Many of you probably recall the early "partnerships" in the electric utility industry. These so called "partnerships" took the form of long-term agreements designed to beat manufacturers down on price. The utilities obviously had the upper hand and pitted one manufacturer against another. Now, many utilities find themselves competing against one another for market share. Consequently, they are re-evaluating the role of partnerships in their business strategies.
Tom Gerszewski, marketing manager with IBM, recently spoke with me about the difficult times IBM has faced over the past 10 years. During this time, IBM evolved from a near monopoly supplier of mainframe computers to a global information solutions company. He admitted that this transition was particularly difficult because IBM was faced with developing new business models while simultaneously creating new products and services. IBM ultimately realized that it could no longer take on the world alone. The organization redefined its role and now focuses on assisting customers in applying information technologies to provide start-to-finish business solutions. IBM selects business partners who can provide the necessary industry-specific application software and hardware that will meet customer needs.
How can we apply the experiences of companies like IBM in our industry? As the utility industry leaves a monopolistic era, each utility is reassessing its role, building on strengths and addressing weaknesses. Any activity that does not have a positive impact on the bottom line is vulnerable. I believe we will see fewer across-the-board staff reductions. Instead, we will see an increased number of strategic realignments focused on tapping into the skills inherent in partnering companies.
Utilities around the globe are increasingly crafting business agreements with manufacturers, vendors, constructors, engineering consultants, other utilities and even their own customers in an effort to hold down costs and remain competitive. As utilities decide whether to keep engineering, warehousing, accounting, or even operations and maintenance functions in house, they should keep in mind the sobering statistic that approximately 40% of partnerships and alliances fail.
Still, successful partnerships allow participating companies to leverage the activities they do most effectively. Cem Dogan, principal with Booz Allen, Hamilton, Inc., New York City, U.S., reveals some encouraging statistics. In the United States, companies achieved 17% returns on collaborative efforts compared to 11% returns on individual company efforts. Alliances in the energy and natural resources industries have benefited even more, averaging a 20% return on joint efforts. These numbers explain why the number of alliances has grown by 25% a year since 1987, based on a 1992 U.S. Federal Trade Commission report.
Randy Schrieber, vice president and general manager of ABB's Distribution Transformer Division, said that prior to their alliance with Southern Company, Atlanta, Georgia, US., there had been little sharing of information because of the competitive bidding environment.
"Once we got on the same page, we developed common goals to lower total costs that allowed both companies to realize a financial benefit," Schrieber says. Through this alliance, both companies are convinced that they can continuously reduce costs and improve reliability.
Ricky Crittenden, procurement agent with Southern Company, comments, "It takes a lot of effort to keep an alliance healthy, but we have developed a level of trust that allows us to continue to open up and find opportunities where both parties can benefit."
Electric utility contractors are also working to develop strong partnership relationships, but it is often difficult to overcome old habits and agendas. John Holtz, manager with Aldridge Electric, Chicago, Illinois, U.S., cautions that some customers make poor alliance partners.
"Some people are not satisfied unless they think they have negotiated a price on a job at which the contractor breaks even at best," states Holtz, who looks for partners who don't believe that "profit" is a dirty word.
To compete in a global economy, successful companies must focus on those tasks they do best and partner with others if they hope to succeed. But remember that entering into a partnership is a lot like buying real estate; both are a lot easier to get into than they are to get out of.
Rick Bush, Editor-in-Chief E-mail address: [email protected]