by Brian Jordan — The tremendous business value of utilizing ‘partnerships’ to deliver services in the real estate industry is just beginning to be realized. As competition continues to grow, companies increasingly are driven to focus on their core competencies to remain competitive. As such, in order for the business concern as a whole to remain functional, it is necessary to partner with other companies to execute critical, yet non-core functions, such as real estate services. In addition, companies must continually improve their operations through innovation to succeed in delivering value to their customers. Yet, the perceived loss of operational control by the use of outsourced services can be seen as a barrier to success in driving innovations. As the Information Age gives way to the Innovation Age, a new era of outsourcing must also emerge to address this paradox. To be successful requires a solid partnership with critical vendors, a comprehensive plan, a sound implementation model and the ability to measure joint success relative to the plan.
Historically, the relationship between two companies has been defined by a customer and a designated service supplier, or vendor. This model — a conventional supplier relationship — is one in which the customer, or principal, unilaterally defines the deliverables that need to be provided by the vendor or agent, and the vendor mechanically delivers upon the specified needs. This approach rarely leads to service or product innovations, as it does not foster a collaborative environment, which is essential to the innovation process. The advancement of conventional supplier relationships is determined by the value created over time by a dependable and reliable partner. Once both partners have achieved a level of confidence in the relationship, they can advance from a standard, conventional partnership to a strategic partnership. One of the crucial differences here is that there is an evolution of the relationship to achieve trust, the progression that occurs when the vendor or supplier displays the aforementioned dependability and reliability. This, in turn, results in a spirit of cooperation, which creates the need for longer-term contracts. But while these contracts have higher margins, they also carry greater risks.
As displayed in the Partnership Continuum (next page), the next step is evolving a small subset of certain strategic partners to the level of an alliance partnership. Here, the partnership is defined by the alliance arrangement, wherein both parties adjoin their strategic capabilities and objectives. The services are a core competency of the supplier and both partners embrace risk. The comfort level that the customer achieves over time is the foundation that breaks down the barriers in forming and sustaining an alliance partnership. The relationship that forms becomes more risk-tolerant as the partners work together to improve performance. One of the primary aspects that differentiate an alliance partner from a strategic or conventional supplier is that, in an alliance partnership, success can only be achieved together.
A committed partner could be the type that has a very high impact rating, as well as a very low relative amount of effort required to complete any given project. When being rated on this scale, each company measures importance against the other’s ability to accomplish the task. This will allow either company to determine which tasks should be distributed where. It also creates space for a company to objectively assess the strengths and weaknesses of a potential partner. And, it allows for comparisons if more than one partner is being considered in any given area.
Achieving success in a conventional supplier relationship does not guarantee that elevating the relationship to a strategic partnership will result in success, a fact that can often dissuade companies from pursuing partnerships in the first place. But risk should be mitigated as opposed to avoided, since avoidance simply creates the situation where the greater risk — that of not pursuing the opportunity — is unconsciously embraced. The most basic risk mitigation is within the contract itself, in which clear terms are established to define when the partnership should be dissolved and by which method that should occur. The question of how to disentangle from the partnership when the businesses are so intertwined must also be addressed as part of an initial contract, before entering into the partnership.
Apart from basic contract terms, additional definition around expectations and objectives for the partnership can help to further mitigate risk. This is best done before the formation of the partnership, or in its very early stages. Often the greatest threat to the partnership is a lack of clear and on-going communications regarding the expectations of each partner, as well as providing honest feedback about whether expectations are being met. Performance indicators and key milestones are important tools in defining and managing expectations. Finally, the greater the amount of risk that is shared by the partners, the greater the chances that the partnership will succeed. The moment when a partner is just as concerned about their partner’s failure as their own signifies a breakthrough in the journey for a successful venture. At this juncture, the companies that have the potential to be both strategic, and perhaps even alliance, partners have been identified.
A management framework needs to be established between the two parties to achieve the strategic objectives. This is typi-cally referred to as the governance model. Governance mechanisms are tools that principals put in place to align incentives between themselves and agents and to monitor and collaborate with agents. Effective governance allows for successful prin-cipal/agent relationships, which create the foundation for successful partnerships; it’s also indispensable when trying to elevate the relationship to a higher level.
There are many areas within the governance model that should be examined, including Strategy, Knowledge Management, Organization and Program Management. Within these, the following factors should be considered:
- Within Strategy, the goal is to define the overarching charter and scope of the desired alliance partnership. This is, perhaps, the most critical element of the endeavor, as it will manage all parties’ expectations and understanding of what success will mean. The development of mutual strategic goals and objectives will be established by identifying the needs of each partner to achieve that success. Once the mutual objectives are identified each partner works autonomously in an environment born of trust, which allows each party to complete their tasks individually. From here, the partners can collaborate on more critical pieces, like constructing processes and executive decision making.
- Within the Knowledge Management field, information delivery and consolidation will have to be streamlined to ensure that a collaborative pool of knowledge was available to both parties involved. This includes technologies such as Wiki sites, where information can be easily stored and retrieved, as well as content management tools that allow both partners to store and view information, files, images, presentations, and more. This allows both parties to be privy to the same level of knowledge sharing and contribution.
- For the Organization, the partners need to identify key stakeholders, as well as when and how those stakeholders will receive important information. There also will need to be a change management plan developed to assist the organization with understanding the goals and objectives, as well as what they can expect to be different in the future.
- Finally, to establish a Program Management function, partners need to determine a governance structure within their organization so proper process management can be achieved jointly. Program Management involves ensuring the partner-ship is operating at its highest possible potential.
The era in which companies internally provide all the basic functions necessary for the business to operate and succeed is over. Increasingly, non-core functions are being outsourced, creating more partnership opportunities. Outsourced providers, in turn, are also creating virtual organizations by outsourcing non-core functions. These virtual corporate models are creating more competitive entities but hold the potential to create significantly more value if properly approached.
The confluence of all these relationships offers fertile ground upon which innovations can flourish. As displayed in the figure above, the innovation process involves the collaborative development of ideas. It requires that both parties contribute to idea generation, design, development, deployment and ongoing support of innovative ideas. If this process is properly addressed and executed, the potential for success will be enormous for all parties involved.
About the Author
Brian Jordan is the Director of Sprint Real Estate. A corporate real estate professional for more than 25 years, he is responsible for overseeing facility management for over 2,000-plus buildings with over 20 million square feet of space. Jordan is also the designated instructor for the Real Estate Technology Class for CoreNet Global’s Master of Corporate Real Estate (MCR) program.