Alignment and compatibility with supplier partners

A recent conversation reminded me of a powerful framework for evaluating the likely success or failure of two companies working together.

The framework can be applied to:

• supplier – customer relationships (especially those where you believe a strategic partnership may be warranted)
• mergers or acquisitions of companies

The basic idea is that success is more likely to occur – and be sustainable over time - if there is alignment, and compatibility, across three key dimensions: strategic, operational, and cultural.

I first raised this topic about two years ago in this blog. It seems like a good time to revisit.

The strategic dimension relates to the overarching business strategies of the two parties. This is often the easiest to evaluate and assess, since it is typically well communicated. And, business strategies can be adjusted to fit new circumstances.

The operational dimension relates to the day-to-day integration of the two companies’ systems and procedures. While not an easy task, it can generally be straightforward to understand the current state of operational alignment and make necessary changes to achieve integration.

The third dimension is the one that often causes relationships to disintegrate: cultural compatibility. Think Daimler / Chrysler, whose “un-merger” was at least partly due to a clash between the two companies’ business culture. You can perhaps think of various supplier – customer relationships which were touted, at their start, as a “great partnership” only to have a boisterous divorce some years later.

The point: if you are contemplating investing in a business relationship, include the dimensions of strategic, operational, and cultural alignment on your due diligence checklist.

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