Strategic Intent and Creating Value in Partnerships

This last summer I was fortunate enough to sit by the Lausanne lakeside with Alexander Osterwalder, and Alan Smith, co-authors of Business Model Generation, and Value Proposition Design, to review my progress on the Partnership Canvas.

The Partnership Canvas has been gradually spreading throughout the world. I’ve been able to make countless observations on how business practitioners use the tool, how they interact, working in teams, and how the canvas helps to structure a process for collaborative innovation. So, it was high time for some reflection.

A question on Strategic Intent
The discussion with the Alex, and Alan was one that lies at the hart of the issue of creating value through partnerships, namely about its connection to strategic intent.

The experienced business tool makers quickly honed in on the Created Value building block of the Partnership Canvas. They pointed out the necessity of emphasising the relation between a defined strategic intent and the created value in a partnership. These need to be aligned for partnerships to contribute to the core strategic priority of the organisation.

Alex, and Alan’s question on the Partnership Canvas was whether strategic intent, and created value were actually the same thing, or if they were different. I could relate this question to behaviour I’ve seen in workshops with regards to the created value building block, where people tend to conflate intent statements with created value from the partnership.

This question made me realise that the distinction, and the relation between strategic intent, and created value in the Partnership Design process is not obvious, and needs to be addressed explicitly to make the Partnership Canvas more intuitive to apply.

Defining Strategic Intent
Strategic intent is defined by two assessments: Firstly there’s the business model SWOT assessment, which takes into account the interaction between the business environment, and the business model: what are the opportunities, and threats that the business model is facing?

Secondly, defining intent involves understanding the vision behind the business model, and assessing whether there is still a fit between that vision and how the business model is currently set up.

The statement of strategic intent flows from these two assessments. The intent statement explains why to change the business model, and in which direction to take that change.

What is the Created Value of a Partnership?
The created value building block of the Partnership Canvas constitutes the output of the collaboration. By combining value inputs from both partners in a collaboration activity, value is transferred between them. This collaboration enables the creation of a new form of value for each partner, which they can apply to their business model.

Putting Strategic Intent, the Partnership’s Created Value, and Business Model Innovation together
The value that a partnership needs to create is consequent to the definition of strategic intent. Whether the value created in the partnership actually succeeds in serving the strategic intent, is determined by the business model.

“Value is created in the partnership, but needs to captured in the business model”

The created value from the partnership could for instance be an expansion, or deepening of a value proposition, or building a channel together with your partner. But it isn’t until this created value is put to work, that you’ll find out whether you’ll actually meet the objectives you set out with.

So, rather than equating created value from a partnership to strategic intent, the created value is actually the bridge between the intent the business model innovation starts out with, and the outcome of that journey.

Intent ——- Created Value ——- Outcome

An example visualising the link between strategic intent, and creating value in a partnership
To demonstrate the logic of linking strategic intent to the created value of a partnership, I’ll give a partnership example below.

This example concerns the partnership between IBM, and Apple, announced in 2014. For IBM, the strategic intent was to improve their users’ experience, by offering their enterprise-grade secured software on a more user-friendly, and better designed device.

IBM’s business clients’ employees were already carrying their own Apple devices into the office setting, because they preferred Apple’s technology over the non-Apple devices that their employer would equip them with. But there was no way to formally support these devices within the office setting, because IBM couldn’t access them. The partnership, however, enabled IBM to deepen their value proposition by getting access to Apple’s superiorly designed hardware, on which they could run their enterprise-grade secured software.

The created value from the IBM-Apple partnership design

For Apple, the intent of the partnership was to get a stronger positioning in the enterprise market for their devices. Essentially Apple is designed to serve a consumer market, which puts the company in a juxtaposition to serving an enterprise market.

Through the partnership with IBM, Apple created the channel they need to sell their computer devices to enterprise customers. This was a breakthrough channel for Apple to the enterprise market, something that might have cost them a decade to build themselves, if they were to achieve it at all.

The question for this partnership does remain how it’s performing up till now. But a peak onto Apple’s website shows that they’ve started engaging with more enterprise partners, expanding the area of application of their devices; an indication that things are moving ahead.

Alex, and Alan’s question on strategic intent in partnerships touched on an issue that I implicitly address when I apply Partnership Design. But having the question on the link between intent, and created value pointed out explicitly, enlightened my thinking on building the strategic argument for partnering, and helping to drive the partnering process towards its intended innovation objective.

The importance of understanding that the created value of a partnership is the bridge between intent, and the business model innovation can’t be overstated. Because being able to get an agreement on a partnership doesn’t imply that you’re also able capture the value that you intended for.

It will always require (repeated) effort to test whether the value from a partnership can actually be captured. The conclusive pass of fail mark for the partnership can only be given after several stints of disciplined business experimentation.

(A great many thanks to Alex, and Alan for the discussion, and taking out the time to dig into the Partnership Canvas!)

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Patterns in business model partnerships

In the research literature and case materials about partnerships and alliances, almost every author attempts to make a classification of partnerships based on the way they are organised. The table below is an example.

Types of Strategic Alliances

Although such overviews are useful for analysing how a process of partnership formation can arrive at certain outcomes, they are less useful when you’re faced with the practical challenge of determining what a partnership should do in the first place. This is a design challenge, where new options and directions need to be created.

