Philippa Lamb: The nature of organisations across the globe is changing as they become less insular and form new relationships. They operate in a changing environment and they need to be more networked and more agile.
As part of this strategic business partnerships are on the rise and HR’s role in them is critical, so critical in fact we’re going to be looking at this issue across two podcasts, this one and February’s. In February’s edition we’ll be getting the inside track on how business partnerships work at Rolls Royce and at Shell and we’ll explore HR’s role in the success of those partnerships.
Today we’re going to look at different partnership models and the key issues to think about before you enter into one. For this I talked to Paul Sparrow, he’s Director of the Centre of Performance-led HR and Professor of International Human Resource Management at Lancaster University Management School.
Business partnerships come in a wide range of guises from outsourcing, joint ventures, multi-agency responses, through to social partnerships among many others but why are we seeing so many more of them?
Paul Sparrow: You actually have very, very complex business arrangements where suppliers might actually have financial stake in the contracts that are being sold and you have to have these sorts of complex arrangements because no one organisation can have all of the technologies, you have to rely on and work with organisations that have got complementary capabilities.
PL: This has been true in private sector contexts for some time now but they're on the rise in the public sector too, particularly across healthcare and social services.
PS: The public might look at that and actually assume that you would have a single coherent delivery of service. Does it really matter if some of it is being done by an NHS Trust or some of it is being done by social services? So the other thing that's happened is that consumers have become more sophisticated and they actually therefore need and expect higher capabilities in the services that are offered and they expect those services to be joined up.
PL: The fact is that although the number of corporate alliances increases by some 25% a year the failure rate sits somewhere around the 60% to 70% mark. It’s a serious mismatch where huge investment leads, in many cases, to great losses.
PS: So we know that some of the more traditional arrangements, certainly joint ventures that these actually are very difficult to always make work. I think there are some sectors where they have operated around this energy and I can give you a classic example there are such long-term commitments they have to work. But there are many other sectors where that's not the case and so we know from previous research that there are high failure rates in those arrangements. We’re now looking at very, very complex arrangements and in much more politically difficult situations – public sector context is a case in point and a challenge of integration is just even more complex and behind a lot of these initiatives there are expectations, for example, about productivity gains and so on. So again although it’s different to the private sector you’re in an environment where if you don’t get this right you will not be able to deliver very stringent productivity requirements that actually face public sector delivery. So we have to know, we have to learn how to get this right and we haven’t got the time, I think, to experiment too much.
PL: In Paul’s research he identified three key partnership models: so it’s competitive…
PL: …where you’re essentially coming to terms with someone who previously, effectively was a competitor.
PL: …which would be?
PS: That might be something where essentially the two partners have got capabilities which if they are brought together creates an additional capability. So neither partner would be able to actually move into this business model without actually working with someone who has got some other capabilities that can be joined with theirs to create an additional capability.
PL: Okay. And the third one cooperative?
PS: Cooperative and that's really where essentially there may be gains to the collaboration with you actually working in a more partnered arrangement but in some senses a bit more voluntary. So the police forces would be a good example of that. Historically there were attempts to think about merging different police forces and that proved to be very difficult. But the residual requirement was then one of saying however we can still see that if we work together on a voluntary basis and we think about alliances across police forces or across services that might sit behind it, forensic or armed service response, or whatever, we can cooperate but by cooperating both of us will actually either deliver better service or we will be able to improve productivity and make cost savings to apply to new services that we know we have to deliver.
PL: Would it be fair to say that one of the fundamental dangers is that HRs, quite understandably would tend to think about, or think in terms of each organisation rather than the needs and objectives of the partnership as a whole?
PL: It’s a very hard thing to do isn’t it to have this overarching strategy?
PS: It is but to be fair to HR it’s not only the HR function that actually has that kind of parochial view, so do most of the managerial team. And again this is one of the differences because with many previous arrangements you could work in a joint venture and you have your needs and requirements and so on. The challenge now is that increasingly for this collaboration to work someone, or functions somewhere in the organisation have to manage on behalf of the whole network and if you think of you or I as an end customer of these we would expect that.
