As the digital age spurs new connections, John Riccio explores the notion of ‘connected companies’ and how strategic partnerships between old and new organisations are giving rise to new business models.

In a world where the meaning of ‘ownership’ and ‘responsibility’ are being somewhat blurred (think AirBnB, Uber and GoGet), this trend of collaborative consumption or the sharing economy is not just applicable to the everyday consumer, but is becoming very real in the corporate world.

I was recently interviewed and featured in the ‘Connecting Companies: Strategic partnerships for the digital age’ report by Telstra and The Economist Intelligence Unit, on this change in the business landscape. The report explores ‘the global trend for digital partnerships between organisations, which are connecting regions, crossing industries and linking generations’ – what it defines as ‘Connected Companies’.

A new way
of doing business?

Not a new term, ‘connected’ is increasingly being used to describe the impact of the digital age. More often than not, focus has been on what this means for the customer – this year we launched our own Connected Retail series, focused on the evolution of the ‘always on‘ customer and what retail-facing businesses need to do in order to meet their needs.

From a customer perspective, ‘connected’ often refers to the technological impact and strategy needed to address this. However the meaning of this term in the context of the Telstra report refers to the actual strategic partnerships formed between businesses – they may be related to technology, to strategy, to market reach, to competitive edge or any other area of business.

Strategic partnerships have been foundational and beneficial to the professional services business model. PwC’s most recent partnership with Google is an apt demonstration of this. With one possessing deep problem-solving ability and an understanding of business operations and process, while the other is focused on and has a deep technological capability to create products and services, the partnership leverages the strengths of both organisations to provide unique outcomes.

Though many businesses have previously thrived on strategic partnerships, the digital age has spurred the increase of these connections in order to fill gaps and tackle perhaps previously inaccessible markets and audiences. Where once organisations were burdened with having to be all encompassing giants, serving every need – there is a new way of doing business – one not only made to deliver to customer expectations, but one that recognises that you don’t need to own and deliver all of it either!

And with a move towards the provision of specialist and niche products and services, strategic partnerships will be become more critical than ever to enable businesses to maintain focus and competitive edge. The Telstra and EIU research indicates that senior executives are aware of and attune to this shift – 50% of those surveyed indicated that they expect their digital partnerships to effect a change in their business model.

Team sport:
The modern business model

In an increasingly competitive market, the pressure cooker of rapid technological advancement, burgeoning customer segments and a potential economic downturn is forcing organisations to rethink how they do business and structure operations. There’s an undeniable revolution occurring, where business model innovation is essential to maintain mere survival – a fact that is not lost on senior executives, with 44% of those surveyed in the report indicating that ‘companies going it alone will be a thing of the past.’ This indicates that the modern business model will become that of a team sport.

However, there are multiple facets of strategic partnerships that organisations need to consider in order to ensure success. Connecting with another company is simply the first step in a long-term arrangement.

The pillars of a
successful strategic partnership

The report notes that ‘new entrants and technology disruptors are willing digital partners’, perhaps recognising the value of the relationships that they hold, the value of brand and customer trust. However, in my experience with more traditional organisations, it is this step that can prove the most challenging – with many unable to recognise that they have a need.

As with any partnership, compromise is usually required and most often, if objectives and goals are misaligned and there is a lack of willingness to change ways of working, these partnerships can become burdensome rather than beneficial.

In order to ensure a successful strategic partnership, businesses should consider the following:

  1. Gaining an understanding of what complementary skills and services each partner possesses and establishing exactly what it is that allows both to do something they could not do on their own.
  2. Ensure that there are common values and vision – if the culture doesn’t mesh, neither will the partnership.
  3. Clearly define objectives and goals of the partnership and understand what its purpose is.
  4. Ensure that partners have the right framework to comply with set regulations. Share the information that you need to and if you’re sharing anything that comes under a regulation, ensure that policies, procedures and compliance are in place. Companies that are in a regulated industry will need to ensure they ‘own’ or actively manage risk.

Meeting great
financial expectations

There is also a need to be realistic about the bottom-line benefits of these partnerships. Of those surveyed in Asia Pacific, ‘64% expect to see their partnership contributing to one tenth or more within a 12-month period and one in four expect a contribution equivalent to at least 25% of their revenue.’

While these ‘great expectations’ may be met in some cases (though it is not the norm), having these targets set for a 24-month period is likely to be more realistic.

When a partnership is formed it usually takes at least six months to understand and agree how it will work and establish a consistent operating rhythm.

After the deal is signed and the fanfare dies down, many organisations forget that a partnership is something new that often needs to be nurtured and requires focus from a separate team that initially operates apart from the rest of the business. Forcing integration too early or when the ground rules are not yet established is a great way to kill a partnership.

You had me
at API

Earmarked as a symbol for collaborative innovation, APIs (application-programming interfaces) present a significant opportunity for digital partnerships. This technology allows businesses to still maintain their niche/specialist operation, but opens up the opportunity to easily partner and quickly strengthen a suite of digital products and services.

With the preferred ‘approaches to new innovation and product ideas’ heavily skewed towards partnerships with organisations inside (35%) and outside (30%) their industry, it’s clear that senior executives recognise that collaborative innovation will play an important role in providing new business opportunities.

The exponential growth of consumer-facing business that take a collaborative approach to the provision of products and services is a testament to not only the financial, but also the strategic, benefits of these arrangements.

With a multitude of options available, the question is: how are you planning to grow your business through strategic partnerships?

 

Contributor

John Riccio

John is PwC’s Global Design & Deploy, Experience Consulting partner.

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