Digital Partnership Strategies Revealed

By Stijn Viaene

Going for partnerships as a strategic option for driving business growth implies adopting a certain mindset: a perspective you take on the relationship between you and other economic actors for creating and capturing value.

Strategic partnerships are not new, but their importance has grown immensely in the digital space. In 2017, McKinsey reported on interviewing 300 CEOs worldwide, across 37 sectors, about digital transformation. One striking observation was that more than 30% of them had cross-industry dynamics top of mind. Many worried that companies from other industries had a clearer insight into their customers than they did.¹

So, why not partner up? Digital partnerships are active collaborations between organisations aimed at capitalising on new digital opportunities.

The reality is that no one organisation possesses all the data, digital skills and capabilities to win over today’s demanding and dynamic digital customer. Competition has become a team sport in the digital age. Moreover, your innovation strength as an organisation is limited by your ability to combine your digital assets with those of others^.2

Digital innovation is essentially combinatorial in nature.³ Simply put: You bring your digital assets, I bring mine – and by combining them we can create great new value propositions and business models. Of course, it’s never that simple, but that’s basically the digital opportunity out there. In other words, what will be key for strategising about digital opportunities is going beyond the traditional analysis of knowing your customer and knowing your competition, to also getting to know your partners.

Partnership mindset

Going for partnerships as a strategic option for driving business growth implies adopting a certain mindset: a perspective you take on the relationship between you and other economic actors for creating and capturing value.

Today, all suppliers will claim that they are your business partners. The truth is that only some are “partner-able”. Ask them how future-proof they think your business model is, and how they can make a difference. You’d be surprised (or maybe not) on how many so-called partners even fail to articulate your business model.

Partnering requires a focus on the other and shared objectives. The basic business hypothesis is that you win together, and not just by yourself. Partnering implies thinking collaboration and cocreation, instead of just transacting. It implies aiming for long-term win-win scenarios, rather than short-term flings. Partners are willing to share the proceeds of winning. They also commit to sharing efforts and risks. That often implies a major commitment to change.

Strategising about digital partnerships benefits from using business ecosystems as a unit of analysis for strategic thinking. Legenvre and Herbet (2017),⁴ for example, provide a practical method for mapping and strategising across business ecosystems. The idea now is to look for competitive strategic options that involve “aligning a multilateral set of partners that need to interact in order for a focal⁵ value proposition to materialise”,⁶ such that their strengths and interactions determine joint prosperity and growth.

Four partnership strategies

There are at least four digital partnership strategies for you to consider. The first one takes a B2B (supply chain) stance. The other three represent a wider lens.

Supplier-partner

A first partnership strategy entails upgrading an existing supplier relationship. In this case, making the most out of this relationship requires a supplier to take a digital detour via its customer’s customer.

Think of an equipment parts supplier, whose relationship with its customer is under stress due to the availability of lower-cost alternatives. To tighten the relationship with its customer, the supplier can add sensors, connectivity and intelligence to its parts, making them smart and connected. This allows him to extend his customer value proposition with features like remote monitoring, control and upgrade. He can then intervene in preventive or predictive mode. Those are value-added services.

Now, here’s the real money-maker: Imagine all the things the supplier could learn about his customer’s customer from the data generated by his parts – in order to help his customer, of course. He may also be able to learn about the customer of his customer’s customer, or about that customer’s customer. In fact, with a fully digitalised supply chain, the supplier could go all the way down the chain and learn about the end customer. Moreover, in today’s increasingly smart and connected digital economy, there are almost certainly other digital pathways beyond the current supply chain for suppliers to get their hands on (big) data and interesting learnings about their customer’s customer.

Feeding these learnings back into the supplier-customer relationship, with a view to helping that customer grow and innovate, can pay significant partnership dividends. Your benefits as a supplier will come in the form of increased customer loyalty, upselling opportunities and protected margins. You will no longer be regarded as a mere supplier, but rather as a digital partner. This, in turn, may open the door for other digital partnership opportunities.

