Companies enter into international partnerships because of the potential benefits they offer.
For example, a strategic alliance with an international distributor might be sought to reduce transportation costs, or a joint venture with a local manufacturer might be used to enter a new market more rapidly.
Because of the expense and business risks of international trade, it is essential for companies to know whether their international business partners are providing the required benefits. In some cases, a partnership might actually cause more damage than it brings benefits.
Keep an eye on how your partners perform
To determine how successful their partnerships are, companies must be able to monitor and measure the performance of partners.
This is only possible if companies have a clear idea of the value the partner should be bringing to the partnership, which should have been specified during partnership negotiations.
For example, a company might have developed a partnership with a call center in a foreign market on the understanding that a specified number of customer calls would be handled every hour for a specified cost, or a partnership with a master franchisee might have required a set number of franchises to be set up in a target market within three years.
When establishing a partnership, companies must agree on what partners should achieve, define the performance criteria and develop a plan for measuring the criteria regularly.
Performance criteria can be qualitative or quantitative.
Crunching the numbers to quantify performance
Quantitative criteria are those indicators that involve measurements and numbers. Results for quantitative criteria can be shown numerically, for example by a graph showing levels of sales or time between deliveries.
Quantitative criteria for measuring partnership performance can include the following:
- Sales at established intervals
- Profits over time
- Reduction of marketing cycles over time
- Productivity increases or decreases over time
- Sales growth over time
- Percentage market share
- Returns on investment
- Levels of capital
Don’t forget the intangibles too
Qualitative criteria are also important to the assessment of a partnership. These criteria are ones that cannot be enumerated.
Measurement of qualitative criteria is often dependent on the opinion of the individual gathering the data because it relates to the quality or characteristics of something. Some examples of qualitative criteria include:
- Customer loyalty to a product
- A company’s strategic position
- A company’s relations with other businesses in a market
- The perceived level of product quality
- Product recognition
Set up a strong routine
When companies have agreed on criteria for monitoring a partner’s performance, they must establish a system for monitoring and measuring these criteria. This involves making a number of design decisions.
One of the most important decisions is the frequency of evaluation.
Because companies will be uncertain of how successful a partnership will be, new partnerships are usually assessed more frequently for the first few years, and then less often as time passes.
However, in times of rapidly changing circumstances, more regular evaluations might be instituted again.
Another important step is deciding who will perform the assessment. Evaluation might be carried out by a company manager, or it might require the participation of management teams representing the partners.
Special training might be required if staff are unfamiliar with evaluation procedures in complex organizations. For some criteria, such as financial figures or quality levels, outside companies might be needed to evaluate partner results.
The measurement design must also include a plan for communicating the results of assessments to key personnel. Measurement will be useless unless action can be taken based on the results.
What criteria are most important for you to assess with your business’s partnerships?