Working with other companies takes many forms. The figure on “Types of Partnerships” shows the extremes ranging from arm’s-length agreements where there is no interaction other than a purchasing department, up to mergers and acquisitions where an equity stake is taken in the other or newly formed joint venture entity. The types of partnerships are organized according to the time and effort required to obtain or develop a product and service. The types of partnerships are arranged as a hierarchy because from a business standpoint the best approach is to obtain the desired product or service at the lowest level on the hierarchy. The reason that organizations move up the hierarchy and engage in partnerships, all the way through risk reward sharing joint ventures, is that the product or service is not available to the company in a way that provides them an advantaged business position. Working together allows companies to find win-win advantaged business positions for each entity, but obviously understanding and selling these concepts within each entity requires higher levels of skill in partnership selection and management.
The simple model shown in the “Partnership Type Selection Criteria” is a high-level decision tool to decide what to keep inside your company and what should be done outside your organization. In short you outsource for tactical capability and co-develop for strategic capability. More detailed decision criteria were provided in the Overview section of this Chapter.