Partnering is tough; in 2020 i highlighted this in a post about partnering
I’ve seen firsthand how partnerships can create significant value for organizations, in fact most of my business life was in managing joint-ventures and partnerships, and my own organisation was a partnership. In revising this post, I have added a section on why i see trust being the essential glue in Asian partnerships and why contractual relationships tend to fail,
Partnering in business is a crucial strategy organizations can use to create value for themselves (and their business partners). By joining forces with another organization, they can leverage each other’s strengths, skills, and resources, creating a competitive advantage that neither could achieve alone. Equally partnering may give you access to opportunities you may not have been able to access alone. Thus the benefits of partnering are numerous and include access to new markets, increased sales, reduced costs, improved product development, and enhanced brand reputation.
However, not all partnerships are created equal, and it’s important to understand where your partnership stands on the Partnership Ladder. I created the Partnership Ladder to try to assist the start-ups I worked with a means to segment those potential collaborators that could overwhelm small organisations with limited resources- and to find a way to identify who, could be potential long term partners. I conceived the ladder to have a series of steps – and this insight was provided by conversations with Service guru Ron Kaufman, who developed a simple approach to service enhancement. I have conceived a pre-partnering phase and three levels of partnering. Each level builds on the previous one, and successful partnerships require a focus on building trust, effective communication, and consistent performance.
Understanding where your partnership stands on the Partnership Ladder is essential because it provides insight into the level of risk and reward associated with the partnership. For example, a one-shot deal in the pre-partnering phase has limited benefits, and has a high level of risk. In contrast, a powerful partnership at Level 3 has significant rewards, and also requires a high level of commitment, trust, and joint ownership. By understanding where your partnership stands on the Partnership Ladder, you can determine what level of oversight, collaboration, and investment is required to maximize the partnership’s benefits and minimize the risks.
Moreover, understanding where your partnership stands on the Partnership Ladder can help you determine what steps you need to take to move up the ladder. For example, to get to level 1 Transaction Satisfaction you need to show competence. If you are at Level 1, you may need to focus on showing a consistent level of service delivery and on improving communication to move to Level 2, Reliable Relationship. If you are at Level 2, you may need to focus on understanding organisational values and ensuring mutual commitment to the partnerhsip to move to Level 3, Powerful Partnership.
Pre-partnership – ONE SHOT DEAL:
This is the initial stage of the partnering process, where the focus is on risk minimization. At this stage, there is no foundation of trust between the parties, making it a potentially high-risk single transaction, with potentially limited benefits. Therefore, the focus is on ensuring that what you ensure a series of checks to ensure what you were promised you received, as there are no trusted guarantees- because there is probably little reason to create a formal contractual basis of the relationship (for my views on the role of contracts in Asian partnership please go to the end of this article). Vigorous oversight and rigorous self-protection are crucial to mitigate potential losses.
Level 1 – TRANSACTION SATISFACTION:
At this level, the relationship is separate and siloed, with each party focusing on their individual objectives but working together. The key focus is to determine whether the benefits of the partnership outweigh the sacrifices. This level of partnership seeks efficient, reliable, and consistent performance to as a means to mitigate and reduce potential risk. Outcome tracking, trust-building, and effective communication are critical in this level of partnership. As the parties develop a better understanding of each other’s competence and experience, the threat of risk recedes, and effective risk-mitigating processes can be put in place to minimize oversight costs. The focus at this level is on building a track record of successful reliability and consistent collaboration.
Level 2 – RELIABLE RELATIONSHIP:
At this level, the parties have shared objectives and synchronized processes and planning, and the focus is on long-term, aligned outcomes. Trust is established through demonstrated competence and consistent experience of mutual performance. The parties view the partnership as a long-term commitment and can assess, “What’s the lifetime value of this relationship.” There is a strong track record of reliability, consistency, and successful collaboration, and a shared vision and commitment to a long-term partnership. This is a great place to be, but there could be opportunities for mutually beneficia growth and so you may consider moving to the ultimate level.
