partnerships

It’s been more than a year since we introduced the Partnership Proposition Canvas as a prototype tool for modelling key business model partnerships. Since its introduction, we’ve been testing the tool and refining it. In this post we share the latest version, which has proven to be simple in use, and more effective in getting the conversation of business model innovation through partnerships going. Allow us to introduce the Partnership Canvas: an essential tool for designing, negotiating, and adapting partnerships. This tool works as an add-on to the business model canvas.

What, another canvas?!
The reason we’ve developed the partnership canvas is that many organisations struggle with their partnerships. One of the main causes is that there is no structured approach available yet to help design strategies for partnerships. Naturally, the partnership discussion itself between organisations is often veiled in mist. As Henry Chesbrough, the figurehead of open innovation, wrote:

“few companies in our experience take the time to articulate their own business model. Fewer have any clear idea about the business models of their external relationships.”

That is not a good basis for creating a collaboration. People leave too many assumptions about their partnerships unaddressed, and that backfires the moment they go live.

What is a partnership?
The first hurdle in the partnership discussion is definition of the term partnership. You won’t be able to define a partnership by only mapping out the two partnering business models. That describes the result of the partnership. It doesn’t explain how the partnership works.

A partnership is more. It is an entity that sits in between the two business models that make up the partnership. This entity enables value to flow between two partnering business models. By combining value inputs from both business models in a partnership, they are able to create new forms of value that they both benefit from. (I’ve written about what can best, and best not be defined as a partnership from a business model perspective in a previous post).

Value exchange between two business models

The partnership canvas was created to demystify the partnership entity by defining its building blocks. The tool can be used to map existing, and design new models for partnerships. The partnership canvas helps to break through the boundary of possibilities for innovating with only your own business model.

The building blocks of a partnership
The first question you need to ask yourself when orienting on a partnership is what will be the purpose of the partnership. The key to defining this purpose is to question yourself on how you can contribute to a better, more complete experience for your customer. This could relate to aspects of availability, convenience, speed, price, performance, etc.

Visual by Dave Gray

Based on definition of this purpose, you will be able to describe the missing element from your own business model, for which you are seeking a partner. You can use the definition of this element to screen candidate partners on a (set of )value(s) that you desire. This desired value makes for the first building block of your partnership design.

The second question is about your own contribution to the partnership. If you have identified what value you desire in a partner, then you need to develop a matching offer that connects with that value. A value offer is required, which is based on one or more elements from your own business model. An effective offer either complements or enhances the value you would desire from a partner. Only if this connection is made, do you have a basis for creating a relationship.

The third question demands clarification on how you will connect the desired and offered value. Through what collaboration activities or through what form will these values be connected? It is essential that both parties find a way to integrate the value that they are putting to the table. This transfer activity building block is the exchange by which synergy between the partnering business models is created.

With this third building block, an engine is created that enables value to flow between partners. But the partnership discussion doesn’t end there. Essentially what we’ve defined so far is a basis for connecting values. The ultimate question is whether this value engine enables you to create a new form of value that you can utilize to innovate in one of the building blocks of your business model. This question on created value makes up the fourth building block of the partnership.

Using the partnership canvas
Once you have mapped your business model, and desired value from a partner, you can use the partnership canvas to see how you can connect with a partner. The value flow between the both partners is made by linking all the building blocks together through a single line of reasoning. Use post-its to describe the elements of your partnership. If multiple value elements are involved in a partnership, then you can use color coding of post-its to connecting lines of value exchange.

Another important feature built into the design of the partnership canvas is that it enables communication between a business model and its partnership. The value offer, and created value both have links to the business model of one the partners, and the desired value should relate to an attribute of the other partner.

Lastly, but perhaps most importantly, the partnership canvas is designed in such a way that it accommodates the comparison of a partnership from both partners’ perspectives. By laying the foundation of the partnership canvas against each other, you will be able to compare whether:

Your desired value is what your partner is willing to offer
Your offer is the value that a partner desires from you
You have a same framing of the transfer activities, required to connect your values.

The figure below shows how a partnership can be compared from the perspective of two partners, each with their own business model. By comparing two perspectives, prospecting partners can sense each other out early, and also learn from each other on the various opportunities that exist. Also, they can find out early on whether there actually is a partnering perspective in the first place. This might be a painful realisation to make, but it could save a lot of more hurt from a painful divorce in the future.

Conclusion
The partnership canvas creates empathy between two prospective partners on the strategic importance of the partnership to each. The canvas can be used as a stand-alone tool to quickly identify a partnering opportunity. But for full strategizing value, it’s better to use it in conjunction with the business model canvas.

The partnership canvas has been tested in various workshop settings with students and entrepreneurs. It has demonstrably contributed to better partnership discussions. Parties become clear about each other’s strategic objectives. Also, they learn from each other about the various opportunities there are to partner. It’s not a matter of making one grand master plan for an offer the partner can’t refuse, but more of finding out together what the opportunities are.

Stay tuned for more guidelines on how to use the partnership canvas on this blog. You can freely download, and use the partnership canvas [SlideShare login required, or send me an email: info@partnershipcanvas.com. The tool is published under a creative commons license, so it’s free, but please review back to the source. I hope to hear from your experiences!

Interested to learn more about Partnership Design?

Check out Training opportunities!

You can join the Partnership Design Linkedin group!

Further inquiries? Send an email to: info@partnershipcanvas.com

Word of thanks
I couldn’t have developed this tool without the help of some special people. First I would like to thank my colleagues and students at Wageningen University for creating opportunities to test out the canvas. Next, I would like to thank Mike Lachapelle for some really foundational feedback on the design of the canvas, and Salim Virani for some interesting pointers on shapes. Lastly, a huge thanks goes out to Ernst Houdkamp, whose visual thinking skills kept me sharp on finding improvements for the canvas, and who had the patience to stick with me through the many iterations of the tool.

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.

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:

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.

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.

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.
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.

Join the Partnership Design Linkedin community!
Link up with other partnership professionals? Advice or input on your partnership design? Join the Partnership Design Linkedin community!

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