Partnerships – what does this really mean?
The word partnership is used so casually in business that I am no longer sure of its meaning. Before starting to write this piece on partnerships I decided to look up the word partner. The google search resulted in the following, “Partner - A person who takes part in an undertaking with another or others, especially in a business or firm with shared risks and profits.” With this definition, a partner is not simply another organisation that you work with in the business pursuit but one that shares a mutual interest and is willing to share in the risk. Further, there is a sense that none of the parties would be willing to pursue the initiative on it its own but coming together allows complimentary resources to be pooled and risk to be shared.
Therefore, to qualify for partnership, the organisation should have:
1. A competency or resource that your organisation does not have
2. A shared interest in the outcome of the business pursuit
3. Willingness to share in the risk of the business pursuit
In the context of building a new business, it can be very tempting to start working with other organisations to share risk and gain new resources, however, partnerships also add a significant amount of complexity. Given the uncertainties in both the innovation as well the marketplace, it is essential to keep operations very simple and roles and responsibilities very clear. For example, if new resources or competencies are needed, perhaps it is better to enter into a service agreement with an organisation which then describes very clearly, their role in the business model. In fact, most partnerships are actually not partnerships at all but simply service providers at different parts of the value chain (e.g., supplier, manufacturer, distributer, etc.). In service agreements, your organisation pays another party for a specific resource or service. This organisation does not share risk nor need to have a shared interest in the outcome of your business activity.
In the case of social innovations within a corporate context, partnerships may be essential to be successful in the market place. Here two compelling examples:
- Market Credibility & Trust
- Overcoming First Mover Disadvantage
Market Credibility & Trust. The private sector, especially a multinational corporation, may not have the credibility nor trust in the marketplace to introduce an innovation to fulfil a social need because of It is profit seeking. For example, a food company that sells snack foods (e.g., containing high fat, salt, sugar) may not be credible in entering the space of selling nutritious food products to children. The food company may have assets such as high quality manufacturing, distribution, and marketing expertise which could allow for a higher chance of success than say an NGO with the same aim of improving childhood nutrition. However, this food company may not be credible because the other products it carries are not considered healthy. Also, its ultimate goal of making profits may bring skepticism to the health claims for the new nutritious products. Even though there is a strong argument that winning against malnutrition, over-nutrition, and diabetes means fundamentally changing what is available on grocery market shelves, the multinational companies that stock these shelves may not be seen as credible in driving this change. This is where partnerships with organisations that the public trusts with their health (e.g., government, WHO, NGOs) would be essential in pursuing innovations in nutrition. This partnership would exist to:
+ Fill a competence: Jointly build evidence to support any nutrition claims used
+ Share interest: Increase nutritious food offerings
+ Share risk: Make joint communications to share reputation risk
This is a true partnership because neither party could be successful in their shared interest without the partnership. The multinational corporation would not have the trust of the public and the public sector organisation would not have the knowhow nor infrastructure to deliver a nutritious food product to market.
Overcoming First Mover Disadvantage. Challenges in the social sector are often not technical challenges which is why they persist even if solutions are available in the marketplace. Examples include:
- Water filters for safe drinking water
- Clean cook stoves for safer cooking
- Bed nets to prevent malaria
- Micronutrient powders to prevent malnutrition
- Toilets and pit latrines to prevent cholera
The challenges that prevent these solutions from being widely adopted in the marketplace are multifold. They could be any combination of:
- Heavy investment required in behaviour change education
- Lack of consumer credit for affordability
- Missing players in the value chain (e.g., waste processors in sanitation, distribution partners to reach the last mile, policy makers to coordinate or level the playing field)
Solving for any or all of these as a part of market development for any new innovation could make for a very long return on investment period as well as could create a first mover’s disadvantage. A first mover’s disadvantage is when the value of your organisation’s investment in building the market for the social innovation cannot be fully captured. For example, your organisation spends many years and millions in investment to create a marketplace where consumers are aware and educated about safe drinking water. After this public good is created, competitors could enter the marketplace and start selling without incurring any of the cost of market development.
A financial instrument such as a social impact bond could be created to facilitate market development where the social impact and risk levels are both high. Actors could include:
Competitors could form a pre-competitive alliance to share equally in the payment of principle + interest if the market development goals are reached
Foundation interested in the social impact and willing to absorb the risk would finance the bond and who would receive principle + interest from the pre-competitive alliance if the market development goals are reached
Service providers would bid on the market development activities and whose activities would be financed by the bond
This would shield the pre-competitive alliance from the risk of investing in activities that do not yield in the market development goals desired which may then make the business case for the social innovation more attainable.
In this case, creating pre-competitive partnerships could reduce first mover disadvantage. This type of partnership could be with peer level competitors and/or governments and donors interested in the public good created. This partnership would exist to:
+ Pool resources: Jointly invest in market development
+ Share interest: Marketplace with aware and educated consumers/infrastructure for consumer credit/complete value chain
+ Share risk: Joint financial risk in developing a marketplace for future competitive sales
A shared purpose can bring a diverse set of actors into collaboration who normally would not consider working together. This is one of the unique and exciting characteristics of social innovation. A well-crafted partnership can be extremely powerful and potentially transformative for your social innovation and the world.