Maximising the value of partnerships in a new market
Fewer than 1 in 10 companies systematically track the performance of trading partners. This creates substantial risk that partnerships are run in isolation of corporate objectives and with incomplete information. Not only can this lead to unforeseen surprises, but the opportunity cost of under-performing partnerships is substantial.
The challenge of performance measurement can be traced to several characteristics, including:
- the interdependence that makes benefits and costs difficult to track,
- the noncore position of trading partners within the corporate portfolio,
- a disconnect between companies and their own customer data.
A less objective, but no less persuasive, challenge originates from a fear of upsetting delicate relationship balances.
“Performance measurements empower business decison-making and collaboration."
Taking a more holistic view of performance enables companies to moderate and respond in a pragmatic and positive way. Without dismissing the relevance of such challenges, companies can assess the performance of alliances across financial, strategic, operational and relationship metrics.. Financial and strategic metrics, for example, show how the trading partner is performing and whether it is meeting agreed goals – but may not provide insight into what, if anything, isn’t going well. Operational and relationship metrics can help uncover the first signs of trouble and reveal the cause of problems. The weight placed on each metric will depend on the nature of the partnership and maturity of the opportunity. For instance, organisations entering the market for the first time may expect negative financial returns in the early stages and should give more weight to strategic goals, such as increasing market share.
We use scorecards to provide an objective framework which also socialises measurements and allows partners to vocalise issues – often a challenge in a hierarchical society such as China. The majority of trading partners work hard and invest heavily in driving performance, but will sometimes cite miscommunication and opacity in direction-setting as challenges to their operational task. The role of performance measurement is therefore a means for all parties to objectively and constructively share information that empowers business decision-making and collaboration.
At a time when finding ways to trade with China is increasingly important for European brands, managers could adopt a holistic approach. Systematically measuring the performance of their partnerships will ensure the maximum value is derived and management is able to take decisive action based on robust evidence when things go wrong. Experience has shown the effort pays off substantially.