Determining Business Partnership Level
Not all business relationships are equal. You know that there exists a partnership when the companies in the partnership are operating differently than a typical Vendor/Supplier relationship. This treatment can be seen in how they speak about their partnership and how they actually operationalize the alliance. Coherence has identified 4 levels of increasing business partnership interdependence. Used as a conceptual tool it, the conceptual model allows companies to determine which business relationships are partnerships and which are not. It also helps to establish the expectations between companies during the alliance development process.
Level 4 “Vendor Supplier Relationship”
Identifying elements are no special rights granted to either party, no real governance is in place, remuneration is “fee for service” and no revenue share exists. It’s generally a non-exclusive relationship where other businesses have similar if not equal relationship to the company. Many technology relationships really land here.
Level 3 “Strategic Collaboration”
A Strategic Collaboration is one step up from a Vendor Supplier relationship. Here the business relationship is characterized by some special rights that are granted to each party. Some governance is put in place with partial or at least time bound exclusivities are involved and revenue share is put in place. Communications are tighter between the parties and there is longer-term horizon involved. Strategic suppliers tend to land in this level. For example the P&G and Walmart collaboration fits here.
Level 2 “Alliance/Partnership”
Alliances/Partnerships are characterized by a more interdependent business relationship. Here there is everything put in place, less a new company structure. There exist shared investments made to bring new products or new services to market through joint development etc. Profit share can be incorporated with integrated governance coupled with longer term project road-map and long term horizon. Typically contracts run 5 to 10 years and include certain key exclusivities and special rights. Renault-Nissan Alliance is a perfect example here.
Level 1 “JV Equity Partnership / Ownership”
At the top of the pyramid is the formation of an entirely new company. Here you have significant investments, board seats in place as the governance structure and a fully integrated company formed by two or more major firms going to market based on entirely new ventures and strategy etc. Isis, the US mobile commerce joint venture created by AT&T, T-Mobile USA and Verizon is a perfect example of Level 1.
As a general rule, from Level 4 up to Level 1, the Greater Amount of Risk & Investment, the Greater Amount of Say and Subsequently the Higher and more Integrated and Interdependent Partnership and Alliance Structure put in place.