When Opposites Attract

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From Uber and Google to Starbucks and Spotify, when it comes to strategic partnerships, these brands have built robust partner ecosystems.
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When English poetJohn Donnewrote his famous line "No man is an island" more than 400 years ago, he could have made the same observation about businesses. Collaborating with suppliers, customers, and other partners is critical to a business' success. This is particularly true today as customers demand better experiences, control, and options across industries. But companies can't innovate fast enough to meet those expectations by themselves. Strategic alliances are critical for delivering excellent customer experiences.

Some of the most effective business partnerships result in companies with complementary products and services that drive better customer experiences and business models. Savvy business leaders understand that there's strength in numbers and a wide range of companies are building robust partner ecosystems. However, not every partnership will be fruitful. Here are examples of strategic partnerships that allowed companies to drive greater innovation and business outcomes as well as mistakes to avoid.

Lead with the Customer Experience
Focusing on what customers need and how to improve their experience should be the first thing companies consider when weighing the value of a partnership, notes Narry Singh, managing director of digital strategy at AccentureStrategy. "Start with the user experience, then figure out who are the best partners to help you reach your goal," Singh says. "Step two is to figure out how to connect with your partner."

Cloud-based technology and application programming interfaces (APIs) have opened the door to data integrations that allow companies to add more convenience and speed to their shared products and services. It can be tempting to extend your company's exposure through as many partnerships as possible, but it's important to take a strategic approach, advises Scott Vaughan, CMO at marketing technology firm Integrate.

"There are a lot of companies like Salesforce and Oracle that have built huge ecosystems of partners, but you need to focus on the fundamentals," Vaughan says. "Find the right player or hub that is serving your target market or customer and ask questions like what programs do they want to showcase when the customer and your brands come together? What's the real value for the customer, and how will you communicate that value and make sure it pays off?"

Paul Hagen,senior principal of customer experience at West Monroe Partners, points to the Lyft Ecosystem, a program created by the ride-hailing company, as an example of an effective partnership for employees, customers, and partners.

The Lyft Ecosystem includes an agreement with Starbucks that gives Lyft customers incentives to earn perks through Starbucks' loyalty program. Lyft drivers can enroll in the reward program and earn loyalty points through the partnership as well. Passengers can also tip their drivers with Starbucks points, or "stars," from the Lyft app.

Additionally, Lyft formed partnerships with Shell and Hertz to help drivers get access to cars and pay for gas. The Lyft Ecosystem "worked because Lyft benefitted an entire ecosystem - employees, customers, and partners," Hagen says.

Strategic alliances are a competitive differentiator and numerous companies are ramping up with complementary products and services. Besides Lyft, Starbucks has a large network of partners including Spotify and The New York Times. Lyft's competitor, Uber, has a huge partnership program as well. The company has integration agreements with numerous partner companies including Google, Starbucks, United Airlines, and Hyatt Hotels.

Beware of Partnership Mismatches
Of course, not all alliances will be successful. The business landscape is littered with examples of partnerships that failed due to mismanagement, a lack of communication, poor design, and other reasons.

Indeed, some partnerships appear promising, but quickly fall apart. For instance, phone maker HTC's announcement that it was teaming up with Beats Electronics, a company that was founded by rapper Dr. Dre and Jimmy Iovine, chairman of Interscope Records, seemed like a logical match. Beats Electronics received backing from a major electronics company and HTC could show that it was working with a cutting-edge startup.

In 2011, HTC bought a majority stake in Beats for $300 million. As part of the agreement, HTC would incorporate Beats' headphones and audio technology into its own handsets. "With the magic of mobile devices, it is easier than ever to discover and buy new music," HTC CEO Peter Chou said in an interview with All Things D about the partnership. "However, without great sound experience, it is a shame."

However, both sides quickly became disillusioned with the deal. HTC's smartphone market share continued to decline despite its Beats partnership. In 2012, HTCscaled backits financial ties to Beats Electronics and sold off half of its majority stake in the company for $150 million. HTC finally cut off ties with the headphones vendor the following year when it sold back the remainder of its stake in the company.

HTC and Beats Electronics offered different explanations for the breakup. In a stock exchange filing, HTC indicated that it could now deliver superior audio in mobile phones with its own "HTC BoomSound" tech, suggesting that the company no longer needed Beats Electronics. Beats co-founder Jimmy Iovine attributed the fallout to a "culture clash" in a Re/Code interview after announcing that Beats Electronics had since been acquired by Apple.

While it's to be expected that some partnerships will fail, companies can reduce the chances of a mismatch by communicating early on about what is expected. "Firms need to work with their partners to agree on the experience and make sure the execution meets the expectations the partners create," Hagen says. Tools like customer experience ecosystem maps or service blueprints can make it easier to visualize the customer's actual experience and help manage the cross-partner processes and handoffs required, he adds.

Relevancy is Key
In addition to working closely with your partners on creating terms that everyone can agree with, it's important for companies to communicate the value of the partnership to their customers. General Motors, for instance, is being highly selective of the merchants it brings into AtYourService, a program that sends targeted offers to drivers through the OnStar mobile app RemoteLink, maintains Rick Ruskin, head of marketing and product management for online commerce at GM.

"The last thing we want customers to think is, here comes a useless ad," Ruskin says. "And so we're being careful to only allow brands with relevant offers to participate in AtYourService." Priceline, RetailMeNot, and Dunkin Donuts are currently participating in the service and more merchants are being added. "We're focused on six individual categories," Ruskin says. "Dining, retail, parking, hotels, fuel, and our own dealers."

Indeed, companies are hungry for insights about their customers which is fueling partnerships with startups and vendors that can help companies make sense of their data. "Companies want to know how they can build a 360-degree view of their customers with the data that they have," observes Guy Courtin, principal analyst and VP at Constellation Research. "And so we'll be seeing a lot more demand for data visualization and analytics tools."

At the same time, companies must be careful about the data they're sharing with partners and ensure that security measures are in place. Even when customer data is anonymized or scrambled, it is a tempting target for hackers looking for fraud victims. That's a lesson that T-Mobile learned after its partnership with data collector, Experian, resulted in the theft of 15 million T-Mobile customers' private information, including names, addresses, and birth dates. Experian revealedthat the encryption protecting social security numbers and IDs like drivers' license numbers may have been compromised as well.

However, concerns about security are unlikely to be an obstacle to new partnerships. "There's no doubt that security breaches will continue, but [partnerships] aren't going to slow down when a lot of information is already out there," Courtin notes. "Companies have to remember though that even if they think their systems are protected, they have to take their partners' data capabilities into consideration."

EXPERT OPINION
EXPERT OPINION