Here is an excerpt from an article from the McKinsey Quarterly, written by Ankur Agrawal, Kenneth Bonheure, and Eileen Kelly Rinaudo, published by McKinsey & Company. To read the complete article, check out others, learn more about the firm, and sign up for email alerts, please click here.
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Health checks and balances
It may seem obvious to partner companies that they should regularly monitor the progress of their ventures and alliances. But knowing and doing are two separate things, and often it takes time and intentional effort for partner companies to get on the same page.
When a high-tech company and a consumer company were negotiating the terms of their partnership, for example, leaders in both companies realized they were using similar language but in different ways. The high-tech firm’s definition of a “priority decision” was focused on speed, or the ability to make a key decision within a certain time frame. Conversely, the consumer company’s definition of a “priority decision” was focused on process, or the ability to get senior partners to agree on a course of action. This mismatch in terminology accounted for several misunderstandings within the partnership early on.
It is important to establish a clear set of health-check protocols from the outset of the relationship—during negotiations if possible. Specifically, the partner companies should outline the processes and tools (and, yes, even the language) they will use to assess the business relationship. The earlier this occurs, the more likely it is the partners will adhere to consistent, periodic reevaluations.
Ideally, the health check should be conducted at predetermined times—typically annually. The review process is often coordinated by the manager of the alliance or JV, with support from important stakeholders within each partner organization. The results are typically shared with the partnership’s steering committee or JV board as well. Some partnerships will even tap a trusted adviser or former board member to lead the health-check process to gain an outside perspective; this approach can be particularly effective when the partner companies have tried and failed multiple times to identify root causes of poor performance or missed milestones.
Early is better, but it is never too late to establish a health-check process. Some partnerships will not even realize they need a health-check process until well into the tenure of the relationship—typically when the partnership hits a speed bump. The partner companies in one established automotive venture, for instance, were stymied by the partnership’s inability to reach its targets. What the partner companies could not see was that teams were becoming frustrated by the venture’s project-approval process: they would get the green light on an initiative only to discover a few days later that requirements had changed, so it was back to the drawing board. It seemed to these managers that the partnership’s priorities were constantly shifting. All the delays and rework on projects prompted many to leave the venture.
It was only after launching a partnership health check that the automotive venture discovered the issues with the approval process and took steps to address them, ensuring that everyone knew the timing of go and no-go decisions. Once the health-check process was established, senior leaders on both sides of the business relationship were able to use it to ensure that the approval refinements were working. Indeed, regular partnership checkups can have a lasting cultural benefit: they can help reduce fear of change among employees and encourage them to consider and experiment with frequent, small adjustments to the partnership as needed.
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Here is a direct link to the complete article.
The authors wish to thank Ruth De Backer for her contributions to this article.