Level 3 – POWERFUL PARTNERSHIP:
At this level, there are mutually agreed objectives and rewards, and joint approaches are used to achieve them. Accompanying this is a formal level of structure and process- sub-committees and reports and joint-oversight of the formal partnerhship. There is a strong mutual commitment to the partnership, joint decision-making, and the creation of a mutual advantage. The focus is on mutual growth, with joint identification of motivating needs and outcomes to pursue. Regular reconfirmation of these needs and outcomes is done between the parties in regular series of oversight meetings involving a range of perople within all partner entities. At this level, a trust network (mutual relationships across various levels within both partner organisations which minimize the impact of a single individual or the partnership instigator leaving) between the organizations has been established, and resources are used to increase benefits and reduce sacrifices with agreement on how to create new incremental value. There is an agreement on how to share incremental performance, and joint ‘ownership’ of the outcomes is established.
Here’s how I have set out the structure processes and relationships within each level of the partnering stages;
I use the Partnership Ladder as I see it is a useful framework for understanding the different levels of partnering. My view is Contractual relationships often fail to deliver within an Asian context due to cultural differences in access to legal means of mediation and enforcement and the emphasis on building personal trust-based relationships. To ensure successful partnerships, it is essential to prioritize the development of inter-organizational trust, which requires investing time and effort in building personal relationships, open communication, and transparency. By building trust, business partners can work together more harmoniously towards common goals, leading to more successful and sustainable partnerships. Within the partnership ladder each level builds on the previous one, and successful partnerships require a focus on building trust, effective communication, and consistent performance. As each organization moves up the Partnership Ladder, the benefits of the partnership increase, and the costs and risks decrease. Ultimately, powerful partnerships can create significant value for both parties, and the key to success is a shared vision, commitment, and focus on mutual growth.
The role of Contracts within Asian partnering
In Asia, contractual relationships often fail to deliver the desired outcomes due to cultural differences in application of the law and thus the increased importance of building trust-based relationships. (disclaimer – i am not a lawyer, I have just been involved in partnering in Asia for a quarter of a century). In many Asian cultures, trust is paramount and often takes precedence over formal contractual arrangements. This is in contrast to many Western cultures, where contracts are seen as the primary means of establishing and maintaining business relationships.
One reason why contractual relationships may fail in Asia is a lack of due process in the law. The world bank identifies how long it takes to enforce contracts – in Singapore it takes an efficient 164 days to enforce, but in East Asia its greater than two-years- Indonesia is approx 405 days, India an unimaginable AVERAGE of 1445 days. Thus, within Asia, there is a clear focus on avoiding government linked authority and transactional agreements which tend not to work, instead relying on relationships before and while conducting business. This means that business partners need to invest time and effort in building personal and organisational trust and rapport before any partnership (whether contractual or not) can be established. Rushing into a contractual relationship before trust has been established doesn’t tend to work outside of Singapore and can lead to misunderstandings, miscommunications, and conflicts down the line.
Another reason why contractual relationships may not work in Asia is the importance of face-saving and reputation guarding. In many Asian cultures, saving face and preserving one’s reputation are critical components of personal and business relationships. This means that any failure to deliver on a contractual obligation can be seen as a significant loss of face and a blow to one’s reputation. Consequently, business partners may be more hesitant to enter into a contractual relationship unless they have a high degree of trust and confidence in their potential partner’s ability to deliver on mutual promises. Additionally, taking a partner to court will certainly reduce the opportunities to partner with other Asian firms who are unwilling to be threatened with court administered justice and the inevitable formal and informal costs involved.
In contrast, inter-organizational trust is a better means of ensuring partners work together harmoniously in an Asian context. (see here for my views on inter-organisational trust) Trust-based relationships prioritize the development of personal relationships and open communication channels, leading to more effective collaboration and fewer misunderstandings. By building trust, business partners can work together more effectively towards common goals, leading to more successful and sustainable partnerships.
To develop inter-organizational trust, it is essential to invest time and effort in building personal relationships with business partners- display competence, create a consistent experience, and share similar values. This trust creating process involves getting to know your partners on a personal level, taking time to create a positive experience and understanding their values, while remaining respectful of cultural differences. It also involves communicating openly and honestly, setting clear expectations, and being transparent about any potential risks or challenges.