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When partnerships go wrong

9 December 2011

Forming an alliance with another firm can be fraught with problems. Riz Aziz, director of built environment consultant Dina Proj-X shares a few pointers for success

One of the many changes construction professionals will have noticed in recent times has been the rapid increase in the number of organisational creating some form of partnership or alliance. It would be accurate to say no section of the construction industry is immune - contractors, developers, quantity surveyors, architects, housing associations etc. have all entered into partnerships of some kind. Key drivers and more importantly benefits have been well evidenced and include non-organic growth, low entry costs into new markets, knowledge transfer, minimising exposure to risk, efficiencies & external environmental forces to name but a few. Research indicates the majority of boardrooms consider reliance on partnerships to increase. The formation of a partnership enables the organisation to maintain or improve their position within the industry much more efficiently and effectively than either partner could manage alone. Collaboration strategy is now a form of competitive strategy.

More often than not, the construction professional can often identify with the reasons(s) for choice of partner - acquiring of expertise, shared organisational  objectives, strategic fit and geographical spread are perhaps some of the most well known reasons. However, when partnerships fail or less than anticipated outcomes are achieved, it is often not expected. Pointing the finger of blame is easy but to identify the reasons for failure poses a greater challenge. For those of us involved in partnership work at the coal face witness first hand of some the intricacies & difficulties associated with partnership work.

On a global level, research by Accenture indicates 50% of partnerships fail. Therefore partnerships are a high risk strategy with a 1 in 2 failure rate. Indeed, the most common cause for partnership failure is incorrect choice of partner(s). Failure does not occur overnight but over a period of time thus it can take many months or years to realise the incorrect choice of partner, by which time the damage has been done. The average life of organisational partnerships is seven years.

Contract forfeiture, loss of credibility and legal redress are perhaps some of the extreme consequences of failure but ever present. A far cry from the boardroom back-slapping euphoria when the partnership is created. More potently, partnership failure exposes management failings.

So is there a magic formulae for partnership success? The short answer is no but risk of failure can be minimised. What is evident is that boardrooms lack a complete understanding of the partnership process demonstrated by a misguided focus on outputs and  results rather than inputs and processes. When scrutinise prospective partners the main focus is usually upon tangible organisational  aspects such as CEO/boardroom compatibility, strength of brand, strong balance sheet and confirmed orders, which are wholly inappropriate. Recent corporate failures have taught us a set of audited accounts do not always portray the honest picture we want to see. What is often overlooked are organisational characteristics, which can be hard to define and are immeasurable. Characteristics typically defined as ‘soft elements’.

Firstly, the organisation needs to look at itself. Ask yourself, do you really know your organisation? How would one describe the rapport or chemistry between the boardroom, management and staff lower down the  structure? What are the company values? Could employees list these values? Would this list be same as a list compiled by the board of directors? What are the core beliefs and expectations employees have of their organisation? What are the values espoused by the CEO? How does senior management relate to their staff? Is behaviour towards staff indicative of the organisation's style? Do staff trust & admire senior management? The point is before an organisation can assess prospective partners they must possess the ability to assess themselves accurately. In other words, can management define their own culture? Culture clash is the most quoted reason for partnership failure. When embarking upon the process of negotiating with potential partners, are sufficient resources attached to probing  culture? When negotiating, is analysis of ‘culture compatibility’ undertaken? Are the philosophies and mindset concerning for example customer satisfaction, training, innovation or quality similar to your own organisation? Once the selection process is complete, are you able to build a cultural profile of all potential partners? Can the cultural divide be overcome or is it a bridge too far? Evidence has proven complementary cultures assist in overcoming operational difficulties, facilitates in conflict resolution and perhaps most importantly provides the potential for the organisation to link the benefits of the partnership into other corporate activities to derive maximum gain. A polarised culture adversely affects information flow, idea sharing & the inclination to assist one another. No two organisations possess identical cultures but true partnerships are based on trust and fair play. Cultural fit between partners will allow open, honest and frank communication.

Corporate partnerships like any other relationship needs to be managed to ensure aims & objectives of the partnership are achieved. The traditional approach to partnership management is to apply financial measurements such as the profit and loss account, sales turnover, market share and  year on growth data. Unfortunately such financial measures do not measure performance of the partnership as an entity but performance of the organisation and usually relied upon where there is an absent of a system to monitor partnership performance. The limitation of such financial measures is that they do not inform the decision maker the exact contribution, which can be attributed to the partnership. Moreover, such annual financial measures do not facilitate on-going adjustment or tweaks to the partnership strategy - annual accounts & figures are just a snap shot of the business at a given time. Managing a partnership is not dissimilar to managing staff & must be viewed as an operational task. A good manager of staff will benefit from good team morale, minimal conflict, excellent performance and  so on. Speak to your HR manager who will be able to outline the advantages of continuous staff appraisal rather compared to the annual staff appraisal. If a member of staff is performing below expectations would you wait until the annual appraisal to remedy the situation? Similarly, corporate partnerships need continual evaluation and monitoring. Viewed in this context, it becomes obvious why standard financial measures are inappropriate to judge partnership success or failure.

Make no mistake, performance measurement of a partnership in an arduous task thus of vital importance performance metrics are agreed in the boardroom during the negotiation process and should not be limited to financial measures. Consider measures to incorporate perspectives around for example business development, service delivery and staff satisfaction to ensure a more balanced approach. If both organisations are like minded and  culturally alike, reliability of chosen metrics will increase resulting in greater control plus reduced potential for conflict and premature exit. Moreover, research has proved reliable metrics improve organisational learning.

Partnership working is often a difficult and complex area. If time, consideration and  resources are concentrated at the beginning of the process, maximum benefits will be gained at the end of the process. Partnership working offers too many advantages to be ruined by mismanagement.

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