in market share handily; however, as the partnership became more successful, it bred dependence between the two companies.
Samsung worried that Google might become too strong and that they, as a partner, might desire a larger share of the pie. At the same time, both partners realized they were heavily dependent on the other. To combat this dependence, firms will often do something called counterbalancing. They will try to push back on the feeling of dependence by doing something that makes them feel like they have power.
In the case of Samsung and Google, Samsung began developing an operating system known as Tizen and Google purchased Motorola...and thus, the unraveling began.
Partnership Life Cycles
When academics discuss life cycles, they are talking about how something unfolds over time. In terms of partnerships, typically, a life cycle will have distinct phases that describe the status of how two firms feel about one another.
The Awareness Phase
In this first phase, two firms become aware of each other and might get to know each other by engaging in small-scale collaboration. The awareness phase often goes well, and there is little at stake for both parties if one were to disengage from the other.
The Buildup Phase
The second phase is all about increasing the connection between the two companies. There may be more monetary transactions taking place between the firms and more sharing of knowledge.
The Mature Phase
After the buildup phase, companies often get a gauge of optimal interaction and prefer to remain constant at that level. Firms will have stable transactions over a period without one firm encroaching upon the other’s territory. In this phase, both firms are reaping the greatest rewards from collaboration, and fluidly interacting for mutual benefit.
The Dissolution Phase
The last phase occurs when one firm’s growth flattens out. Firms grow suspicious of one another and oftentimes pull back because the benefit isn’t as fruitful or apparent as it once was.
Building Rapport: Helpful or Harmful
While building rapport is essential and can grease the wheels of a partnership, you can have too much of a good thing. Sometimes rapport between partners can lead them to make irrational economic choices, throw their clients under the bus, and even discard their morals.
In a recent study, Sandy Jap, Goizueta marketing professor Ryan Hamilton, and Wharton professor Diana Robertson were interested in analyzing the relationship between a buyer and a seller. Most often we think that negotiations should begin by building rapport; however, sometimes focusing too heavily on creating a sound relationship with the person with whom you are partnering may not be in your or your client’s best interest. The experiment used the common Bullard Houses framework, where negotiators attempt to make a deal between a condo owner and a potential purchaser- a deal that using sound negotiating practices should end at an impasse. What Jap and her team found was that when you build rapport, you and your partner may become so overtaken with the importance of building the relationship that's right in front of you that you'll prioritize that relationship over the requests of the client who may not be present. Instead of accepting an impasse, you will move forward with less-than-optimal terms. In fact, at times, the study reported negotiators engaging in unethical behaviors such as lying to one another, misrepresenting details, and over-promising just to appease the other person. Ultimately, the result of these behaviors was that the client’s best interests were compromised.
Tips to Preserving Partnerships: Extending the Mature Phase
The Building Blocks
Ultimately, organizations are made up of people. We can think of the relationships between people as the building blocks for what's happening at an organizational level. In partnerships, relationships need healthy frequency, a controlled amount of positive rapport, and an appropriate level of clarity in mutually beneficial goals. Relationships at any level take effort from both sides – and this is true for businesses too.
Partners can use several tools to ensure they reap the benefits of collaboration. The most common safeguard is to use a contract and identify what happens when things do or do not work out.
A relationship map is a more in-depth tool that sets expectations upfront. As an example, at Cisco they start all relationships by asking questions like:
When it comes to having a successful partnership, you need to put the work in. You can either pay the price upfront in terms of establishing it well or you can pay the price on the back end when everything falls apart.
Reciprocal Investing: The Golden Bullet?
Research shows that one of the main ways that partnerships succeed is through reciprocal investment. When organizations dedicate resources to preserving the relationship: human capital, equipment, and new logistical patterns, this goes a long way in strengthening the partnership. Monetary and temporal investments ensure both parties are feeling valued and important, but these investments must be non-fungible: the organization cannot just take those investments and easily redeploy them to another relationship; they lose value if either partner walks away.
Exiting Respectfully: Dissolution is Sometimes Inevitable
When two firms agree to disengage from collaboration, they should consider the real reasons for dissolution. Each partner needs to be upfront about their perspective and challenges to ensure the maintenance of a positive reputation for future partnerships: it is mutually beneficial to exit respectfully.
To learn more about Goizueta Business School and how principled leaders are driving positive change in business and society, visit goizueta.emory.edu.