Alliance Relationship Building and Revenue Realisation

This short article (Reading Time Less Than 7 Minutes) explores the critical connection between Alliance Relationship Building and Revenue Realisation. I am indebted to @Bhavya Johar for reminding me of the critical analogy of the Farm from Dr Stephen Covey's Book The Seven Habits of Highly Effective People which I have used and adapted in this article.

If you asked 100 alliance managers in the High Tech sector 'What is the purpose of your alliances?' I am confident that you would get at least 95 responses saying 'To sell more of my company's products and or services'. The reason I am so confident is that I have spent the last 20 years asking that exact same question and that is the overwhelming response I receive!

So I think it's fair to say then that the outcome of alliances in the High Tech sector is not in question, it is to create value by generating sales of our own company's products or services with partners. However, the way to go about doing that is far from clear.

Alliance Best Practice Ltd (ABP) has spent the last 18 years analysing and benchmarking alliance relationships in a single minded (some would say anal!) focus on identifying 'What makes a commercially successful alliance?'

In that time we have discovered a deceptively simple observation, which is: - the better the relationship the better the results.

This seemingly simple and obvious statement needs a couple of important clarifications which are:

1. Better in this context means stronger, deeper, more meaningful, more loyal and a higher level of interaction and collaboration between both / all partners.
2. Results means net new alliance sales opportunities that the partner brings to you.

To achieve the above two aspirations ABP research conducted continuously over the last 18 years proves that the only consistent and cost effective way to achieve success is to focus on Alliance Relationship Building as well as Alliance Revenue Realisation.

This is where Stephen Covey's analogy of the Farm comes in!

Did you ever consider how ridiculous it would be to cram on a farm - to forget to plant in the spring , play all summer and then cram in the fall to bring in the harvest?

Now let's apply that analogy to alliances:

Did you ever consider how ridiculous it would be to cram in an alliance - to forget to nurture the relationship, ignore the partner and then ask for some orders to beat a quarterly deadline?

ABP can illustrate the connection between Relationship Building and Revenue Realisation very simply by conducting an Alliance Relationship Benchmark Assessment. The results gathered over the last 18 years clearly show that the higher the Relationship score the higher the amount of Revenue Realised.

This is where the implications of the approach begin to become evident.

For example to be able to build a better alliance relationship (ie more effective and more efficient) you need to know where you are starting from. Hence the need for a relationship benchmark report to begin the process.

Secondly it obviously takes time to build a world class relationship and during that time effort must be directed to the two essential aspects of alliances equally. That is Relationship Building and Revenue Realisation.

Our research shows very clearly that an undue focus on Revenue Generation in the short term has an adverse effect on Relationship Building in the longer term, leading to an inevitable decline in the quality of the relationship over time.

The result is a vicious circle of declining performance which can be articulated thus:

• You ask an alliance partner to buy more of your products and / or services at the end of a calendar quarter so that you (or your company) can meet its quarterly targets. Notice that the 'ask' doesn't satisfy any long term strategic objectives in the relationship, it simply serves a short term need (ie quarterly results). You are acting in a transactional manner and focusing on Revenue Realisation without investing anything in Relationship Building.
• Consequently, the partner looks for additional transactional benefits from the relationship (usually this is a reduction in price).
• This leads to a diminution of loyalty, trust and strategic intent. The partner views you opportunistically. (Hint: Act like a vendor and your partner will treat you like a vendor).
• This means he will use you when it suits him on key accounts but only at arms length. He certainly won’t invite you in to pitch to the customer jointly.
• The reduction in quality in the relationship leads to the need for a greater volume of opportunistic deals. In other words more deals are now required at lower margin to provide the same level of relationship value.
• This further drives transactional behaviour and makes the demands for price concessions even more strident.
• Which means that the margin goes down and even more transactional deals are required.
• And so on it goes until the partner is no longer a partner but rather a transactional customer or in some limited cases a channel to market. In either case no partner is going to support such an alliance relationship for long.

The ABP approach reverses this downward trend by focusing on relationship building as a necessary precursor to Revenue Realisation (you plant before you harvest!). A recent example might illustrate this better:

Partner A (a large data storage company) was unhappy with Partner B (a Global Systems Integrator) because although the relationship was called an alliance it was providing little or no additional value than a simple transactional relationship. The common complaint from Partner A was that Partner B treated them like vendors and demanded high levels of discount on Partner A's products and services.

Partner A approached ABP and asked us to help them ‘improve’ the relationship with Partner B by which they meant:

• Make it more Strategic,
• Increase the revenue generated
• Expand the scope of the relationship,
• Secure more senior executive support from Partner B.

ABP introduced both sides to the VST Alliance Relationship Optimisation Process which balances Relationship and Revenue Factors to create an alliance not just fit for the present but also fit for the future.

The result was as follows:

• Both parties agreed that improving the alliance relationship would provide increased revenue to both.
• ABP conducted an alliance relationship assessment which scored 55/100.
• Both sides identified relationship building factors which were missing including: joint business value propositions, senior executive support, common vision, trust, operational alignment.
• As a result both partners agreed to create an alliance ‘Vision’ including both Relationship Building and Revenue Realisation aspects.
• The vision was so attractive and compelling that Partner B committed to a fivefold increase in business with Partner A within 18 months to make it a reality. They did this because of the tenfold increase in revenue earning services the vision would deliver.
• As a result of that commitment Partner A provided Partner B with increased training and technical support for free.
• The relationship score increased within 90 days and as a result was expanded from the UK to Germany and then DACH and subsequently other EMEA countries
• Both side are now looking to conduct a similar VST exercise at a global level to include the USA.

The Implications of a Relationship Building Mentality

A relationship building approach to alliances has a number of important implications:

• Revenue is delivered by the relationship not the other way round.
• Relationship building takes time, energy, stamina and consistency of purpose; so it's useful to have some leading indicators which can be tracked to show progress on a quarterly basis such as: increase in the number of meetings between both parties, effort from both sides to develop joint solutions, an increased degree of active and valuable communication, trust sharing particularly when it comes to client or customer insights.
• As long as companies focus only on Revenue factors in their alliance relationships their alliance programmes will suffer.
• The vast majority of alliance or partner programmes have little if any relationship building aspects in them.
• To build an alliance relationship you must have a clear understanding and appreciation of what a business to business alliance is (and is not).
• Relationship and Revenue factors must both be addressed for long term sustainable alliance health.

ABP Recommendations

If you are an alliance or partnership executive responsible for indirect revenue from partners then ABP has a number of recommendations for you:

• Download the ABP Alliance Relationship Scoring Questionnaire from here: Alliance Relationship Scoring Questionnaire and answer the questions. It will take you less than 30 minutes and it will reveal both the strength of the relationship but also the balance between Relationship and Revenue factors. This in turn will give you areas to focus on to help build the relationship stronger.
• Ask you key alliance partners to fill in the same questionnaire. This will give you a 360 degree view of the strength of the relationship.
• Focus on a small number of Relationship factors in the alliance with the goal of improving them over the next 90 days.
• Review the Revenue implications of the Relationship focus after 90 days.
• Typically what you will see is an increase in communication between yourself and the chosen partners, an increase in the joint pipeline as you become more 'front of mind' with your partners and an increase in the Trust score as you focus on the relationship and not the result.
• Finally, talk to your partners about running a relationship building exercise in a controlled fashion using the other Relationship factors identified by ABP here: Alliance Common Success Factors

If you have any further questions on alliance relationship building please feel free to contact us at: info@alliancebestpractice.com