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How to plan for successful Joint Venture Partnerships

Joint ventures are not easy to get right, but if successful, the rewards can be huge. Their success rate still only stands at around fifty per cent. The reasons JVs fail are usually to do with one or more of the following: disagreements between partners, poorly thought-out strategy, poor management controls, and deals between partners that fail because they are unequal or unrealistic.

When it comes to acquiring other companies, most organisations are highly organised and disciplined. They are prepared to devote huge resources to the process and see it as crucial to their overall corporate strategy. It is rare for companies to take joint ventures or strategic alliances as seriously. A common error is the failure to commit sufficient resource to such ventures or alliances. Added to this is that insufficient planning work is done at the launch phase so that much of the potential value of a joint venture is not fully realised.

It is essential to clarify and anticipate any potential areas of conflict between the joint venture partner organisations right from the start. The separate corporate bodies that have combined to form the partnership each have its distinct corporate culture with its own goals, shareholder demands and markets. If insufficient planning work is done at the start of the JV, problems will only begin to emerge once the business is up and running. The resolution of these problems will then inevitably impede the progress of the business.

It is vital therefore to put a management structure in place that equally reflects the interests of the partners and ensures neither parent company is being exposed to unexpected risks that could have a potentially serious impact on their main businesses. At the same time, this structure needs to be sufficiently flexible and unbureaucratic so that it does not crush creative thinking within the JV.

Often the teams that launch JVs consist of a few part-time managers seconded from the parent organisations who are forced to learn the ropes as they go. By contrast, companies involved in merger or acquisition talks will invariably dedicate their top people to work on the integration of the target company

For a JV to succeed, therefore, it requires adequate investment of time and funds to put a watertight strategy in place right from the start.

Experts have identified three types of joint venture undertakings. The Fusion JV comes about by combining two or more existing businesses. The Critical Skills JV involves transferring or lending some of the special skills possessed by one of the partners either to the joint venture itself, or sometimes to the other corporate partner. In the Cooperation JV, the value comes from combining the skills of both the partners to achieve new goals, products or services.

One difficulty with joint ventures that often arises is where one partner is more prepared to invest (in all senses of the term) in the JV than the other. This will arise because companies have different perceptions of the long-term benefits associated with the venture and different financial targets associated with it. It is not unusual therefore for the CEO of a joint venture to be placed in an impossible position, without prior agreements in place from the two parent companies about levels of investment to be committed and on how to move the joint venture forward.

A more sensible strategy in this situation would have been for all the key players to have met at a third location perhaps over several days to unearth all areas of potential conflict from the very start of the launch process. At this stage conflicts could have been resolved by negotiation.

The key planning personnel for the JV should set out exactly how and where the JV will compete, project how the JV might expand, set financial targets, plan spending and investment, and draw up a detailed business plan. These focused planning meetings will then bring to light areas of disagreement to be ironed-out.

It is time to realise that planning a joint venture should be taken as seriously as organising a merger or an acquisition, or indeed as seriously as a business start-up itself. If early planning is done thoroughly, the rewards of successful JVs have clearly been shown to be enormous. The initial processes of negotiation and planning will not only bring problems to light, but that very bringing to light will itself help to engender ongoing openness and trust. Openness and trust will then go on to play a crucial part in helping to drive forward the partnership.



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