What happens when product, and business development people join the same squad?

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Product development, and partnership teams are critical for business value creation, and growth. The product development team is key for improving a company’s offer to customers. This attracts more of them, and can also increase value from the lifetime of each customer relationship. Partnership teams aim to achieve company growth; They’re like a SWAT team that opens access for other companies’ resources, and exposes the product to new markets.

Product, and partnership teams usually operate separately. This separation seems logical. Each team focusses on what they’re good at: creating product value, and driving growth. But in this article I’ll show how the separation of functions drives a wedge into the overall business value creation process, and how collaboration needs to change to resolve it.

Product, and Partnership: Better when they’re together.
Instead of looking into ways for improving partnership, and product development teams to function separately, lets take a look at what would happen if we just put these people on the same team.

Product, and partnership teams in tandem, generate more value, than they would separately. A great example of a company that has achieved this is Nespresso. By combining Nespresso’s capabilities on (coffee) product marketing, with the coffee machine manufacturing partners’ capabilities of channel marketing for kitchen appliances, Nespresso achieves significantly more leverage from the partnership than they would from just outsourcing manufacturing.

Another example is Tesla’s (former) partnership with Toyota. By jointly working on developing electric vehicle parts, and electric car manufacturing systems, Tesla learned about mass-production of cars. This was key for launching their famous Model S. So, by not only focussing on combining technologies in the partnership, but also utilising that technology in a new way of production, the partnership actually took product development to a whole new level for Tesla.

These examples show how transgressing product, and partnership team boundaries, broadens the scope for new business value creation. Neither Nespresso, nor Tesla would be where they are today, if they wouldn’t have looked at product development and business growth in an integrative way.

From marriage to divorce…
In a fledgling company you see that the functions of product, and partnerships, are combined within the same, small group of people: the same team. Often the startup CEO takes on both product and business development roles. In this situation, it’s natural to align the functions of product, and partnerships, and make product value creation and growth efforts click.

But the moment the startup starts evolving into a real company, the product, and partnership functions will branch off into separate teams. And that is where the seamlessness of their alignment is lost.

The product team starts focussing on its own resources, and existing product development roadmap, rather than looking out for ways to leverage their work through partnering.

Partnership teams will tend to focus on the existing product and finding partners for that. They have to work with what’s on the shelf, because they’re usually not in a position to tailor the product to growth opportunities themselves.

The upshot is that both product, and partnership people each start tweaking their part of an existing business model. They gradually lose the ability to operate jointly, and invent new ones in a concerted, fundamental ways.

Re-uniting product and growth.
What can we do to put the power of product, and growth back together again?

Firstly, it comes down to a joint understanding between both teams about the process that is applied for product development. Product, and partnership teams need to jointly define, and have visibility on priorities, as well as on the big questions that need to be solved to bring the product forward.

Secondly, the product and partnership teams need to start jointly experimenting with growth opportunities for the product, and make those experiments part of the product development process. It’s not sufficient to start searching for growth once the product is done. The product will also likely need to adapt to the growth opportunities that arise.

Thirdly, product and partnership teams need to start operating in the same rhythm of iterations in product development. This means that partnership teams should be able to shift with changing priorities of the product. The other way around, product teams should also be able to adapt to shifts in opportunity on the partnership end.

To support these 3 points of alignment, visual tools like the business model, and partnership canvas are really helpful. These tools enable all participants to step in and create the alignment that is needed to search for repeatable, and scalable partnership opportunities, that sync with the direction that the product needs to take. Once product, and partnership are able to apply rapid joint framing of priorities, and decision making on what steps to take, then the business value creation process is mended. The company will operate in the mode that is once did as a startup.


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The relationship perspective on Amazon’s collaboration with air freighter Atlas Air

Partnerships tend to be used as catch-all for collaboration between businesses. This clutters understanding about why collaborating businesses are engaging with each other. In this post I’ll take the case of the recent Amazon and Atlas Air collaboration, and show how sifting apart their collaboration on a relationship basis, brings more understanding to how the deal is structured.

Business collaboration can take form in 3 different types of relationships, namely:

  1. customer-supplier
  2. partner
  3. investor

Each is a different type of relationship, with a discrete requirement for contribution, and of expected output. To assess the opportunity, and performance of the collaboration as a whole, each relationship needs to be judged on its own merit, rather than by an average of the mix.

By taking a relationship perspective, partnership is shown to be only 1 facet of the collaboration between Amazon and Atlas Air. Only once all the relationship types involved in their collaboration are made explicit, can we see the complete picture.

Background to the partners
Before we look at the various types of relationships at play in the Amazon-Atlas Air collaboration, lets have a look at where they’re both coming from.

Amazon is on a high-growth trajectory. It’s becoming a strong player in consumer retail. One of the drivers for their competitiveness is speed, and dependability of delivery. It is the foundation of their Prime service, for which customers pay a fixed yearly fee for faster shipping. Amazon is keen on increasing its speed, and capacity of delivery for Prime, as well as having more control over fulfilment hiccups, especially during peak seasons, like the upcoming holidays.

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More air freighting is key to increasing Amazon’s speed. Its option to realise this, would be to take control over air freighting infrastructure, something which Amazon currently depends on suppliers for, like UPS, and FedEx. But to go at it alone would mean buying the 20 planes it needs to grow, outright, at 70-80 million USD each. This is a huge risk, because Amazon does not have the capabilities to efficiently run this type of infrastructure. Partnering with specialised freighters seems to be the better option, but at the same time, Amazon is outgrowing its current delivery service suppliers’ capacity to realise Prime’s rapid, same, or two-day delivery.