The business model canvas is the only tool I have found that directly enables you to design multiple business model innovation options through using partnerships. Some trigger questions that would help to innovate through a partnership would be:

  • How can we increase the size of our market with minimal investment?
  • How can we enter new or adjacent markets with our product/service, without having to create one ourselves?
  • How can we put our resources to use more efficiently, without growing our company further?
  • What can we do to improve our existing competitive position?

By using these questions together with the business model canvas, you can define the rationale for a partnership from your business model’s perspective. But the big question is how you will tie your business model together with your partner’s business model. You will need to make explicit how you will create and deliver value to your partner, as well as how you intend to capture value from your partner in return. It is at this second step of defining the value exchange with your partner, that the business model canvas falls short as design tool. You’ll break your mind over trying to tie the partnership rationale together for both your own, as well as your partner’s business model!

Value exchange between partnering business models.
Specifically for the purpose of enhancing the design functionality of the business model canvas for partnerships, I’ve created the partnership canvas. The partnership canvas enables you to define and design the essence of value exchange with your partner. And it is through use of the partnership canvas in combination with the business model canvas, that I’ve already discovered some distinct design patterns that appear in the value exchange relationship between 2 business models. Unlike the list in the table above, the following patterns indicate what the implications of a partnership are to the design of your business model:

  1. Vendor relation
    The basic pattern here is that two business models are bound by a repetitive transaction of a good or service. The buyer appears as a customer in the vendor’s business model, because she’s buying a certain product or service from the vendor. The other way around the vendor will not appear in the buyer’s business model. Only their product or service appears in the buyer’s key activities or key resources, the cost for which is accounted in the cost structure.An example would be a food company buying ingredients from the world market. The ingredient is a key resource, but this can be acquired from multiple suppliers, who are technically interchangeable on an ad-hoc basis. A vendor relation turns into a vendor partnership, the moment additional value is exchanged on top of the transaction. This could be in an exclusive purchasing relationship, like the one between Samsung and Apple. In their early partnership in 2007, Samsung exchanged rights to exclusive procurement of flash memory, for the sharing of sales projections of Apple’s devices. In this case Samsung and Apple appear in their respective business models as key partners.
  1. Barter relation
    The pattern that shows up here is a partnership based on reciprocal non-monetary value exchange between partners. Unlike the vendor relation, neither partner pays the other any money to exchange value within the partnership. This applies to partnerships like Spotify-Facebook, where Spotify gained access to the US market through Facebook, and Facebook was able to stream music through its channel. Also, Nespresso and its outsourcing of machine manufacturing to its partners applies here. Nespresso in effect gets free access to its partner’s channels, in return for co-branding the machines and providing a technology license for (nearly) free.
  1. Hybrid customer/partnership relation
    In these setups partners contribute to each other’s business models like in the barter relation. At the same time one of them also profits from the customer value proposition as a customer of the other. You find these patterns mostly in matured online platform business models. The sheer volume of traffic that the platform generates is of value to businesses that want to sell something, and they’re wiling to pay for access. The App Store platform is such an example. App developers market apps in partnership with Apple, and split the revenue @ 30% for Apple. At the same time developers are customers through their yearly payment for the SDK app developers’ kit.Amazon Marketplace is another partnership example that shows the hybrid partnership pattern, and a special one called coopetition. Book vendors are partners because they complete the experience of multiple options in book offerings (new or second hand hard cover or paperback, or e-book) to Amazon’s customers. At sale they agree to split on a commission for Amazon. Yet, at the same time vendors are also competitors with their competing book title offerings. As customers, vendors pay for using Amazon’s web service channel in their business model through a vendor subscription.
  2. Joint venture relation
    The joint venture is a curious beast. It’s actually not a partnership in the sense of value exchange between two independent business models. A joint venture is a business model by itself, where two or more companies have decided to combine their resources. The reasoning behind creating a separate business model is that there are many elements involved in the collaboration, and the outcomes are too complex to attribute rewards and contributions to each partner separately. Often you’ll see founders of the joint venture, acting as partners in the joint business model. Examples of famous joint ventures are the Starbucks-Pepsi partnership for canned cold coffee drinks, or the Philips-Douwe Egberts joint venture for the Senseo coffee machines.

In conclusion
A partnership is defined when value exchange takes place between 2 independent business models that goes beyond the transaction relationship. The vendor relation is not a partnership as it only involves the shifting of ownership of goods or information. Only when the strategic importance of a vendor increases to your business model, will the exchange of value beyond the transaction start to make sense, and will a partnership come to life.

The barter and hybrid partnership types enable continuous value exchange between business models, whilst they still keep running independently. These are flexible business model innovations, and can create tremendous competitive advantage.

The joint venture also contains strong innovation potential, but is less flexible in setup. Partners bind themselves to the success of the joint business, and ending of the relation will most likely entail ending of the business.

The key for business model innovation through partnerships is both in finding the purpose of your partnership, as well as the mode of value exchange with your partner. The business model canvas will help you find out why you would need a partnership. The partnership canvas will help you figure out why your partner would also need one with you, and how and in what shape these two innovation imperatives can be linked together.

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