Tuesday, October 24, 2006

Alliance week day 5 - Managing complementors with soft power

We're wrapping up Alliance Week with another look at complementor relations--that is, alliances between companies that "independently provide complementary products or services directly to mutual customers." These kinds of partnerships have become extremely important, especially in technology markets.

Complementor relationships are short on hard commitments, lengthy agreements (a la Renault/Nissan), and assertive governance. So how can they be managed? David Yoffie and Mary Kwak, the authors of the recent Harvard Business Review article on this topic (link - $$), look at two tools available: "hard power" and "soft power." Hard power includes inducements (like direct payments) and coercion--not unlike what Collins & Aikman used recently with Ford Motor. Today, though, let's look at soft power and how it can be used to manage a complementor relationship.

Types of soft power include sharing market and technical information with partners, collaborating on standards and, perhaps most interestingly, shaping a vision for the market that encompasses both one's own products and the complementor's. Say Yoffie and Kwak,

Managers are usually better at articulating their vision for their own company and their customers than in formulating a vision that also incorporates the health and welfare of their complementors. But those who master this latter task, like Steve Jobs, are most likely to succeed.

At the risk of being redundant--who hasn't heard enough about Steve Jobs?--stop for a moment and think of his feat with iPod/iTunes. He listened carefully to the record labels' concerns and issues, primarily security, built those features into the product in a way that didn't compromise the user experience, then sold the hell out of the platform and won tens of millions of customers--and billions in revenues for the music companies.

So, if you've got a product or platform and need help from complementors, start evangelizing--not about how the product will help your business, but how it will help theirs.

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