PL: We assume this takes place but of course it might not. So you might have a collaboration which actually requires or creates new capabilities, that's the whole point of having the collaboration. And you might bring to this collaboration your own particular skills and expertise and whatever but there is a need for you to also think about and someone to take responsibility for the whole network. Has the whole network got the capability to actually really understand this, to really deliver this? How much of your world must your partners understand and what skills must they have to be able to do what they must do inside their company to work with you, and so on. But this requires a very different way of thinking.
PS: One of the common points of tension in business partnerships occurs when one organisation clearly benefits more than the other.
PL: Some organisations are better at doing this, they have just learned how to do it. They set up the structures so they learn how to operate the collaboration. But also in many of these collaborations there are really quite asymmetric levels of power, one partner can actually have a very significant role and importance and yet they are having to learn even though we’ve got high levels of power in this relationship we have to actually share and give.
PS: Yes now that's interesting isn’t it…
PL: And that's the difference.
PS: …because before we’ve been talking really on the assumption that it’s equal partners joint together but it often won't be that will it?
PL: It may not be absolutely because in fact either because there may be a dominant home service, so for example the NHS and Trusts and so on these are huge entities and they might be in some of their service delivery collaborating with voluntary service organisation.
PL: Minnows by comparison?
PS: Yes absolutely.
PL: And yet key.
PS: And yet key.
PL: Paul’s research identifies three overarching themes that affect the outcome of these partnering arrangements. The first is managing risk and capability. These are risks to do with culture and control systems, risk associated with the environment you’re working in and also risk that could stem from one or other of the allied organisations.
PS: Most importantly, and often not thought about, there are risks about the interface. Now you think of most of the scandals that we’ve had, for example, in the public sector or whatever, invariably it comes down to the people who sit between various parts of the organisation and it’s really to do with the fact that well, actually the people at that workface didn’t understand or didn’t have insight, or didn’t share certain information and so on. So there are often also what are basically called interface risks. Now what this is saying to HR of course is that there is actually an important organisation design, an organisation effectiveness agenda here because we can diagnose this. You can look at your collaboration and you can look at the areas where the organisations join together, you can look at the skill groups that suddenly become much more important to your organisation. You can look at the job design of those skill groups, and so on. So you can mitigate these risks or you can actually put in strategies to make sure that the risks have really been minimised.
PL: The second factor is governance. The model that you choose, be it competitive, complementary or cooperative sets the tone for everything that comes later.
PS: All of the HR issues flow from this starting point. It will condition how easy or not it is to actually make the collaborations work.
PL: So the contract that's written in advance of the partnership is vitally important.
PS: The way in which you design and write a contract will shape the behaviour of your partner. And everyone always knows that you really judge the quality of these collaborations when the accident happens or when the crisis hits.
PS: That's when you suddenly realise and what you don’t want is every one going back and looking at the contract and saying, “Well it’s your responsibility it’s not mine,” and so on. And so we have learned how you need to construct and almost express contractual arrangements to shape the behaviour of your partners so that they behave in a way which is mutually beneficial.
PL: Finally there's the learning and knowledge sharing beyond the immediate organisation which can make the difference between success and failure and that is all about building capability.
PS: First of all HR can help the organisation build its own internal capability to work well in these environments. Many of these collaborations require very important injections of knowledge to the managerial teams. What’s becoming increasingly evident, people now talk about supply chain HR, if in fact I have now become much more closely wedded with my supply chain it’s in my interests in many instances to build the capability of my suppliers and I need to ensure either that they are doing this or I need to facilitate this or maybe we put our own injections of skill into that process. So what is also now becoming evident is that organisations are realising it is in our mutual interest for us to ensure that we have got key capabilities across the whole network.