July 3, 2022

Article 2.5


The US business community went "partner crazy" during the `80ís, presumably to find "synergy" or do more with less quickly. Reviewing the many cooperative efforts initiated across different industries, these partnerships could be classified into three general categories - outsourcing, joint ventures, and alliances.

Outsourcing has involved the dis-integration of many large "mines-to-markets" firms that historically attempted to do as much value-added in-house as possible. Synonyms for this process have been hollowed out corporations, value-added networks or partnerships(VAPs) and corporate switchboards."

Joint Ventures are when two or more firms pool resources into a new separate entity to pursue a new opportunity. By example, groups of firms have pooled resources into research and development consortia to pursue new technology goals together rather than pursuing the same goals independently and redundantly.

Strategic Alliances occur when two separate firms link capabilities together. In the high-tech world, one firm might contribute the technology, another the manufacturing and a third the marketing power or access. In distribution channels, sole supplier agreements and buying groups would fall into this category.

These types of partnerships are nothing new. Corning Glass created the first of their many joint ventures over 50 years ago and today they derive over 50% of their total profits from these ventures.

What were the catalysts for the explosion of partnerships starting in 1982? Some of the key ones were:

  1. The US economy was stable and all forgiving from 1946 to 1974; bearable from `74 to `80; and then the severe recession of `81-`82 followed by the high dollar and a global glut supply sent everyone scrambling for new solutions. These same conditions propelled the book "In Search of Excellence" to unforeseen sales.
  2. The technology explosion has made it impossible for any business to stay on top of many in-house capabilities.
  3. The deregulation of transportation in 1978 created many new, flexible, lower cost, better service outsourcing and alliance possibilities.
  4. U.S. manufacturers were racing to imitate the Japanese, who lead by Toyota, had created pyramids of total quality, just-in-time supply networks that outperformed everyone else. Toyota today produces 20% of the value-added for their cars to 70% for General Motors.

The main objective for all of these forms of partnership was to create "synergy" where 1+1=3 or more. Adversarial economics occurs when 1+1= a negative, often because two myopic egos both want it all. Independent economics is a 1+1=2 event. Plenty of "win-win negotiations" with compromises are actually 1+1=1 events disguised with rhetoric.

When firms seek to grow by outsourcing and creating value-added partnerships, there are additional possible benefits illustrated by the diagram below:

These potential benefits have not been realized by the majority of the partnerships of the '80's. Two different studies both concluded that about 70% of all cooperative ventures have broken up within two years or have been dissolved short of expectations. Perhaps companies, like some young people getting married, may have jumped into relationships with an immature sense of what good partnerships take. They failed and divorced, now they will seek synergy more carefully and wisely.

Perhaps the U.S. business community has been immature at cooperative efforts for historical reasons. Our 300 years of relatively splendid economic isolation allowed us to prosper while being adversarially inefficient with business partners. Today we spend 2.7 times the legal fees per capita that the next highest country does and 25 times the rate in Japan. Legal costs do not add anything to the GNP and contracts do not guarantee good partnerships. Most US firms still have tension between autocratic managers and passive-dependent employees, while 90%+ of Japanese employees are now proactive "financial stakeholders" participating in bottom line gainsharing bonuses.

The splendid isolation is now gone, so we must convert the adversarial economics into the synergistic. The joint-venture matrix below lists possible partners down the side and a range of interdependence from zero to growing integrated marriages across the top.


As you review each partner category, plot where they currently fall on the continuum. Could they be moved further to the right to create more co-responsibility and synergy? Are there partners that you might spin off or replace by outsourcing to new partners who could do a better or more versatile job? With which partners are there adversarial tensions that must be reduced? How can you grow without adding more payroll and assets, but rather by allying with new or old partners in new ways?

There are many options, but creating sustainably successful partnerships is an elusive ability, which starts with the character of the participants. People who are -- proactive, optimistic, other-oriented, and most importantly trustworthy -- attract and correctly select similar people for partners. Character and time build relationships. Relationships may become synergistic agreements, which in turn require patient nurturing. Courses in "win-win negotiations and reflective listening" will not work. There are no quick fixes. If you are approached by or are approaching potential partners, ask for and investigate the references that they give for their existing win-win relationships. Most people sound good, but they don't yet have what it takes from the inside out to be co-responsible for a successful relationship.

Competition will continue to intensify and strain financial resources. Keeping up with change on all fronts will become impossible. Finding the extra time and resources to leapfrog competition is unlikely without cooperative ventures. A philosophy of rugged independence and doing it all in house is obsolete. We must become serious students of and patient, careful practitioners of true, win-win, synergistic partnerships.

©Merrifield Consulting Group, Inc., Article 2.5