When I first started my academic career in the mid-1990s, there was a great deal of interest in the use of partnering relationships between organizations, such as buyers and suppliers or even competitors. So I spent many years publishing papers on the factors that make for successful, pie-expanding partnerships in which both parties receive important synergies and payoffs that make the collaboration efforts worthwhile. The power of partnering is its synergy – the notion that 1+1 could equal 3.
However, the more I tried to understand how to make partnerships successful, I could not escape the fact that statistically, partnerships are more likely to fail than succeed. Over the course of my career, I’ve become convinced that left unmanaged, partnering relationships will naturally move toward entropy – i.e., dissolution and ruin. In fact, one could even think of them as being hardwired in this direction.
I discovered along the way a robust partnering problem that I refer to as “frenemization.” This is simply the tendency for partners who are initially noncompetitive friends to become enemies over time. Frenemies are persons or groups that are outwardly friendly because the relationship brings benefits, but harbor feelings of resentment or rivalry. There are many current examples of this in the marketplace: Martha Stewart and Macy’s, Oracle and Sun Microsystems, Costco and Coca Cola, as well as some classic examples from the past: Best Buy and Apple, Calvin Klein and Warnaco, Northwest Airlines and KLM, Nike and Foot Locker. The most recent example is Proctor and Gamble and Wal-Mart – their 25+ year partnership has begun suffering from frenemy strains.
When Google’s software division paired with Samsung’s smartphone group in 2009 and together they became number one in the world, with a global market share of 39.6%. The reasons for their success were many. Samsung’s stock price grew from $732 in 2009 to $1,243 by 2014, an appreciation of nearly 70%. When Samsung faced Apple’s copycat lawsuit, Google employees testified on Samsung’s behalf. Who could ask for more in a strategic partner?
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By 2013, their story arc took a nose dive. Google worried that Samsung had become too big and thus able to renegotiate at an advantage. The relationship took a complicated twist. In 2012, Motorola poached Samsung’s VP of strategic marketing, responsible for the company’s celebrated television ads for the Galaxy phone. Then Google acquired Motorola’s Mobility group and began work on an XPhone to compete with Apple’s iPhone and Samsung’s Galaxy. In response, Samsung began to develop devices with Microsoft and its Windows platform. Together they came up with Tizen, an operating system codeveloped with Intel. The once great friendship between Google and Samsung became a competitive liaison in which both firms produced products that were in direct competition with each other. Google and Samsung had become frenemies.
My research shows that there is a lot of low level cheating, lying and stealing that occurs between partners, and it is often the relationship that enables this. Some business relationships have too much trust, or too much rapport, and this can lead the partners to focus more on pleasing each other than making the best business case or carrying out the charge given them by their firms. Many partners justify their cheating with rationalizations like, “I’ll make it up to my partner and even out the score later,” or “I’m sure my partner is cheating me anyway;” this is how the trust that was supposed to bind partners together also becomes the means by which the relationship is also destroyed.
The good news, is that much of frenemization can be avoided. The first thing is to realize that business relationships do not stay successful over the long-term. While the goal of most marriages is longevity together, this does not generalize to business relationships. In business, we need to move away from thinking about our partnerships as marriages or long-term commitments. This means that as partners, we also need to become good at what I call “losing friends without influencing people,” which simply means that we need to get good at saying goodbye and moving on to other partners.
Losing friends without influencing people
As soon as you decide to terminate a partnership, devise an exit plan which doesn’t divulge proprietary information but keeps the partner’s operation running.
An “official” closing takes place when the partners cease to do business under contract, but unofficial relationships can last a lifetime.
Stay in touch—keeping the personal contacts does take effort, but not as much effort as building a new partnering relationship from scratch.
Former partners can provide a constant source of leads and referrals.
A large part of partnership success depends on how the relationship is built at the outset. While it is vital that the partners share their short- and long-term expectations and goals, it is equally important to be specific. Take the time to develop task matrices and relationship maps. A task matrix defines the scope of the key tasks needed to accomplish the partnership’s goals and assigns owners and key performance indicators to the accomplishment of each. Making the effort to do this crystallizes the performance expectations and outcomes of both parties and underscores their importance. It is a critical stepping stone that leads naturally into an understanding and agreement on the timing of each deliverable.
Importantly, it also ensures that both partners have agreed on the appropriate metric for evaluating success. With every new partnership it forms, Cisco takes the time to develop a “relationship map” that address a host of relationship expectations about how uncertainties or conflicts should be handled. A relationship map also identifies the appropriate information channels and individuals at the partnering firms . There is little risk in these efforts, but a whole lot of upside.
How will conflict be resolved? What is a suitable escalation path and an appropriate speed of escalation?
How will changes in assumptions be dealt with? What if long-term investments are involved?
How will investing imbalances be remedied? What are appropriate reciprocal investments and when will investments be recouped?
How often should the parties be in communication? What are the follow up protocols? Who should be talking to who?
If ever there was a golden bullet of partnering relationships it would be that mutual, but specific adaptations and investments matter! When companies dedicate specific people whose sole job is to make the partnership work, or they develop specific strategies, equipment, investments, or capital equipment that are dedicated to a specific partner and are not easily switched away to another partner, then the partners have made what economists call “credible commitments” or a mutual “tying of the hands.”
When Microsoft partnered with Nokia, their level of collaboration was so deep that all other Windows Phone OEMs were disadvantaged. Nokia was the only manufacturer given the ability to innovate on top of the Windows phone platform. Nokia Maps were integrated into Bing and Nokia could leverage the Windows Marketplace infrastructure to offer a Nokia-branded app store. Additionally, Microsoft paid Nokia billions of dollars “in recognition of the unique nature of Nokia’s agreement with Microsoft and the contribution that Nokia is providing.” You can’t get more special than that. These investments create important risks and switching costs that motivate the partners to stay together and make the exchange work, rather than terminate the relationship prematurely.
Finally, as I always tell executives, recognize that relationships, especially business relationships, are costly. They will take enormous amounts of time, resources and sweat equity to get right. The good news is that you have a choice in terms of when you have to pay this price; it can be paid up front by taking the time and effort to build carefully and manage expectations, or at the back-end, once things unravel and it becomes a costly mess to separate and untangle the partners.
Don’t let your building efforts be in vain!
Learn more about Partnering with the Frenemy at http://partneringwiththefrenemy.com