Brennan Loh of Shopify, talks about designing the prototype for their partnership with Uber.
This is the way that many successful and innovative partnerships come to be. It’s not about the big idea, and the big name involved, and then having all the rest fall in place.
It’s about performing experiments to find out if:
a) there is really a fit between partners,
b) and if the value created in a partnership will actually have enough impact to each of the partners’ business models for them to remain committed.
Brennan describes how to do it lean. Start with a small project that could reasonably generate a small win. Only after trying a couple of things, and creating a series of small (and growing) wins, a model for collaboration is revealed that has significant impact for both.
The Partnership Canvas is designed to guide you through this particular job of partnership design and experimentation. First, it challenges you to find out whether your partnership idea has a fit with your partner’s perspective. Then, you perform a Value Check, and a Cost Check on your business model to define testable hypotheses to find out whether the benefits outweigh the costs for both partners.
One of the most frequently recurring questions I get during partnership design workshops is about the transfer activity: “What is it? Can you give me an example?”
In this blog post I will therefore dive a bit deeper into this building block. Firstly, I will describe a bit about the building block’s background. Then I’ll describe what the crucial role is of the transfer activity in distributing value between partners.
Background on transfer activity. Partnerships enable the access, and flow of resources between partners (Mowery et al. 1996). Part of creating this flow is based on synergy between the resources that partners bring in: what’s their polar attraction, and how strong is it? The other part comes from building the conduits through which partners can connect these resources. How will they provide each partner with access to the resources, and enable them to create value with the partnership. This is where the notion of transfer activity comes in.
Transfer activity describes how exchange of knowledge, technology, and other value elements between partners takes place. Transfer could occur in the form of in-person collaboration between people from both sides of the partnership. It could also be in the form of a more structural (technology) platform where partners can access resources independently, based on prior agreement in their partnership designs.
An appropriate metaphor would be to use a certain stage in a relationship between people. Say you’re taking your relationship to the next level, beyond just dating, and you’ll be inviting each other over to your houses frequently. Now the questions is how will you let each other in? Will you exchange copies of the key, or will it be a string through the door at agreed times? Both provide access, but the nature of the transfer is very different, and important to understand, and agree upon upfront.
Distributing value in a partnership through the transfer activity The transfer activity has a key role in the partnership. There’s a reason it’s positioned in the middle of the Partnership Canvas (see diagram below). Essentially it has two functions. Firstly, transfer activity connects the value elements that partners put into the partnership. Secondly, it enables the creation of the new form of value that each partner takes back to his or her own business model. Lets look at both of these roles a bit closer.
The first role of the transfer activity is to connect the desired assets with the value offer. There are two general approaches to set up this mode of transfer:
In this case your partnership depends on joint coordination and decision making a lot. An example of such a partnership is Nespresso and its machine manufacturers, like Krups and DeLonghi. Their collaboration depends on joint design of (new) machines, and setting up the appropriate marketing that fits both of their channels.
Access via specifically structured technology
Many information technology partnerships use rule-based transfer activities. Partners define the access that each can have to data, and other forms of IP through agreements on access permissions, and use. In a collaboration like Lyft and Didi in China you’ll see such a transfer activity. Lyft users can hail Didi taxis in China through use of the Lyft app. The transfer activity is an automatic transfer of the order from one system to the other.
When designing options for this transfer, it is important to also take a temporal consideration on the exchange of value. Will the transfer be a frequent, and recurring activity? Or is it more likely going to be a limited and short-term action?
These questions help point to a critical aspect of duration for the partnership. In the case of frequent, and recurring interaction, partners remain dependent on each other for value creation, like in the examples of Nespresso and Lyft above.
In the latter case of limited, or short-term collaboration, dependency expires due to gradual learning and other forms of value appropriation that takes place on both sides of the table. The Tesla-Toyota partnership is a good example here. This partnership expired when Tesla internalized the process of mass manufacturing for their Model S, which Toyota engineers helped them get started with, and Toyota engineers learned about Tesla’s battery technology.
The second role of the transfer activity is to create a new form of value, which can be inserted and activated in each partner’s business model. Taking the examples above again, the Nespresso transfer activity would create the offering of the Nespresso machine as part of the value proposition. Also, it helps create the content that will stream through the partners’ market channels. In the case of Lyft and Didi, the partnership gives Lyft an extension of their active geography to their existing users. For Didi it means a new channel, tapping into a new customer base of travelers coming from the US to China.
Conclusion What I see happen a lot is that partners define synergy, and then tend leave their partnership designs at that, assuming everything else will fall into place after. They neglect to define how they will actually grant each other access to each others resources, and how they will create the actual value that is needed to run their business models better. They’ll likely be confronted with the problem of deciding how to exchange value and differences in perspectives on that, very late, if not too late, in the game.
So, setting up a solid mode for transfer activity, and addressing this discussion early on in the design process is crucial. Take time in the dialogue with your partner to figure out the transfer activity, and make sure that you understand from each other how you will collaborate in your exchange of value.
Mowery, D., Oxley, J., and Silverman, B. (1996) “Strategic Alliances and Interfirm Knowledge Transfer”, Strategic Management Journal, Vol. 17 (Winter Special Issue), p. 77-91