Inter Organizational Partnerships

One popular strategy for adapting to the environment is reducing boundaries and increasing collaboration with other organizations. North America companies have typically worked alone, competing with one another, but an uncertain, interconnected, global environment has changed all that. Companies are joining together to become more effective and to share scarce resources. Sony, Toshiba and IBM are collaborating to produce a new, tiny computer chip. Kroger, Albertsons and Safeway banded together to negotiation with labor unions. Head to head competition among independent firms is giving way to networks of alliances that compete for business on a global basis. For example the aerospace industry is controlled by two networks – those of Boeing and Airbus, each of which is made up of more than 100 partner organizations.

Managers have shifted from an adversarial orientation to a partnership orientation summarized in Exhibit below

The Shift to a Partnership paradigm

From adversarial orientation  to partnership orientation

1) Suspicion competition arm’s length  trust, value added to both sides
2) Price, efficiency, own profits  Equity , fair dealing of everyone’s profits
3) Information and feedback limited  E-business links to share information and conduct digital transactions
4) Lawsuits to resolve conflict  Close coordination virtual teams and people onsite.
5) Minimal involvement and up front investment  Involvement in partner’s product design and production.
6) Short term contracts  Long term contracts
7) Contracts limit the relationship  business assistance goes beyond the contract.

The new Paradigm is based on trust and the ability of partners to work out equitable solutions to conflicts so that everyone profits from the relationships. Managers work to reduce costs and add value to both sides, rather than trying to get all the benefits for their own company. The new model is also characterized by a high level of information sharing including e-business linkages for automatic ordering, payments, and other transactions. In addition, there is a lot of person to person interaction to provide corrective feedback and solve problems. People from the companies may be onsite or participate in virtual teams to enable close coordination. Partners are frequently involved in one another’s product design and production, and that they are committed for a long term. It is not unusual for business partners to help one another even outside of what is specified in the contract. The Manager’s Shoptalk further examines the new partnerships orientation and offers some guidelines for building successful partnerships.

Mergers and Joint Ventures

Merger: The combining of two or more organizations into one.

Joint venture: A strategic alliance or program by two or more organizations.

A step beyond strategic partnerships is for companies to become involved in mergers or joint ventures to reduce environmental uncertainty. A frenzy of merger and acquisition activity both in the US and internationally in recent years is an attempt by organizations to cope with the tremendous volatility of the environment. A merger occurs when two or more organizations combine to become one. For example, Wells Fargo merged with Norwest Corp. to form the nation’s fourth largest banking corporation.

A joint venture occurs when a project is too complex, expensive or uncertain for one firm to handle alone. The combined resources and management talents of the partners contributed to the most successful start up ever in the magazine publishing Industry; Joint ventures are on the rise as companies strive to keep pace with rapid technological change and compete in the global economy.

Barnes & Noble formed a joint venture with Germany’s Bertelsmann AG to establish MTV Networks has established joint ventures with companies in Brazil, Australia, and other countries to expand its global presence. Many small businesses are also turning to joint ventures with large firms or with international partners. A larger partner can provide sales, staff, distribution channels, financial resources, or a research staff. Small businesses seldom have the expertise to deal internationally so a company such as Nypro Inc;, a plastic injection molding manufacturer in Clinton, Massachusetts joins with overseas experts who are familiar with the local rules. Nypro now does business in four countries.

Excerpts from New Era Management