Checking the health of your business partnerships


Here is an excerpt from an article from the McKinsey Quarterly, written by Ankur AgrawalKenneth 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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Formal business partnerships —whether structured as joint ventures (JVs) or a series of alliances—can help companies enter new markets, manage risk, and optimize costs. But as many executives know, even well-designed partnerships can be challenging to establish and maintain given inevitable changes in partners’ priorities, market dynamics, or ongoing operations.The partners in one healthcare alliance, for instance, were dutifully fulfilling the operational commitments they had agreed to, yet their joint initiatives were constantly falling behind schedule; and senior leaders of a chemicals joint venture put lots of time and attention toward improving the JV’s governance processes and operations, yet managers on both sides of the venture had to stave off employees’ declining morale and increased attrition. In both cases, the success factors associated with strong partnerships were in place, but the outcomes didn’t materialize as expected, which was confusing and frustrating for all involved (see sidebar, “The six building blocks of successful partnerships”).Like others in their shoes, the executives in these companies likely neglected a critical task—regularly monitoring the health and performance of their business relationships. Their actions mirror those of an individual who wants to get in shape and commits to following certain dietary restrictions and exercise routines but never schedules a visit with a doctor to assess how effective the changes have been.By contrast, leaders in high-performing ventures and alliances routinely perform a “partnership health check.” They review the goals and guiding frameworks for the partnership, conduct interviews with leaders, and measure performance against jointly defined health metrics. And they put all their business relationships through these paces, no matter how old, how new, or how geographically dispersed.In this article, we describe what such a health check looks like and how business leaders can use it to track the trajectory of critical business relationships, adjust them as necessary, and create more value from them.

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.

Ankur Agrawal is a partner in the New York office, where Eileen Kelly Rinaudo is a senior expert; and Kenneth Bonheure is a senior partner in the Singapore office.

The authors wish to thank Ruth De Backer for her contributions to this article.


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