In our world of economic rationalisation is there really any room for something as warm and fuzzy as a true partnership? People talk about partnering, but doesn't that usually mean "our lawyers fought with their lawyers until we both didn't get what we wanted"? Is a contract to perform work a partnering relationship? Hardly.

In this article I want to explore what I think makes a true partnering relationship. But then I want to take it one step further - can you prove that a partnering relationship can deliver a real return on investment?

Caveats:

• My experience with client/vendor relationships has been through my many years of running a software development business. Although I would have thought the same rules apply to many types of relationships, we should probably limit the scope to relationships with services orientated companies such as software development, creatives, management consultancies, etc.

So what is a partnership?

Rather than create a list of attributes, let me try to paint a picture...

... the camera pans in from a view of the sun setting over a beautiful seaside vista. As the camera continues to pull back we see two people sitting at a table admiring the view. They are sipping drinks and chatting. Their conversation is relaxed and informal. Both obviously enjoy the company and take turns to both speak and listen. Their conversation ranges from current challenges to future visions. A future that they will achieve together by working together. The conversation covers difficult topics where one has failed to live up to their side of the bargain. These topics are not covered in terms of blame shifting, but as a pointer on where improvements must be made to ensure the relationship continues to improve. Ideas are discussed. Some are discarded, some are taken down to pursue. At the end of the meeting both sides shake hands and leave feeling happy and positive. The camera fades to black...

... and fades back to show a small room lit harshly with fluorescent light. On one side of a large table sits several people. Angry people. They have writing pads with several pens next to them. They stare across the table to the people on the other side. Arms crossed, they wait for the last person to arrive before the meeting can start. No one offers coffee. When the meeting gets under way the discussion immediately becomes a blame-storming session. There are accusations of failed promises. Threats of walkouts. Pressure is brought to bear. Each side has a list of negotiation points, and they track how many they 'win' during the meeting. As the meeting ends both sides raise wearily from the table and leave to begin the 'post game' session where they work out their next tactic and tally up the scoreboard of 'who won what'.

OK, can anyone pick the partnering example? Sure, this is very artificial. So for those of you that like lists, here they are:

Here is what I think defines a good partnering relationship:

• Mutual trust and respect
• Long-term commitment to each other
• Shared vision of what the partnership will achieve
• Open and honest communication
• Both parties seek Win-Win results in all engagements
• Close relationships at all seniority levels between the partners

Here is what I think are some 'partnership killers':

• Contract driven decision making
• Engagement models that force vendor selection based on limited criteria such as price
• Master/Servant attitude from either side of the relationship
• Short term attitude from either side ("Grab the cash and run")
• Rewarding only short term behaviour (specifically where this conflicts with long term goals)

The key point is that partnerships have a long term view, whereas lesser relationships tend to focus on short term gains for themselves.

Are partnerships always appropriate?

Partnering relationships are not always appropriate. If you only need to engage a vendor once every 4 years it doesn't make sense to try to build a partnering relationship. Obviously there needs to be a minimum commitment from the customer to use the vendor to make it worthwhile.

Alternatively, your procurement governance model may predicate that work has to be put to tender, with vendor selection based on a strict set of criteria. These models aim to ensure the cheapest price and avoid corruption in the procurement process. Although partnerships can still work under these types of regimes, there is little incentive for a vendor to pro actively identify win-win opportunities if they then have to compete for that win against their competitors. In addition, it is rare to see evaluation criteria that favours trusted partners over new players. Although it may appear like an uneven playing field, surely it is appropriate to favour proven partners who are known and trusted over unknowns? Later in the article I will attempt to prove this value in a quantitative way.

In other situations, it may be that only one side desires a partnering relationship. Unless both sides want to commit to the partnership, it will never succeed.

From my experience I would be surprised if any customer has partnering relationships with more than 25% of their vendors and vice versa.

What can a good partnership do for me?

Partnering has benefits for everyone involved. For the customer benefits include:

• Access to trusted resources that they could not justify as permanent employees (for instance to complete 'burst' work such as large projects)
• Access to trusted resources that are highly skilled, but also know their company intimately through long involvement
• Rapid response to critical problems as the partner skills can 'hit the ground running'
• A source of advice and vision from outside the customer that can give perspectives and experiences of other businesses
• The comfort of dealing with a company that is a known quantity that has proven themselves successful in the past in that customer's environment

For the vendor the benefits include:

• Less overhead required to win work
• More efficient use of resources and probably higher utilisation
• Low risk of payment difficulties or non-payment
• Low stress client that is nice to deal with
• Develop a good reference client that can help to win new clients
• Sense of satisfaction in being part of the success of a client's business

It is important to note that some of these characteristics can be present in relationships that are not partnerships. Many vendors have experienced staff that they promise to a customer for a project, and sometimes they even deliver on that promise! Where difficulties sometimes arise is that if the vendor does not have a long term vision they may either not deliver on that promise once the contract is signed, or pull their best people off that project when the next sale is nearing closure. Again, their motivations are short term since that is how they are being rewarded. In a partnering relationship discussions on staff have to be more honest and open since the customer will know themselves if they are not getting access to the appropriate staff.

