In fast-changing markets, some companies are developing more flexible, adaptive strategic partnerships to leverage the resources and capabilities of both customers and suppliers.
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 as we know them, navigating between the risk of being exploited by an opportunistic partner and the risk of being trapped in the rigidities of vertical integration. These organizations have initiated multileveled relationships with customers and suppliers that leverage the resources and capabilities of the respective parties in an effort to create superior products and services.
What makes such partnerships — which I call adaptive strategic partnerships — counter-intuitive is that they are being formed in situations where the two most relevant streams of organizational economics would predict vertical integration.1 Moreover, managerial literature cautions against establishing customer-supplier agreements that, like those contemplated here, lack conditions of specifiability, verifiability and predictability.2
Bharti Airtel Ltd., a telecommunications services company based in New Delhi, India, is among a growing group of companies that have nevertheless elected to take a different path. Back in 2004, Bharti Airtel, currently the world’s third largest wireless telecom service provider, with more than 275 million subscribers in 20 countries, was struggling to keep up with the growth of India’s wireless telecom market while also competing for broadband and landline telephone customers. Increasingly, Bharti Airtel managers found that negotiating and updating contracts with vendors interfered with their ability to focus on satisfying customers and outsmarting the company’s competition. Contrary to what other telecom operators have done, Bharti Airtel negotiated unconventional relationships with some of its leading vendors, including Nokia Siemens Networks (now Nokia Solutions and Networks), Ericsson and IBM — vendors whose interests at times have collided with its own.
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.