This month, we are covering ‘Key Partnerships’, the eighth of the nine building blocks of the Business Model Generation developed by Alexander Osterwalder and Yves Pigneur. ‘Key Partnerships’ refers to the network of suppliers and partners that make your business model work. Companies typically create partnerships or alliances to strengthen their business model, reduce risk, or obtain resources. These key partnerships can be categorized in four different areas:
- Strategic alliances between non-competitors
- Strategic partnerships between competitors (referred to as coopetition)
- Joint ventures to develop new business
- Buyer-supplier relationships to assure reliable supplies
The motivations for creating these partnerships are:
- Optimization and economy of scale. This is the most basic form of partnership or buyer-supplier relationship which is designed to optimize the allocation of resources and activities. These partnerships often involve outsourcing or sharing of infrastructure. In most cases, it is not logical for a company to own all resources or perform every activity itself.
- Reduction of risk and uncertainty. Partnerships can help reduce risk in a competitive environment. Quite often competitors form strategic alliances in certain areas and compete in another. As an example, competitors could work together on a technological standard that they can all build from. Having a technological standard provides a framework for suppliers and customers to work with.
- Acquisition of particular resources and activities. Few companies own all the resources or perform all the activities described by their business models. Rather, they extend their own capabilities by relying on other firms to furnish particular resources or perform certain activities. There are many examples of this. Think of a foundry that melts metal and creates parts to be used in machines. Quite often they have all of the resources to melt the metal and form the parts, but they send the parts out to machine shops to finish the parts to the exact specification required for the finished goods.
What are the key partnerships in your business and how do you leverage them to build your brand, reduce risk, and increase profit? Here are a few questions to consider:
- Who are your key suppliers?
- Are they the best suppliers that you can be working with? How do they help you build your identity?
- How often do you communicate with them?
- Who are the key suppliers that your competitors use?
- Is there a way to build your brand, reduce your risk, or increase your profit by working more closely with your key suppliers?
- What companies do you have alliances with?
- How do the alliances increase you capacity?
- How do the alliances impact your identity in the marketplace?
- Do the alliances provide access to knowledge or resources that you don’t have otherwise?
It is wise to periodically review the key partnerships that you have in your business. Quite often it will help you to better understand these relationships and determine if they are the best for your business.