Highly Effective Partnership Strategies That Set Top-Performing Companies Apart

Strategic methodologies have evolved in response to the changing needs and dynamics of the market. Since the 1950s, businesses have started to focus elevating their strategies internally. This shift led to the widespread adoption of the SWOT analysis, which aims to align internal strengths and weaknesses with external opportunities and threats.

In the 1980s, Harvard Business School professors talked about the concept of "competitive advantage", followed by the concept of "disruptions" which became popular amongst businesses in the next decade. Today, there's talk of another big change in how businesses should operate. According to a study by the Harvard Business Review, it's suggested that companies should think about working together more closely. This means making partnerships to do well in today’s fast-moving business world, especially in markets where there's a lot of competition.

Another study by Outthinker Networks looked at 3,000 companies and found big differences in how well they did. Some companies did much better than others in terms of sales, growing their revenue, and increasing their overall value over five years. These included big names like NVIDIA compared to Intel, Microsoft compared to Oracle, Netflix compared to Paramount, Tesla compared to Ford, and Hibbett compared to Foot Locker.

The study aimed to see how working together with other companies helped these successful ones. The companies that did better tended to focus on a few key ideas:

1. Leveraging another brand's platform: Successful companies were more likely to expand their market reach through channel partners rather than relying solely on their own platforms. Digital connectivity has facilitated seamless collaboration with partners, blurring the lines between product providers and third-party channels. For example, the Harman Kardon speakers in BMW cars are not manufactured by the car company, and anyone who sits in the car can see the Harman Kardon branding of the speakers.

Today, products and services can be seamlessly intertwined that the origin of each component experienced by the customer is vague. Apple Pay, for example, is technically a gateway for customers to access the payment rails of Mastercard or Visa, but few customers realize this.

NVIDIA's collaboration with ARM Holdings, a British software design company, exemplifies this approach well. This partnership represents a mutually beneficial arrangement aimed at integrating NVIDIA's expertise in deep learning and AI with ARM's efficient processor designs. By leveraging ARM's extensive reach across various tech sectors like mobile computing and autonomous vehicles, where energy efficiency and mobility are crucial, NVIDIA gains access to broader markets and opportunities.

Similarly, companies can generate value by acting as platforms for others. For instance, Amazon developed Alexa to serve as a platform for other providers. The significance of serving as a platform grows as the value of data derived from digital customer interactions increases.

2. Partnering with multiple companies: Outperforming companies embraced partnerships with other companies, even those with significant competitive overlap, to complement their offerings and expand their market presence. This makes sense, as the same technologies that enable companies to integrate their products and services with channel partners also make it easier for them to coordinate with complementary products and services. Embracing such approaches can require changing how a company thinks of their competition.

For instance, Microsoft's choice to offer Office on Apple's iOS devices in 2014 was a prominent early indication of the company's shifting mindset. By integrating Office with iOS, Microsoft not only broadened its user base but also provided a more comprehensive solution for these users.

This collaboration with Apple, once viewed as a competitor, represented more than just a new product offering; it marked a pivotal shift in Microsoft's strategic approach, echoing the emerging trends identified in our analysis.

Bob Muglia, former president of Microsoft's Servers and Tools division, described this shift as a move from a "device-centric" to a "services-centric" mindset, a transformation that began around 2000. Satya Nadella, who succeeded Muglia and later became CEO, epitomized this new mindset. Nadella famously remarked, "In today’s era of digital transformation, every organization and every industry are potential partners."

Microsoft now enthusiastically embraces collaboration opportunities, even with partners that have competitive overlap, such as Adobe, Salesforce, and Google. The company's substantial investment in OpenAI exemplifies this mindset.

These strategic moves have generated significant value for Microsoft. Today, Office is the most widely used business productivity application, the company leads its rivals in the AI race, and there has been substantial growth in operating income and enterprise value. According to our analysis of Value Line data, Microsoft's revenue has grown by an average of 17.13% over the past five years, with enterprise value increasing from $726.36 billion to $2,253.45 billion over the same period

3. Transparency in strategy: Successful companies were more inclined to openly share their strategic intents and plans, recognizing the benefits of attracting partners and fostering trust among stakeholders.

This is because in today’s market, success more often comes from activating and coordinating dynamic ecosystems. Demonstrating a clear strategic direction attracts complementary partners, enabling powerful alliances to be built. A policy of transparency also fosters trust with not only collaborators, but customers, investors, and other stakeholders, who value open communication and transparent business practices. Revealing your strategy is more valuable when more stakeholders see benefit in joining.

4. Pursuing a collective win-win scenario: Outperforming companies prioritize strategies that benefit multiple stakeholders, such as suppliers, employees, communities, and governments, fostering trust and support from these groups.

