How do I make a joint venture successful?
13 October 2011 -
As business proposals go, there’s more to joint ventures than making new friends. Much more. Sikander Shaukat of the Institute of Consulting sets out some best-practice logic
So, these joint venture (JV) things: why bother?
Well, there’re plenty of reasons to bother, as you put it. Joint ventures can be hugely beneficial to businesses, allowing them to do things they would never be able to do alone.
What’s the knack?
There’s more than one thing to consider! But a key starting point is to identify the key commercial drivers and strategies in each JV partner – as they probably differ. For example, one partner might base its business on being cheap, the other on being of very high standard. Given that these fundamental drivers will pervade every part of the business, it’s important to identify them early on in a JV – so you can ensure that the two partners’ approaches complement, rather than clash with, one another.
Anything else I need to know?
Plenty - JVs normally involve providing new or better products or services to customers. First, it’s important to understand the component parts of the product or service offered by each partner; you can even assess how the components could be amalgamated to create new products. There’s plenty of potential to create exciting new packages by mixing and matching elements from both partners.
Fantastic! So once I know what I’m offering, how do I deliver it?
It’s crucial that the JV partners agree a mutually acceptable operational structure and operating priorities. Differing operating priorities – for example, ‘produce as many products as fast as possible’ versus ‘always be ready to change the product’ – leads to numerous misunderstandings. The partners could both adopt the business processes of one partner or the other. But they are most likely to create a new structure that comprises elements of both. However it’s done, the partners must ensure that the arrangements are efficient, transparent and workable for everyone involved.
Okay, got it. So we’re ready to go!
Not quite. Take some time to properly and fully define the new business model – including your proposition to customers, structure and roles, income, costs and payments and all other key facets of your business. This business model will guide the legal and financial frameworks that will provide the formal structure of your JV.
I think I’m ready to strike a deal now. How do I go about it?
While compromise is usually necessary, make sure you don’t come away from negotiations feeling as if your firm has lost out in any way from the deal. Play fair, but recognise that now is the time to make sure the terms of the JV work well for you and your company: after you’ve signed up, it’s too late. However, do think beyond the financial gain and include in your thinking what your organisation will learn, what it will innovate, who it will reach, the new practices it will adopt and learn.
I’m with you – and I’m happy. What now?
Shake on it! Offer a firm hand. Even though deals are formally done with pen and paper a positive physical gesture is still hugely important. Let this bold handshake usher in the start of something great.
For further reading…
Check out the Harvard Business Review on Strategic Alliances, Harvard Business School Press
Sikander Shaukat is managing partner of Value Dynamics and Fellow of the Institute of Consulting (FIC). He is also a trustee and strategy adviser on a number of large charities. He is married with twin daughters and lives in London
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