Phoenix Pheathers

Creating Value from Innovation and the Role of Alliances

Innovation takes many forms.  We often focus on innovation as technological breakthroughs and indeed those are important to fuel corporate growth.  But there are other forms of innovation which can be just as powerful and just as disruptive to the status quo in creating strategic competitive advantage.  Innovation in operations, in business processes and in business models can have transformational benefit for the companies that successfully implement these new ways of doing business. 

Partnerships and alliances are among those transformational business model innovations.  Yes, partnerships are not hardly new, but there are always interesting ways in which to combine two entities to create innovation and new value. Think peanut butter and chocolate.   Innovation often springs up when you have differences in thinking, differences in business processes, differences in technology.  This implies that partnerships and alliances are a natural breeding ground for innovation.

 Differences often result in conflict and tension. This is true in alliances where conflict is resolved through mutual agreement and not through fiat.

Yet, it is a mistake to assume that all conflict is bad. It is an insightful alliance manager that understands that diversity is an opportunity to create value. When members of an alliance are invited to contribute their knowledge, their perspectives, their unique expertise, some amazing innovation can happen. 

The Starfish Alliance is and example of business model and business process innovation. Starfish is a consortium of five logistics suppliers and Rolls Royce.  Rolls Royce, jet engine division, took a radical approach to optimizing their global supply chain in 2003.  They sought to partner.  They invited their logistics suppliers to collaborate to increase value to the customer and to increase the value in their business relationship with not only Rolls but with each other.   This was radical in that these suppliers had been locked into the traditional vendor/supplier relationship, where by the vendor relentlessly pressures suppliers for greater price concessions. They had also become locked into very hostile competition with each other, each hoping to gain a bigger piece of the logistics pie. But this model had become a game of inches.  Pricing concessions could only yield incremental cost savings of a few percent a year.

What was needed was a different way of working together that would shift the focus of optimizing each silo of operation to optimizing the end result.  The Starfish Alliance was met with distrust at first.  A key operating principle for the alliance was that there was no limit to profit. In other words, Rolls was not in this to transfer margin from their partners’ balance sheet to theirs but to create greater profitability for everyone, even the customer. They began to see results in their collaboration by optimizing and automating their end to end business processes.  Customer delivery rose to 99% on time.  Costs were reduced 20% across the operations.  The value of the alliance became a competitive differentiator and other customers began to take interest in forming similar operating alliances.

The very premise of alliances is to create new value that could not be achieved independently.  In this sense alliances are a natural incubator for collaborative innovation. 

 

To learn more please join the December 10, 9:00 am Pacific  worldwide webcast:

Collaborative Innovation & Value Creation

Harnessing the diversity of alliances to create innovative value

 Register: http://www.acteva.com/booking.cfm?bevaid=193215

PhoenixCG guests can take advantage of the ASAP member pricing of $25 for this 1-1/2 hour instructional session.  The webinar will be recorded and will be made available to registrants. So no worries if you have a schedule conflict, you will be able to view the recording at your convenience.

 

 

 

Managing Communities and Ecosystems with Social Media

Findings from a Survey Conducted by Phoenix Consulting Group, June 2009

Social media is gaining presence within partner ecosystems. These are natural communities and naturally lend themselves to these media.  There has been a trend for some time by large vendor companies to position themselves as the hub in a vendor-centric partner ecosystem. Most have built partner directories on their websites so that customers may search and find partners that meet geographic and technical needs. Some have invested heavily to enable partners to find each other, to collaborate and to build more integrated solutions. Social media facilitates this trend. Where vendor companies once invested in proprietary software to create communities, companies may now leverage open social media networks. Public networks are still quite new to facilitating these activities, but there are an emerging host of enterprise social networking platforms that incorporate many aspects of the public networks or integrate with them.

 

Spontaneous communities are a good indicator of this natural affinity. There are, for example, several Microsoft partner groups on LinkedIn; these are not owned or sponsored by Microsoft.  They arose through the initiative of partners who wanted a place to exchange information and insights on how to work effectively with Microsoft.  Example: http://www.linkedin.com/groups?home=&gid=82575&trk=anet_ug_hml

“Breadcrumbing” was mentioned as a technique to tie these spontaneous and independent communities together. This technique entails leaving a trail of links or breadcrumbs back to the company site. Company employees might address a question or complaint and lead back to the company website by posting links where questions or concerns could be addressed in more detail.  Monitoring posts to these sites and proactively responding can be an effective means of fostering loyalty and keeping a pulse on partner sentiment.  While there are use cases for this activity among the consumer brands, only a few of the interviewees offered that they were proactively monitoring partner or public sentiment this consistently.