When stakeholders see that your success supports theirs, they are more motivated to support you by aligning their strategy with yours, buying your products, and advocating for your company. Research by McKinsey & Company suggests that companies with a high rating for ESG (Environmental, social and governance) factors enjoy “faster growth and higher valuations than other players in their sector by a margin of  10-20% in each case.”

For instance, Mastercard's "Beyond Cash" initiative launched in 2012 epitomizes the ethos of promoting social and economic progress. This initiative marked a notable strategic pivot towards advancing socio-economic development. It originated from Mastercard's recognition that their greatest market opportunity didn't lie in competing with other payment companies, but rather in displacing cash. Former CEO Ajay Banga initially coined the term "kill cash" as a strategic imperative, later rebranding it to "a world beyond cash" to emphasize the broader societal advantages of reducing global dependence on physical currency.

The initiative laid the groundwork for a transformation that extends beyond mere service expansion, demonstrating a dedication to fostering a world where digital transactions are accessible to everyone, thereby reducing reliance on cash and the societal drawbacks associated with cash-based economies.

This approach holds particular significance for underbanked and unbanked populations, showcasing Mastercard's recognition of its influential role in leveraging its global network and technology to promote a sustainable and inclusive economic environment. By embracing this strategy, the company underscores the growing connection between corporate success and the ability to drive positive social change. Banga emphasized that this strategy is pivotal in mobilizing NGOs, governments, and other stakeholders globally to pursue the shared goal of digitally integrating the unbanked into financial services. This commitment also fostered increased engagement and pride among employees, likely contributing to Mastercard's stock price surge from $25 to roughly $350 per share during his tenure.

5. Adopting a "fast follower" strategy: Successful companies were more likely to observe market developments and let competitors test new ideas before entering the market themselves, allowing them to learn from others' mistakes and adopt more advanced technologies.

However, the dynamics are changing. With more accessible customer adoption data, declining brand loyalty, reduced switching costs, and faster product launch times, being the first mover yields fewer significant advantages. Instead, allowing others to test the market and technology, and being prepared to leapfrog them if and when the opportunity arises, may be a more effective strategy.

This approach allows for learning from the mistakes of others, enabling later entrants to benefit from these insights and avoid similar pitfalls. Being a fast follower also enables companies to adopt newer technologies that are advancing more rapidly than before, leading to improved and more cost-effective solutions.

As Columbia Business School professor Rita McGrath emphasizes, it's about recognizing "the strategic inflection points" where the cost of waiting surpasses the cost of acting to enter a market or adopt a technology. This involves balancing risks and opportunities based on market readiness, technological maturity, and organizational capacity.

Ferrari's decision to start making luxury SUVs shows how strategies can change. Ferrari used to say no to making SUVs, even though people were starting to want them more. But other companies, like Mercedes-Benz and Porsche, did the opposite. They started making luxury SUVs early, which helped them a lot, especially Porsche, which was having money problems. As things changed in the market, Ferrari changed its mind. They saw that there was a good chance to grow and make more types of cars by making luxury SUVs.

They also learned from what other companies did in the SUV market. In 2022, Ferrari finally made its first luxury SUV, the Purosangue. Waiting helped them learn from others and make a car that people would like. They also saw that there was already a lot of demand for luxury SUVs.

The initiative has been an outstanding success. Before even delivering a single Purosangue, Ferrari had to stop taking orders for it in 2022, due to the massive backlog. Its $400K SUV is sold out until 2026.

6. Take small steps to learn: Successful companies tend to try out new business ideas to learn from them. They use agile methods like "act, learn, build" instead of the old "prove-plan-execute" ways. By starting small and learning before making big decisions, businesses can make stronger plans.

There are a few reasons why this way of doing things is becoming popular. Technology makes it easier to collect and understand data quickly, so companies can learn from their actions and make changes faster. Also, markets are always changing, and it's hard to plan for the long term when customers keep changing their minds. The "act, learn, build" method lets companies react quickly to changes in the market and improve their products based on what customers say. Trying things out on a small scale also helps them manage risks better by finding problems early on.

Tesla's way of making batteries is a good example of this method. They built their $5 billion battery factory in Nevada in smaller parts, called "blocks," instead of waiting for the whole thing to be ready. Each block could start making batteries as soon as it was done, so Tesla started making money faster. This way of doing things not only made production faster but also let Tesla learn and improve with each block. By 2020, Tesla's factory was the biggest in the world, and they plan to make enough batteries for two million electric vehicles every year.

It's clear that companies need to adapt quickly to change. These six ways of leveraging partnerships in business show how successful companies are staying ahead in today's fast-paced market. Companies that can sense and use these new ways of doing things will do better than those who stick to the old methods.