Today’s business environment is unforgiving of companies that are slow to adapt. To extend their capabilities and facilitate change, many organizations have experimented with different types of strategic partnerships with suppliers and customers that help them design and deliver products and services efficiently. But some innovative companies are attempting to redefine the parameters of strategic partnerships through multileveled relationships with customers and suppliers that leverage the resources and capabilities of the respective parties. What makes such partnerships — which the author calls adaptive strategic partnerships — counterintuitive is that they are being used in situations where the two most relevant streams of organizational economics would argue for vertical integration.
One company that has pursued adaptive strategic partnerships is Bharti Airtel Ltd., the Indian telecommunications services company. Back in 2004, Bharti Airtel’s managers found that negotiating and updating contracts with vendors interfered with their ability to focus on satisfying the company’s customers and outsmarting its competition. Contrary to what other telecom operators have done, it negotiated unconventional relationships with some of its leading vendors, including Nokia Siemens Networks (now Nokia Solutions and Networks), Ericsson and IBM. Instead of expanding network infrastructure by purchasing increasing amounts of equipment (such as exchanges and cellular antennas), which often results in unused capacity, Bharti Airtel pays the vendors to operate the network; it compensates them based on telecom volume, paying only when equipment is in use. In addition to rethinking its approach to network capacity, vendors take responsibility for network performance and troubleshooting.
Typically, companies with outside partners rely on simple tools such as service-level agreements, which specify what is expected from each party and provide for performance standards to assess compliance. But in managing its partnerships with vendors, Bharti Airtel uses a joint governing structure that encourages people at different levels of the organizations to communicate and address problems as they arise (for example, restoring service after a severe storm). In some cases, such interactions have led the company and its partners to redraw the scope of their collaborations (for example, assign responsibility for building and maintaining the cell towers to a new company), something that would be more difficult to do in a more traditional partnership.
With flexible contracts, the companies can adapt to shifts in competitive environment and implementation challenges. The incentive system rewards vendors for efficient network management. By sharing information with its telecom equipment providers, Bharti Airtel and its partners are incentivized to develop processes that advance learning, innovation and mutual trust. Like Bharti Airtel, other companies are shifting the institutional framework on three dimensions: (1) incentives, (2) information, and (3) collaboration mechanisms. By managing across these dimensions, they are paving the way for the new level of collaboration.