Partnerpedia  www.partnerpedia.com is a free social networking forum intended for partner recruitment, connection and collaboration.  It provides a mechanism to find new partners and to contact them for potential  collaboration.  Partnerpedia offers a private network option for sale that a vendor can adopt  to provide a social networking forum and community management platform  specific to their partner ecosystem.

 

Incorporating customers into the ecosystem is a powerful trend. Citrix pioneered the concept of a Community Verified network which has eclipsed their traditional partner certification program.  Alternatively to rigorous lab testing, products are subjected to the scrutiny of the user community.  Users vote or recommend whether these partner products are compatible. Released in October of 2008, the Community Verified community consists of 1,500 products supported by 9,000 verifications as opposed to 800 traditionally certified products. Furthermore, customers can reference the product reviews and they put more stock in the community verified products.

Citrix is on the leading edge of adoption of social media within their partner community. There is extensive use of public social media and extending to these communities strategic partner portals. For example, there are sub communities for Dell, HP, Intel, Microsoft, NetApp, Oracle and SAP. These strategic partner networks integrate many social networking links, RSS feeds for related product and company blogs, YouTube product demos and video tutorials and Twitter streams as well as featuring the community verified products of these partners.

It is clear that social media is becoming deeply integrated into these natural communities and becoming inseparable with the business processes in communicating and collaborating within these ecosystems. 

Contact the author normaw@phoenixcg.com for the full white paper of the research findings.

Social Media and Partnering

Social media hype is everywhere. We are deluged with it on-line. We see it on TV. Our kids are absorbed by Facebook. The  State department even requests that Twitter delays maintenance to ensure continuity in the information flow from civil unrest in Iran.

Even as we are coming to grips with Social media - socially, we are becoming aware of how this new media is infiltrating all aspects of human interaction.  As the Iran elections show and indeed in President Obama's campaign would indicate, social media has become a political media.  Businesses are now adopting these forums to manage and monitor customer relationships.  As a business that focuses on collaborative B2B relationships, PhoenixCG conducted an informal study by interviewing 20 partner management professionals to understand how partner managers are leveraging Web2.0 and social media in building partner relationships. 

We wanted to get beyond the basics of what's a tweet and how often do you tweet?  We wanted to understand how partner organizations were deriving business value from the use of social media. Most of the individuals we spoke to were in the technology sector. Though we did speak to two who were not - a control group if you will. These two were in the pharma sector. 

What did we learn?  While there is huge momentum and adoption, as a business tool, we still don't know all the ways in which social media can be used.  There are few proven practices on how to optimize and measure impact especially in enhancing business relationships. Yet many of those we interviewed are using these new tools for productive use if not clearly measurable use. It is fair to say that we are still in the early adoption phase, where the first entrants are engaged in a process of invention and creation in developing applications for these media. 

Only one of the respondents had developed a social media strategy and metrics for optimization and they had not yet deployed. The others, even those who characterized themselves as leading edge users, were at various stages of trying formalize their use of social media, making the transformation from experimental to strategic use. 

Since a single blog is not going to cover the ah-has of twenty interviews, we will be posting our findings, observations, and recommendations in a series of blogs.  If you would like to contact us directly for a copy of the white paper of our findings or a more in-depth discussion, please contact me at normaw@phoenixcg.com or info@phoenixcg.com. 

To learn more about Phoenix Consulting Group, www.phoenixcg.com

 

Two new, emerging best practices in alliance management

The ASAP 2009 State of Alliance Management Report looked at thirty-six commonly recognized best practices of alliance management and benchmarked them across the community of respondents representing 431 companies. This year the researchers looked a bit deeper into innovation alliances and identified two new emerging best practices. While innovation alliances were found to be more treacherous in terms of likelihood for success than other types of alliance, these two practices yielded up to 15% more sales for those companies that employed them.  How do these practices generate more productive value?

