7/14/2023 0 Comments Joint venture companies![]() ![]() Inevitably, points of tension will emerge. Likely rotate in and out of leadership roles during the life of the relationship. Even more important, transparency encourages trust and collaboration among partners, which is especially important when you consider the number of executives across the organizations who will Transparency during negotiations is the only way to ensure that everyone understands the partners’ goals (whether their primary focus is on improving operations or launching a new strategy) and that everyone is using the same measures of success. This happens less often than you think because business-development teams and lawyers are typically charged with hammering out the terms of the deal-the objectives, scope, and governance structure-while the operations piece often gets sorted out after the fact. How can the partners combat it? The individuals expected to lead day-to-day operations of the partnership, whether business-unit executives or alliance managers, should be part of negotiations at the outset. ![]() For instance, the day-to-day operators end up receiving confusing guidance or conflicting priorities from partner organizations. By skipping this step, companies increase the stress and tension placed on the partnership and reduce the odds of its success. This is especially true in strategic alliances within an industry, where everyone assumes that because they are operating in the same sector they are already on the same page. Yet, in a rush to complete the deal, discussions about common goals often get overlooked. It seems obvious that partner companies would strive to find common ground from the start-particularly in the case of large joint ventures in which each side has a big financial stake, or in partnerships in which there are extreme differences in cultures, communications, and expectations. Focusing on these priorities can help partnerships thrive and create more value than they would otherwise. And they are willing to change things up if needed. They emphasize accountability within and across partner companies, and they use metrics to gauge success. Strong partners set a clear foundation for business relationships and nurture them. The reality is: successful partnerships don’t just happen. In our work helping executive teams set up and navigate complex partnerships, we have witnessed firsthand how these problems crop up, and we have observed the different ways companies deal with them. the main ones were: partners’ disagreements on the central objectives for the relationship, poor communication practices among partners, poor governance processes, and, when market or other circumstances change, partners’ inability to identify and quickly make the changes needed for the relationship to succeed (exhibit). A separate, follow-up survey in 2018 showed that 73 percent of participants expect their companies to increase the number of large partnerships they engage in. Sixty-eight percent said they expect their organizations to increase the number of joint ventures or large partnerships they participate in over the next five years. The last time we polled executives on their perceived risks for strategic partnerships, 1 Observations collected in McKinsey’s 2015 survey of more than 1,250 executives. Of course, the perennial problems associated with managing business partnerships don’t go away either-particularly as companies increasingly strike relationships with partners in different sectors and geographies. And the better companies get at managing individual relationships, the more likely it is that they will become “partners of choice” and able to build entire portfolios of practical and value-creating partnerships. The business environment becomes-for instance, as new technologies emerge or as innovation cycles get faster-the more such relationships make sense. Companies regularly seek partners with complementary capabilities to gain access to new markets and channels, share intellectual property or infrastructure, or reduce risk. ![]()
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