Clever customers will want to stimulate these digital supplier-partnerships as a means to compete. Both parties, however, will have to agree on governance of the relationship that works in favour of both, and doesn’t just benefit one.

Collaborative innovation partnership

A second partnership strategy involves two or more organisations bringing together complementary digital assets with the intent to collaboratively invent and commercialise new customer solutions.

Think of a non-technology company joining forces with a digital startup to bring something new to the market. In this scenario, the company isn’t merely funding the startup’s innovation. It is actively engaging by pooling ideas, data and other digital assets with a focus on a common customer. The terms of the deal need to make sense to both partners. Risks and rewards will have to be equitably shared.

Consulting companies (such as McKinsey, Accenture and KPMG) are looking for similar schemes to capitalise on new digital opportunities, not just for, but with their former consulting clients. They offer to collaborate in view of leveraging their partner’s digital assets for business model innovation. It is a way to help companies engaged in digital transformation monetise their data and other digital assets.

Several deals may be negotiated that go beyond traditional consulting and getting paid for supplying advice. They include, but are not limited to, royalty deals linked to the commercialisation of intellectual property and launching joint digital ventures.

In the spirit of partnership, the partners will want to organise their collaboration for the long term. That implies that they are willing to invest in managing their relation as a partnership and in systematising the required resource exchanges across their organisational boundaries.

Innovation component platform

A third strategy involves opening up a proprietary digital asset(s) as a building block(s) for easy reuse by a larger number of external innovators. The building block(s) is offered as a platform, which signals that the intent is to offer the component(s) in such a way that it provides a convenient, flexible and robust – trustworthy – foundation on top of which others can develop complementary innovations.

Think of a credit card company that makes available a proprietary credit rating service or an authentication service for practical reuse by external programmers – using application programming interfaces (APIs) packaged in an easy-to-use software development kit (SDK). These programmers can then efficiently integrate these services into, for example, mobile and social ecommerce offerings that they develop for their customers.

That’s exactly what U.S. bank Capital One is aiming for with its DevExchange portal.⁷ Alongside access to a selection of APIs (such as “bank account starter” and “identity proofing”), the portal offers several SDK capabilities that aim to make the life of the external developers as easy as possible. Its developer engagement features include self-service developer registration and instant API access, sandbox testing environments, documentation, code snippets, and reference applications with sample code.

However, a partner’s focus on the other requires the platform to go beyond offering the technical features to secure plug-and-play component reuse and convenient mashup with other component sources. To be an attractive partner, innovation component platforms also need to acquire enough domain knowledge about their external innovators’ intended business use of its components. For example, one would expect that its components by default comply with regulatory burdens that go with strategic use cases, or that it attracts complementary component providers who increase the platform’s value (and vice versa) in the innovators’ eyes.

By purposefully strategising to offer your selection of digital assets for external reuse in a convenient and versatile way, you can effectively become an innovation partner of choice in one or more business ecosystems of your choosing. Pay-per-use or subscription models are obvious monetisation options for your platform. However, more creative win-win value exchanges (involving money, goods, services, data and other intangible value) between parties are perfectly thinkable.

Partnership platform

A fourth way to exploit the digital partnership opportunity is by assuming the role of matchmaker for parties in search of digital partnerships. We speak about a partnership platform to signal that the intent is to offer a convenient, flexible and robust foundation on top of which others can develop digital partnerships.

In this scenario, you get rewarded for enabling digital partnerships – removing things like partner search costs, contracting costs, cocreation costs and other frictions that might stand in the way of creating effective partnerships. The actual services provided by the platform will depend on the type(s) of partnership it aims to enable and the extent to which it will facilitate relationships. For example, a partnership platform could be scoped to only support the search for digital partners in the context of venturing between corporates and startups to solve smart city mobility challenges. A smart city platform could as well be scoped to enable other types of partnership, possibly end-to-end, and possibly addressing more than mobility challenges.