 

First, a practice termed Specialization.   It was found that “companies that have a large variety of alliance functions generate more sales from products that are both new to the market and new to the firm than companies that do not have such a variety.” In Specialization, it was assumed that by bringing together different functional perspectives, a broader set of skills were brought to focus on bringing innovation to market.

 

The second, called Hierarchy referred to a practice that “centralized decision making power with regard to alliances.” These companies also “generate more sales from products that are new to the firm than companies that do not centralize decision making.”  This applied to decisions affecting partner portfolios rather than day to day, operational decisions within a partnership.  By looking across a portfolio, alliance executives could make investment decisions that allocated resources to high value partnerships and to disinvest in lower value ones.  It also allowed a look across alliance valuation across multiple functions, business units, or product lines, creating greater synergy in optimizing alliance value.

 

We look forward to hearing more detail on these best practices as research continues.

The full report is available in the member’s library of the Association of Strategic Alliance Professionals. www.strategic-alliances.org

The ROI of Loyalty (Part II)

Part I  discussed how demographic segmentation allowed targeting programs, benefits, and attention to engender greater loyalty and business through their developers.  Part II addresses how segmentation by 'Loyalty' itself helps to identify and to address specific concerns of developers.    While net promoter score seems to be the popular rage, we used the Apostle model to segment loyalty. The Apostle model gives much information with respect to how loyalty affects behavior.

 

The Aposlte model maps the community into a four quadrant graph. One the horizontal dimension we map overall satisfaction.  On the vertical dimension, we map likelyhood of continuing to use the service.    This gives us interesting insight into behavior. 

 

Apostles: In the upper right quadrant, the magic quadrant as some would call it, are the Apostles.  Those who are very happy and very loyal. They are your evangelists.  In this study they value the community blogs, a good thing because it gives them a forum to spread their good will. You want to nuture this community and continue to give them the opportunity to spread the word and do your 'marketing' for you.

 

Mercenaries: In the lower right quadrant, were the mercenaries. These were developers who were satisfied but not very loyal. These respondents who fall in this corner, typically as the name implies, can be price sensitive and they can be rather fickle. 

 

Hostages:  The upper left quadrant maps the hostages. These are a most interesting segment. They are not happy but they feel they have no choice or feel trapped into the business relationship. Understanding the drivers of loyalty and satisfaction in this quadrant is key.  Hostages are very vulnerable to competitive alternatives when they see an opportunity to switch.  Their loyalty is often based on features they percieve to be extremely important and cannot be found anywhere else. These features may be competitive differentiators.  Ironically many of the hostages actually want the client to be successful. Addressing their grievances can quickly move this segment to the right into the Apostle quadrant.

 

Sniper:  The lower left quandrant is hostile territory.  Here be Snipers.  They are dissatisfied and they are dangerous because they tend to be vocal about their discontent.  Molify these guys quickly or help them exit your community gracefully. 

 

Managing loyalty is becoming even more critical in a virtual world where social media enables everyone to have a voice.  Understand loyalty drivers are critical to managing your on-line reputation and growing your business.

The ROI of Loyalty (Part I)

I was approached by a client some weeks ago to present at conference some work we did on Developer Loyalty.  Now there are a lot satisfaction type surveys out there, but my client presented a very specific challenge. She was new in the role as the Director of the Developer Community and needed to understand very quickly "Who are the developers?"  What do they care about?  What is their impact on the business? What  investments would most improve their productivity? and increase their usage of the company's service and thus increase ROI to the company?

 

At the outset we knew we had a very diverse community, we needed to segment that community and understand what made each segment unique.

 

Technical Segmentation:

We found an entire spectrum of technical skill: intrepid amateurs to industry experts.  We found a corresponding spectrum of commercial influence: one time implementors to serial implementors. This enabled the client to differentiate technical support and documentation for different segments.  Targeting the more sophisticated (and costly) benefits to the serial implementors who could best drive repeat business.

 

Geographic Segmentation:

Where developers were located did not correlate one to one to market penetration of commercial services. For example, not surprising India represented the third largest geography of developers, but the client had almost no commercial business there.

That finding prompted more specific developer marketing to India where there corporate marketing was not reaching a key community.   Additionally, a key growth trend was spotted in Australia which became a focal point for new market development.

 

Vertical Segmentation:

Another actionable learning was in identifying non-traditional vertical market segments that could represent opportunities for growth. Vertical segmentation revealed a large number of developers in the non-profits sector signaling a growing market for the client services. 

