Creating Profit Through Alliances - business models for collaboration E-book | Page 66
Disputes often arises as to the allocation of
costs. It is advisable for that reason to agree on
tariffs and cost allocation rules ahead of time.
Many smaller partnerships, for instance when two
companies decide to make a collaborative offer in a
public tendering process, operate on the principle of
minimum cost settlement. In making the offer, the
partners each bear their own costs. Then, if a joint
venture agreement is concluded, the leading party
can have its efforts compensated in the form of a
fixed sum or a percentage. Such an agreement
means dispensing with the trouble of checking the
efficiency and accuracy of costs reported by the
partner.
Aside from the immediate financial returns, a
partnership can also offer other benefits. These could
include:
Sharing the revenue
Where it concerns direct financial returns, it is
important to share these as much as possible
proportionate to each partner's contribution. Chapter
3 described how each type of contribution, such as
people, production facilities, patents or financing, can
be compensated. This is a matter of negotiation and
of calculating the various options. What will happen,
for instance, if a joint project disappoints and there is
no money to fully compensate each partner's
contribution?
For all distribution mechanisms, the following
questions apply:
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Has its application been described clearly and
unambiguously?
Can all input variables, such as hours worked, be
properly measured and monitored?
What if the revenue is substantially higher than
expected? Will you still be content with this
agreement?
What if it disappoints? Who will be the first to
forego income? Does that feel right?
Suppose your partner is ill-meaning and will
even disregard his own interests: how can you
respond and how can you protect against that?
How does it work if one of the parties wants to
quit the partnership?
access to new customers or an improved
relationship with existing ones; or a greater
name recognition;
access to new market information or databases,
or the acquisition of new copyrights;
a stronger purchasing position thanks to larger
purchasing volumes or a leading position in the
market.
These benefits can often be utilised directly by one of
the parties. Although they may fall outside the scope
of collaboration, they are nevertheless related to it. If
such benefits are distributed very unevenly, this may
be accounted for in the distribution model.
The agreements made about the settlement of costs
and revenue will affect the behaviour that each of
the partners demonstrates within the collaboration.
This certainly applies where businesses are involved,
where the profit motive tends to be the principal
concern. For each of the ten basic forms of alliances,
the commonly applied settlement models are
discussed below along with the variable options.