Wednesday, October 18, 2006

Alliance week begins - power struggles in David/Goliath partnerships

I'd been reflecting on this blog and realized that I'd been doing a disservice to the last word in the title. Not enough alliance posts. How to remedy that? Well, let's establish a special week. Call it Alliance Week. Of course, due to my own procrastination, Alliance Week begins on Wednesday.

This article in yesterday's Wall Street Journal caught my eye. Global Vision Inc., a small wholesaler of surplus brand-name goods (we'll call them "David") and a long-time Wal-Mart supplier, stood up to that very large customer, whom we'll refer to as Goliath. Sam's Club in Puerto Rico, a division of Goliath Inc., returned a slow-selling order (ostensibly because of defective merchandise) and deducted the cost from their next payment without David's agreeing to it.

But instead of accepting the small writeoff ($10,000) in order to keep the peace with Goliath, David struck back. He escalated to Goliath headquarters, and eventually used the only leverage he had--refusing to ship new product to Goliath stores in Puerto Rico until the matter was resolved.

Goliath soon backed down and paid for the order.

The point here from an alliance perspective is: how can you avoid being stepped on by a bigger partner, when you need them more than they need you?

We can learn some lessons from David. Sometimes, if you can't work out a dispute with your partner otherwise, you have to retaliate. And just because you're smaller doesn't mean you're powerless. So, some thoughts:

  1. You can't be afraid to take a stand, even if it angers your partner, when the issue is important enough--this is especially true when the partner's behavior could set a bad precedent for your future interactions.

  2. Exhaust the normal negotiation channels first.

  3. Use your leverage sparingly. A partner who always fights is soon not a partner anymore.

  4. Focus your actions. David first shut down shipments to Puerto Rico, and then to a few other countries, where he knew the lack of his goods would hurt the most.

  5. Be prepared for the consequences. At minimum, there'll be lots of yelling and accusations of bad faith. Threats, perhaps. And it's possible, though usually less likely than we think, to lose the business.

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