 

Beyond the straight forward segmentation that enabled better targeted benefits delivery, we also segmented by Loyalty Profiles, using the Apostle model.  This model provides much deeper insight into behavior and motivations than a Satisfaction Index or the popular Net Promoter Score.  More on that in  the next blog - Part II!. 

Alliance Strategy in Challenging Times: Rebalancing the Portfolio

Is it time to reevaluate your alliance investment?  Do you have the right partners to weather the economic climate?  Are you retaining the right partners to ensure you have a strategic advantage when the thaw comes?  

 Regular portfolio rebalancing is a best practice even in good times, but especially important now.  How do you know if you are wasting resources on a non-performer?  How do you rank the alliances that represent the best long term strategic bets if you can no longer afford to support all of them?  

 Well don’t go wading in with the loppers until you reassessed your alliance strategy.  In the best of worlds, you do this in concert with your corporate strategy to be sure that you align and that you appropriately invest in partnering.  Once you’ve identified which product lines are the most recession resilient, where the shifts in buyer behavior will occur and which customer problems cannot wait for an economic upturn, then you can align your alliance strategy accordingly. And consequently you will have better understanding what your portfolio should look like. 

 This is also a great opportunity to reopen a strategic discussion with your partners. How are they adapting to the economic situation?  Do they have insight into opportunities you may want to partner on?

 Most organizations have a few ‘zombie’ alliances, those alliances that you keep around because they’ve been a partner for years but no one can really articulate why the alliance continues to be strategic or whether the performance level makes the cut.  Take a hard look at these.  It may be time to put these to rest. On the other hand, if the working relationships are sound, these alliances are potential transformation targets. Rejuvenate them with a new strategic direction.  Given that it can take a new alliance 12-18 months to build the operational linkages and relationships required to deliver performance, these alliances could represent a significant advantage in time to results.  They may be a vehicle that just needs a destination.

 Also rethink what performance metrics will have the most impact on helping you manage through the next few quarters or years.  Don’t rely solely on revenue history. Remember buying behavior will change.  Past performance doesn’t guarantee future results.

 A cross portfolio evaluation will enable you to stack rank alliance performance against strategic importance so that you make clear and informed decisions given the changed dynamics of today’s economy. 

 

Alliance Strategy Realignment: Finding Opportunity in Economic Disruption

Have you rethought your alliance strategy in terms of what new opportunities lie ahead? Are you prepared to find the opportunity in disruption?  We can assume that business as usual is not going to work in today's volatile economic climate because business has become unusual. Yet, disruptive times are times of great opportunity for those who are alert in spotting them.

 

I recently dusted off a white paper written in 2004 which discussed the results of Cisco's alliance strategy during the dot.com implosion. By continuing to invest in alliances and realigning their strategy,  Cisco generated 12% growth in alliance revenue during a time of economic contraction.  In today's environment, they are realigning their alliances around technologies they believe will address shifting buyer behavior.  With businesses restricting travel to control costs, telepresence is a lower cost alternative to business travel and has stronger appeal now than in prosperous times.  

 

A colleague of mine works with partners who specialize in the financial sector. I erroneously assumed that his business cratered with the financial institutions.  I was wrong. Business is booming. Financial institutions are facing mergers, acquisitions, and consolidation. They are addressing compliance and regulatory issues that were overlooked, leading to this crises and looking ahead to new regulations and compliance issues that are likely to be legislated. My colleague is in a unique position to help solve the big problems these businesses are facing.

 

In the last downturn a marketing colleague shifted all marketing spending to co-marketing with partners  resulting in lead generation at half the costs. A bonus of this strategy was that cross marketing on partner house lists yielded much higher quality leads.

 

Follow the shifts in buying behavior. Spending might be reduced in a recession, but it also shifts.  Buying behavior changes.  Smart businesses realign their strategies to take advantage of those shifts.  In the last downturn, there was greater emphasis on cost saving technologies. Webinars replaced seminars. Companies that marketed those technologies, such as WebEx, did well even as many internet companies collapsed.

 

Solve the big problems created by disruption.  The financial sector is not the only industry facing restructure. Auto manufacturers, transportation companies, pharmaceuticals, and retailers are facing industry restructuring.  These are opportunities for those who can address those pain points and provide solutions. How can you realign your alliance strategy to focus on where companies will be compelled to spend to stay viable?