In dollar terms it should also be obvious that the customer would expect a better financial deal when in a partnership, and the vendor should be happy to provide rate reductions due to their lower overheads and greater utilisation. Again, a win-win result that further reinforces the value to both sides.

Assessing the value of a good partnership

Let's take an example relationship and determine if there is an ROI.

The Ace Company intends to spend $600,000 per year on consulting work. They operate with a range of vendors - say 5 - with contracts awarded on price with some due diligence on other aspects such as quality. If the work is made up of 3 individual pieces of work each valued at $200,000 then 5 companies would need to invest approximately 10 days effort per project to understand the requirements and put forward a proposal. Since they will be successful only 1 time in 5 on average they will need to recover some of this cost and hence would need to include a budget of probably $25,000 to recover these expenses.

In addition, they will need to set up the project including allocating staff, organising a project room, setting up project requirements (hardware, processes, etc.). It would be reasonable to expect that this effort could easily run to $15,000.

Contract negotiations will also take time and cost at least $10,000 including time and legal fees.

All up, it would be reasonable to expect that the vendor will allocate $50,000 or 25% of the budget just to getting the project going.

In a partnering relationship, many of these costs would be slashed or eliminated. If a long term arrangement is in place then individual setup costs are defrayed over several projects. Let's say the $15,000 drops to $5,000. In addition, contract negotiations become much easier since umbrella agreements already in place can simply be brought into action. A saving of at least $5,000. In addition, a commitment of ongoing work from the customer can mean that the cost of responding to tenders is dramatically reduced. Another $15,000 saving. In all the $50,000 could drop to as little as $20,000.

Most importantly, I would expect the vendor to discount rates by around 10%, saving another $20,000.

So what happens to the $50,000 saving? It can either be retained by the customer for other projects, or used to fund additional work that further increases the competitiveness of the customer.

In this example there is a 25% difference in value - either returned as a saving or spent to achieve more outcomes.

This example does not even cover costs such as:

• customer time spent on vendor briefings
• administrative setup in financial systems
• negotiations on project standards
• costs of temporary hardware and software
• time and costs spent on due diligence of new vendors
• time and money lost on misunderstandings of processes, operating environments and requirements from a new vendor

To maintain a partnering relationship will have it's own costs. To set up the original agreement will take time. Spending time setting goals, managing vision and communicating will reduce some of the benefits listed above. On balance, I think it is reasonable to expect a value increase in the range of 10 to 15%.

Obviously this example is not a rigorous proof, but it does highlight that there are significant costs that can be defrayed or avoided through use of an ongoing partner.

Exclusive partnerships

I would never recommend a customer to enter into an exclusive partnerships or vice versa. Although these may seem like the pinnacle of strong relationships, I believe it inevitably leads to concerns of monopolistic behaviour, particularly by the vendor. No one likes to feel like they are 'over a barrel' and eventually these relationships turn sour.

Consolidation of vendors into a small set of preferred partners is a good mechanism to encourage competition but reduce the overhead for all involved. By rewarding those vendors that best sustain the partnership the customer can create an environment where all vendors are seeking to establish a partnership model as the benefits are self evident.

If they are so good, why don't they happen more often?

Partnerships need several factors to happen for them to work. Trust, honesty, good faith, work to do, work getting done. It is therefore easy to see how one or more of these factors can change over time and the partnership breaks down. I believe this is the reason why many attempts at partnership fade away over time.

In order to keep the partnership strong, you need good personal relationships between the two companies. In particular, you need strong relationships at several levels from management right through to the people that deal with each other on a day-to-day basis. By having relationships at many levels, the overall partnership is much more robust and capable of surviving in the long term.

In addition, people move on or change responsibilities. At these points the handover of responsibilities must include the handover of the relationship responsibilities. By ensuring that new staff are inducted into the partnership model and recognise the benefits that are inherit in the model, the partnership is continued and even enhanced.

Conclusions

I believe true partnering relationships deliver real value to all involved. By lowering overheads on both sides these cost savings can be used to strengthen both businesses. By lowering risk the customer can be more certain of achieving its goals. By creating a long term vision both parties are rewarded for ensuring the partnership is a success, not just meeting quarterly revenue targets.

In essence, I think partnerships are a mechanism to help align motivational factors to real business benefit. When any organisation is motivated to achieve the correct outcomes it will be more successful.

If you are on either side of the customer/vendor divide I encourage you to embrace the partnership model. Done right I think it can deliver real value to both businesses and even make coming to work just that much more rewarding.