Atlas Air is an air freighter. But e-commerce is a difficult game for this type of logistics company. Air freighters, in general, are not accustomed to servicing to the rhythm of e-commerce. Striking a balance between cost, and service levels is a delicate game for them. Freighters would need to adjust internal logistics to that of the e-commerce companies they work for, to perform better. But that would also increase dependencies on demand from only a select few e-commerce companies, and the according risks.

Atlas could invest in its own capability to become better at e-commerce shipping. But it would still have a difficult time catching up with competitors like UPS and DHL who are more advanced in their operations, and are actually suppliers to Amazon already.

The supplier, the customer, the partner, the investor.
The setting for collaboration is complex. But there is opportunity to gain from collaboration for both Amazon, and Atlas. There are three types of relationships at play in their collaboration.

Amazon Prime Air announcement

The first relationship concerns the lease of the planes. This is about Atlas as a supplier, and Amazon, as a customer.

The second relationship concerns the actual partnership, where Amazon is seeking a way into air freighting to scale up, and accelerate its Amazon Prime shipments. Atlas is trying to expand its entry into a new market to service e-commerce platforms with air-freighting.

The third relationship concerns an investment relationship, where Amazon has an option to invest in Atlas Air, and establish itself as a player in the logistics market. Lets go through these relationships one-by-one, and the input-to-expected output for each, before coming to a final conclusion about the collaboration.

The supplier-customer relationship
The big visible part of the collaboration are the aeroplanes. Under a so-called dry lease construction, Amazon has committed to leasing planes from Atlas for the coming 10 years. From a separate entity that falls under Atlas air, Amazon is also hiring staffing, and maintenance services: so-called wet leasing. This is a pretty straightforward arrangement. It gives Amazon control over the costs of operating an airline freighter, and Atlas has secured revenue on its planes, and staff.

But Amazon doesn’t yet know how exactly to utilise this freighting capacity for expanding its own Amazon Prime fulfilment process, nor does Atlas Air. That is where the partnership comes in.

The partnership
Atlas has capabilities for air freighting, but not in playing to rhythm of e-commerce. Generally freighting services are transactional. Freighting companies aren’t integrated with the fulfilment process of the e-commerce vendors. On top of that air-freight transportation management system are antiquated. Globally, only about 20% of airway bills are electronic. This is not the best vantage point for accelerating the e-commerce fulfilment processes.

To achieve the goal of increasing the capacity of its Amazon Prime service, Amazon has to create this new fulfilment management system, together with Atlas. The partnership relation shows how they intend to do this.

What Amazon would desire in a partner, is having access to raw air-freighting logistics management systems. Amazon would prefer a freighting partner that doesn’t have any visibility with consumers, over freighters that are already active in the consumer market.

Without any legacy of software built for shipping to consumers, Amazon has the opportunity to build its own Prime order fulfilment on top of business-to-business infrastructure. That would give Amazon more control, and a consistent presence of its service to its customers. Atlas checks all these marks.

By integrating airline freighting logistics software with Amazon’s own warehouse fulfilment, and micro distribution network, a complete supply chain is shaped for faster delivery (a logistics supply chain that is unheard of as of yet). For Atlas, this collaboration adds to its resources to support other e-commerce customers with similar air-freighting services.

Below you can find an overview of this partnership design, made with the partnership canvas.

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The Amazon-Atlas Air partnership design, depicted using the partnership canvas, and the business model canvas (Strategyzer.com)

 

The investor
The last part of the collaboration consists of an option for Amazon to also buy Atlas Air stock. Over the duration of the collaboration this option is vested to grow into a 30% stake.

Why are stock options involved in the deal? The answer is that it forges long-term commitment between the 2 companies. Atlas signals that it is committed to a long term arrangement. Procurement of stock would also provide Atlas with some financial leverage, needed to procure extra planes as more planes are demanded later on in the lease arrangement.

For Amazon this arrangement increases its influence over the future direction of Atlas Air’s development, and creates an option for full procurement of the company if the success becomes really big. But this will only be vested over a period of 7 years, which means that there is enough time to substantiate the business case for acquisition.

Conclusion
By teasing apart the various relationships at play in this collaboration, we can start to see the overall design of the collaboration. Air freighters are generally not suited for e-commerce velocity shipments. Atlas Air is not guaranteed to succeed with either. Therefore there are some contingencies built in the collaboration, with the various layers of relationships that are forged between Amazon, and Atlas.

Amazon is technically only tied to the lease of the planes. It can wind down the other parts of the collaboration at 180 days notice. Worst case scenario is that Amazon needs to find another logistics partner who can coordinate the freighting if the collaboration with Atlas doesn’t work out. In that case the costs of operations area clear.

Looking at just the partnership facet of the relationship, you can see that it designed around learning about optimising fulfilment. Both parties stand to learn about how to best collaborate to achieve better e-commerce velocity fulfilment. If the partnership fails, then there’s the fall-back. If it succeeds, then Amazon will likely utilise its stock procurement options.

There’s no question that Amazon needs to figure out air freighting to grow. But the big question remains why this type collaboration with B2B freighters (there is another collaboration Amazon is running in parallel, with Air Transport Services Group) is Amazon’s only bet to expand its Amazon Prime service.

Amazon is known for its frequent business experimentation. It wouldn’t be that difficult to create a bidding process for shipping services at check-out. Customers could then hire whatever delivery service they would need, based on the estimations that various freighters, including Amazon Prime would provide. That would provide an interesting benchmark to see whether existing freighters, or Amazon itself will be the most effective in winning the game of e-commerce logistics.


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