Often a single business can’t do it all and has to look to others for help. A smaller company is usually strong in the skills critical to its mission but, to fully serve its customers’ needs, it might need to reach out to fill in with experts in other areas.
But it works the other way around too. Even large pharmaceuticals may rely on small companies to help fill their pipelines, linking up, in some cases, with as many as 500 partners. Or companies may simply be outsourcing in hopes of saving some money.
In all these cases the attention companies pay to deciding on with whom to partner with and build relationships will likely make the difference between success and failure. Alliances require ongoing care and management, and businesses that develop partnerships must assume responsibility not only for their own problems but for those of their partners.
Elizabeth Treher, president and cofounder of the Learning Key in Washington’s Crossing, has developed a process for creating and managing strategic relationships, which she shares in seminars and through a game she has developed called “Partnering Success: The Challenge.” Not all types of outsourcing are strategic, she explains. For example, when a company hires another to produce a single component on a one-time basis, the relationship is merely transactional. As you go up the continuum toward strategic relationships, says Treher, there is more trust and integration of assets.
Treher will speak on “Strategic Partnerships: Activities for Improving Alliances and Outsourcing Relationships” on Wednesday, April 9, at 9 a.m. at the Learning Key, 1093 General Washington Memorial Boulevard, Washington’s Crossing, Pennsylvania. Cost: $495. For more information visit www.thelearningkey.com.
Treher received all of her degrees from Washington University: a B.A. in chemistry in 1969, a master’s in nuclear and radio chemistry in 1972, and a Ph.D. in the same field in 1976. Between the last two degrees, she taught and created a chemistry curriculum at a private girl’s school, where she says she learned to say things in a simple way.
After leaving Los Alamos National Laboratory in 1983 she moved to Squibb Diagnostics, where she led a research team involved in the development of Cardiotec, a heart-imaging agent. But her commitment to teaching won out and she ended up starting what became Squibb College and eventually set up the Center for Science Education. She was able to provide internal courses where people could learn science as well as human skills like communication, teamwork, and leadership.
She started the Learning Key in 1990, designing training programs and learning services for global clients in technology-based industries. More recently the company has created many new learning tools and has been working with clinical organizations to help them make their learning and training more interactive. In 2006 it published “Strategic Partnering: A Five-Stage Process to Improve Strategic Alliances and Outsourcing Relationships,” which is available on the Learning Key website.
Treher’s father was a physician and researcher specializing in internal medicine and allergy. He was on the staff of Washington University School of Medicine and Barnes Hospital and was a founding member of the American Academy of Allergy. Her mother was the first editor of the journal “Cancer” and eventually became a foreign language teacher.
Treher warns that some companies are better at creating partnerships than others. “You may want to look back on your own skills and track records in working with external partners,” she says.
Before initiating any new relationship Treher urges companies to ask themselves the hard questions: What is our purpose in seeking help from the outside? What would be the appropriate type of relationship — outsourcing or a strategic partnership? Will this effort provide us with new opportunities? What are the benefits and risks? Are there benefits to not outsourcing and instead pursuing other alternatives?
A company also needs to look carefully at the skills and willingness of its own staff and how developing a new strategic relationship will affect it. Are senior managers committed and willing to accept potential risks? Who are your best communicators? Will people lose their jobs or will they instead have new opportunities for greater importance to the organization? Who are the managers who will have to support and shape the implementation? If they do not have the necessary skills, they may need help in developing them.
The company itself might have to make changes. Will it be necessary to change processes or organizational structure to make outsourcing effective? Will new standard operating procedures have to be developed, or information systems integrated or developed?
Once companies truly understand the risks of developing strategic partnerships and are ready to commit to one, Treher suggests five necessary steps:
Decide on projects to be outsourced, review potential partners, and make a selection. Once you decide on a project, name the internal team that will manage selection, contracting, and implementation and determine the scope of work: Which products, services, operations, or functions are you going to contract for and over what timeframe? Is this something you want to do on an interim basis because you are developing the capabilities yourself or do you expect it to extend far into the future?
What are the best practices — who are the people and companies known for doing this kind of work well? What are your success factors — how will you know things are going well or are off track? What are the performance metrics?
“Once you know these things, you can identify who might be potential partner organizations,” says Treher. Then you develop criteria for narrowing the field to a few candidates — for example, reputation, experience, previous relationships, compatibility in culture and philosophy, regulation experience, technology, location, and pricing. Once you have a short list, you need to develop request for proposal and nondisclosure agreements.
Once completed, identify the top candidates and invite them to make presentations to the core team.
