Patterns in business model partnerships

Posted on by Bart Doorneweert

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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Beyond Certification. Business model innovation for sustainability in food and agriculture

Posted on by Bart Doorneweert

“Sustainability certification, is that legit?” somebody recently asked me. “I don’t know”, I said.

Innovation for sustainability in food and agriculture is stuck. We had the hope over the last few years that sustainability certification of agricultural products might compel the market to deliver on sustainability by laying down the rules by which it should play. Although the scientific basis for the sustainability criteria that products should meet is sound, certification hasn’t proven itself to be the right vehicle for criteria adoption. The focus is all on the standard, and not on the business model.

The question of what lies beyond certification for effectuating sustainable development in agri-food markets is thus very much upcoming. It is being discussed more as brands and traders are becoming increasingly confident about acting in markets for sustainable produce.

Though there is no definition of “beyond certification”, there are some examples in the market to date that in my opinion illustrate facets of a “beyond certification” innovation agenda. They all concern business model innovations, which provide a more fruitful ground for adoption of sustainable production standards. Some broad brush illustrations:

Sustainability as part of integrated brand communication. In this case the brand becomes the standard, and vice versa. The brand’s narrative leads in voicing the responsibility that is taken for the products it markets. Rather that explicitly communicating the technicalities of sustainability impact, the narrative will more likely cover topics like the origin and quality of the product, or the history/artisanship of the producer. Examples of concepts that already apply this are for instance Nespresso (a Nestle coffee brand) and Innocent (a fruit smoothies brand). Both certify or verify their product ingredients through a third party certifier, but this is not directly communicated to the consumer. The only communication regards the overall brand experience of a top quality and responsible product.

Joint platforms of brands/retailers and producers for a differentiated market proposition. In this example producers and the marketing brand would jointly invest in creating a business model to which they both contribute brand value. A successful example of this is for instance the Naked Wines online wine retail platform. Naked Wines brings together wine aficionados and independent wine makers. The platform provides pre-finance for winemakers’ harvest and produce, in exchange for exclusive sales and marketing of their wines through the platform. So far Naked Wines has appeal with a subscriber base of 200.000 people worldwide.

Rewards to achievement of sustainability performance. This example relates to finding smart combinations between sustainability impact, and economic reward systems. The case of Guayaki Maté tea and reforestation, shows how shade-grown maté under the forest canopy improves quality, and is able to capture added value in the market. This value is captured both through improved tea quality, as well as through the convincing claim that can be made to consumers that increasing their consumption of maté will expand the rainforest.

Conclusion
Complements need to sought between certification and new combinations of value creation that make it commercially compelling to adopt more ambitious sustainability standards. This will come from creating new market-based value systems at the farm level, or at the marketing level, or more likely both at the same time. If we truly aim to fulfill our sustainability ambitions, then we will need to delve deeper into the value creating process to find these synergies that will proliferate a higher standard of production and living.