 

Share costs and opportunities.  Leverage partner marketing and combine forces to provide even stronger customer value.

 

Disruption creates opportunity and those who weather the economic climate successfully will be those who can adapt their strategy to take advantage of the changes ahead. 

 

Strategic Alliances - More now than ever

Strategic alliances are often viewed as a strategy for growth and perhaps not always a strategy for economically challenging times. But many of the reasons that make strategic alliances a good idea in good times make them an even better strategy for uncertain times. What are these reasons to partner?

Create greater value for customers.  With businesses and consumers becoming more careful with spending, products and services must provide compelling value and solve real problems.  Well crafted strategic alliances are built around customer needs and are differentiated from offers from the competitors. Cisco Systems maintained their investment in alliances during the economic downturn earlier in this decade and refocused those alliances to create differentiated go-to-market solutions for joint customers. They consequently saw an increase of 12% revenue in their alliance related revenues, while revenues across the company over the same period of time remained flat. 

Leverage new sources of innovation. Innovative new products or services that serve unmet customer needs create new sources of revenue often at lower costs and shared risks with your partner. Proctor and Gamble is an example of a company that was struggling in 2001 with a dearth of new products in the pipeline. They adopted an innovation strategy that sourced 50% of their new products from external sources. While the business press touted this as a break through innovation strategy, an alliance professional readily sees this as a partnering strategy as well.

 Shared risks and costs. This kind of leverage is critical when resources are dear. One small, startup decided during the last downturn, to leverage all their marketing efforts through partners, thus sharing the costs of marketing and sharing their prospect and lead lists to generate sales for both companies.

Harnessing economies of scale, reducing costs of production and distribution are also benefits of strategic alliances and also a great strategy to economize in uncertain times.  Recently, United Airlines was actively searching for a merger partner to help create these economies in reaction to rising fuel costs and industry restructuring. They courted Continental Airlines and US Airways, but ultimately decided to partner with both in order to gain many of the same benefits of a merger but to avoid the high costs of acquisition and integration.

A white paper describing the Cisco case study is available on the PhoenixCG website: http://www.phoenixcg.com/documents/recessionstrat.pdf

Coopetition - Sleeping with the Enemy

The April meeting of the Silicon Valley/Norcal Chapter of the Association of Strategic Alliance Professionals featured a panel discussion on Coopetition. It turns out to be as hard to pronounce as it is to do. The panel often struggled with every verb and noun form of it: Coopetive, co-opeting. It might have been humorous, but the topic is so difficult. How do companies partner with their arch competitors and why?

 The panel consisted of some old pros in the alliance area: an IBM Alliance VP for the Oracle Alliance, his counterpart, a VP of Alliances for Oracle charter with managing the relationship with IBM, an Alliance Director from PWC who worked co-opetively with both (hard to spell too).

 So why do they do it? In a word: Customers. Customers do not have pure play computing environments. They have products and services from multiple vendors and insist that they all work together. Ultimately, these fierce competitors realize they each have more to gain through collaboration than not. Not that it is easy. We asked how they did it?

 Four key reasons emerged:

1.  Focus on market segments or niches where they can differentiate themselves, where they have a unique value proposition for customers. The traditional partner math: 1 + 1 > 3.
2. Define clear rules of engagement. Where will they compete openly and where will they cooperate?
3. And most importantly communicate this clearly to both organizations, especially to field sales organizations.
4. Escalate conflicts and issues quickly before they can spin out of control and damage fragile relationships. In cooperative partnerships in particular, trust is hard gained and easily fractured.

While the Silicon Valley Chapter of ASAP as the name might imply is heavily technology, Coopetition is a growing trend in many industries and always an uncomfortable proposition but always driven by the promise of greater gains. One very large coopetive relationship exists between the US Postal Service and FedEx. FedEx provides air transport for much of the daily postal service as well as providing the overnight, priority mail service for the post office. Why would they do that? Well it is very lucrative business for FedEx and takes advantage of a very expensive asset, their air fleet. Conversely the Postal Service does not need to maintain an air fleet. And if you have a few grey hairs you may remember a time when the “check is in the mail” meant you might see it in a week or two.