Look first at a potential partner’s key executives: Do you think you will have sufficient rapport with them to work together? Is there enough good will to face problems together and resolve them? Where are your compatibilities, philosophically and culturally, and are your goals and values aligned? “This may not be important when you are looking at a transaction, like paying for product development or buying something,” says Treher, “but it becomes much more important as you go up the scale and have more strategic relationships.”
Next arrange for site visits and quality audits; find out about the company’s experience with projects of similar complexity; look at their technical competence, staffing strategies, communication and problem solving, safety, regulation, and quality assurance. In pharmaceuticals, look at compliance history with the Food and Drug Administration. Look at facilities. Explore potential intellectual property issues and who would own anything to be developed.
Conduct contract negotiations. Treher believes the boilerplate contracts legal departments often cough up are generally not the best approach. “They will give legal protection, but there must be some equal sharing in the partnership in structuring the agreement or contract,” she says. “People support what they help create.” The key to building a good contract, she says, is to use a process in which both parties have opportunities without maximizing their own gains at the expense of the other.
Research suggests that the source of many outsourcing problems is the way relationships are conceived and set up to begin with. “Companies in North America look more at the scope and technical parts of the contract than the relationship and communication parts,” she says. It is the relationship issues, though, that can be the game stoppers.
The parties should also work together on a well-defined process for controlling change. Common changes are adjustments to procedures, either to save money or to speed things up. These changes could be initiated either by the hiring party or the vendor. The partners need to agree up front on how to manage such changes, who must be consulted, and what kinds of approvals are required.
The contract must also define clearly the roles and responsibilities within the leadership of the two organizations. It must decide on the fee basis for the agreement and look at a cash flow analysis to decide how to best structure the payment schedule for each party.
What is often left out, at great risk to the success of the partnership, is documenting expectations around communication and the specific strategies or processes to be used: how to kick off the partnership, how often to have meetings, what mechanisms will be used to manage progress, and what critical factors will be used to decide a go/no go decision.
“My recommendation is that once the contract is in the review process,” says Treher, “you should include not only the responsible senior managers but those in both organizations who are going to do the project work. Commitments can be made and contracts signed for things that are impossible in the real world.” And the worker bees need to be present to do the reality check.
Plan the project launch. The launch is often an afterthought after so much effort has been expended on other issues. Treher says, “In the technology world, we are so interested in jumping in and doing, we don’t plan too well how we’re going to begin.” But insufficient attention to managing the launch, she continues, is the most cited cause for alliance failure.
Treher suggests that before any kickoff meeting two things must happen: Everyone who will be present should review the contract ahead of time and look at the parts related to their own involvement and commitments; and everyone should complete a questionnaire about their perceptions of expectations, goals, and missions.
At the kickoff meeting the earlier work will allow you to summarize issues around the contract and deal with them as a group, and it will highlight any areas of difference. These can be discussed to clarify and align goals and objectives as well as individual roles and expectations so everyone ends up on same page. At this meeting participants need to develop a working agreement that expresses norms for operations, communications, and response times expected for routine and crisis situations.
A host of things must be clear to everyone: key contacts for different parts of the project; where decision-making authority resides; whose standard operating procedure will be used; what process will be used to change members of the project team; and what success looks like across a host of possible measurements.
An approach must be specified for the timing of meetings and other communication. Will meetings be routine or follow special milestones? Treher stresses the importance of early communication.
Focus on streamlining the process. Though streamlining is usually the nuts and bolts of the relationship, people tend to focus on the tangibles of delivery, data, and output, Treher says. In addition to focusing on measurable outcomes and milestones, you want to also focus on the communication plan: is the communication appropriate? Are you meeting frequently enough? Is the process working or does it need to be improved?
“You need to conduct a reality check on how you are working together,” says Treher, “talking about and reconciling differences in approaches.”
Participants also need to look at differences between reality and expectations and ask critical questions: If there are deviations, what was the cause? Did anticipated risks actually happen? Was the mitigating plan for key risks successful? Are there new risks on the horizon and how should they be handled?
“You want to improve things as you go along,” explains Treher. “The goal as you move from a transactional to a strategic relationship is that you want better and better relationships and easier and easier communications.” Then if you do another project with the same partner, the upfront process will require much less time and cost.
Develop an effective way to share lessons across both organizations. “Many companies have a relatively good lessons-learned process — what worked, what didn’t, and how might we do it differently,” says Treher. “You need a way to leverage the learning from a particular piece that was outsourced so you don’t make the same mistakes again and to enhance other teams and projects in the future.”— Michele Alperin