B-Hive is an example of a European fintech⁸ platform that aims to bring together banks, insurers and market infrastructure players.⁹ Together, they work on common innovation challenges and build bridges to start/scaleup communities. B-Hive connects the dots in the fintech space in various ways; for example, by “putting Brussels on the map as the smart gateway to Europe,” by building bridges between the Eurozone and fintech hubs worldwide, and by organising players in “hives” centred around specific digital economy challenges (such as cybersecurity and API standardisation).

Interestingly, B-Hive’s founders created two complementary partnership platforms called “The Bridge” and “The Glue” – with their own business models. The former provides experience, skills and capabilities facilitating collaborative venturing between financial institutions and technology start/scaleups. The latter provides a software development platform that allows financial institutions to quickly create and deploy open banking APIs. In other words, The Glue enables financial services players to become digital innovation component platforms.

In addition to deciding where to play, partnership platforms have to address the four fundamental strategic decisions for any multisided platform:¹⁰ which partner sides to bring on board, which partnership features to offer, which interaction governance rules to specify, and how to design equitable value exchanges between all the partners.

Key challenges

Today, there are many digital partnership opportunities. Of course, there are also challenges.

For example, you have to learn how to use an ecosystem lens for strategising about digital partnerships. Plus, and most importantly, you need good visibility on your organisation’s digital assets in order to achieve any digital partnership ambition. In many organisations both preconditions for success are not obvious.

Arguably, the toughest challenge remains opening up to a partner. You have to feel comfortable with giving up some control. For example, you need to be fine with supplier-partners approaching your customers. These partners, however, do not report to you in the way employees or business units do. You can’t manage them in the same way. Successful partnering requires a serious dose of trust, which needs to be created and maintained.

Good partnership governance is crucial. However, it can be costly to design, agree on and maintain an interaction model that enables desirable partner behaviour and controls for unwanted action. The costs associated with bad (or non-) governance are most certainly higher, but may remain hidden for quite some time. Of course, effectively eliminating governance costs makes the business case for digital partnership platforms. These platforms will be constantly on the lookout for digital solutions (using blockchain,¹¹  for example) that reduce the costs of managing trust among partners.

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About the Author

Stijn Viaene is a full professor and partner at Vlerick Business School in Belgium. He is the director of the school’s Digital Transformation focus area. He is also a full professor in the Decision Sciences and Information Management department at KU Leuven University in Belgium.

References

1. Atluri, V., Dietz, M. and Henke, N. (2017). Competing in a world of sectors without borders. McKinsey Quarterly. July.

2. Viaene, S. (2017). A digital quick-start guide. Ivey Business Journal. September-October.

3. Brynjolfsson, E. and McAfee, A. (2014). The second machine age. Publisher: W.W. Norton & Company.

4. Legenvre, H. and Herbet, I. (2017). Mapping and strategising across business ecosystems. The European Business Review. March-April.

5. The concept of a focal customer is the equivalent of an end customer in a supply chain, and serves to orient and scope business ecosystem mapping and strategising.

6. Adner, R. (2016). Navigating the challenges of innovation ecosystems. MIT Sloan Management Review– Frontiers. August.

7. See: http://developer.capitalone.com

8. According to http://wikipedia.com, fintech, a portmanteau of “financial technology,” is used to describe new technology and innovation that aims to compete with traditional financial methods in the delivery of financial services.

9. See: http://b-hive.eu

10. Hagiu, A. (2014). Strategic decisions for multisided platforms. Harvard Business Review. Winter.

11. Blockchain is a database technology that uses a mathematical structure for storing data in a way that is nearly impossible to fake. It can be used for all kinds of valuable data. For more explanation, see: http://www.technologyreview.com/s/610833/explainer-what-is-a-blockchain/