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7/14/2003
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Other Voices: 5 Steps To Successful Strategic Partnering

Independent software makers have built an entire partnership ecosystem that creates new opportunities and revenue streams. Here's what you need to know.

The ability to develop and nurture strategic partnerships can make the difference between success and failure in the technology industry. Just ask independent software vendors, a segment of the industry that earns more than 40% of its revenue through successful partnering. They've created an entire "ecosystem" of partners that opens new opportunities and revenue steams.

The pace of innovation is too fast for any one IT company to be all things to all customers. Last year alone, for example, the U.S. Patent Office awarded more than 16,000 patents to the top 10 global tech companies. Even a brief look at the industry's history reveals a graveyard of once-successful companies that failed to adapt fast enough. Despite its long record of success, IBM suffered a near-death experience in the early '90s. New leadership and a new strategy were instrumental in engineering IBM's turnaround, and so was the power of its alliances with more than 90,000 business partners.

Partnering offers a company the power to win with a world-class team. In baseball, winning teams know the value of fielding the best players at every position. A star player may win individual games, but it takes the power of the whole team to win a World Series. The same is true for an IT company that needs to compete every day. Working with your partners, you have the stamina and flexibility of an All-Star team. You can offer a broader range of IT solutions, maximize the value of your customer's investment, and help ensure market success.

How can you develop relationships with partners to increase your competitiveness and win in the marketplace? What have companies like yours done to create strategic partnerships that work? Here are five factors that lead to successful alliances:

• Make the strategic decision to partner at the highest executive level, and secure buy-in from all levels of employees, especially the folks who interact directly with customers. Lori Schafer, founder and CEO of Marketmax, decided partnering was the path to growth for her company, which sells software to large retailers, including Home Depot and Kohl's. She regularly attended trade shows and followed up with monthly personal phone calls to develop the partnerships that helped Marketmax accelerate revenue growth, generate industry awareness, and differentiate itself from competitors.

• To determine if a potential partnership is the right match, share your business strategy, understand each other's core competencies, and check synergy in goals, technology, and target markets. Don Doane, CEO of OpenDemand Systems, which sells rapid-performance-optimization software, has a litmus test for partnering. He finds that his company's successful partnerships create benefits for customers that neither partner can deliver alone. Together, the partners reach new markets and expand their revenue bases. At IBM, for example, we understood that building our own software applications was not our core competency. Small entrepreneurial software companies do a much better job. So we choose to work with independent software vendors that know how to create best-of-breed applications, and we provide middleware for the E-business infrastructure.

• Remember that an alliance is a formal business agreement, not just a handshake over lunch. Get a contract in writing to avoid misunderstanding, build in rigorous commitments on both sides, and have clear measurements for those commitments. Unfortunately, some would-be partners may view an alliance as a way to get sales leads, rather than as a joint effort to create new opportunities. Willie Williams, VP of sales and business development for OpenDemand Systems, says partners need to share both the risks and the rewards. So have specific requirements for resources, such as training and technical and marketing support. Also, have clear revenue targets and regular meetings to monitor progress.

• Be clear that you may still compete with a partner in some areas, while collaborating in others. IBM, for example, competes directly with Microsoft in some areas of the software business. But we also cooperate on new standards and make certain IBM products run on the Windows platform, as well as other platforms. Today you may be competing with someone you might partner with tomorrow. Your business strategy will determine when you partner and when you compete.

• The most common cause of failed alliances is neglect. Both partners need to put in the time and resources to make the relationship work. The recommended regular meetings help track results. In addition, to keep an alliance healthy and profitable, make an individual executive responsible for results and put an infrastructure in place to support joint business development and to deal with issues as they arise.

Having a formal process in place to renew or exit a partnership is valuable. Partnerships need to evolve with market conditions. But if both partners decide it makes sense to exit, a well-executed plan can save time, capital, and human resources. "If you're not seeing revenue within the first six months, then you're not getting traction, and it may be time for both parties to say goodbye," says Sandy DeFelice of Marketmax.

These five steps can help put the power of partnering to work for you. With the right partners, you can offer customers more choices, best-in-class technology, and world-class service, which are the best plays to execute when you want to compete and win in the technology industry today.

Buell Duncan is general manager of IBM developer relations, software.

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