Thought starter
Why good partnerships go bad: interests drift and power moves
A partnership is signed at the moment the two sides' interests are closest. Each needs what the other has, both have tested the terms, and the future looks shared. From that day on, almost everything moves them apart.
Strategies change, one side learns, markets shift, people leave. Nobody has to behave badly. The partnership keeps running on terms written for a relationship that no longer exists.
Many failed partnerships drifted apart without anyone betraying anyone. Drift is slow. Most people notice it only when one side has already started planning its way out.
Four ways interests drift
One partner's strategy changes. The partnership made sense inside each side's plan at the time. Then one side buys a business that does what the partner did. Or it decides a channel matters less, or moves its capital elsewhere.
The partnership is now peripheral to one party and central to the other. They will want different things from the next renegotiation.
One partner learns. Many partnerships exist because one side has something the other cannot build: a capability, access to customers, local knowledge. Working together, the second side learns. Once it has learned enough, it no longer needs the first.
Research on international joint ventures found this. Instability follows shifts in bargaining power. Power shifts when a partner acquires enough knowledge and skill to remove its dependency, and so makes the original bargain obsolete (A. Inkpen and P. Beamish, Academy of Management Review, 1997). The partner that taught is usually the last to notice.
The market moves. An agreement written for one market keeps running after the market has changed. It has new competitors and new channels, and the product is now a commodity.
The terms still reflect the old economics. One side is now overpaid for what it brings, the other underpaid. Neither wants to be first to say so.
The people change. Partnerships run on the relationship between the few senior people who designed them. Those people retire, move, or are replaced after an acquisition. Their successors inherit the terms without the understanding behind them. A new chief executive reads the agreement for the first time and asks why the group is giving so much away.
Power moves quietly
Divergent interests matter because power in a partnership is never fixed. It rests on what each side could do if the partnership ended. Those alternatives change all the time, usually without any announcement.
An insurer sold a large share of its policies through another company's adviser network. It saw both sides' positions move within a few months. The agreement was nearing renewal. The insurer quietly built a plan for what it would do if the talks failed.
Then its partner invited other insurers to express interest, which strengthened the partner's hand. Then the insurer agreed to buy a business with a strong broker network of its own. That weakened its dependence on the partner.
Neither move was about the other side. Both changed the negotiation completely.
The same thing happens slowly in supply relationships. A buyer squeezes its suppliers hard across several contract rounds. It wins each round, and weakens its own position over time.
Fewer suppliers remain, each earns less, and none can afford to invest. The buyer ends up dependent on a supplier that can no longer improve. The buyer's power has drained away, and nobody decided to give it up.
So watch your partner's alternatives as closely as your own. What could they do if you walked away? What are they building, buying or learning that would make that easier next year?
The signs to watch
- Renegotiations take longer each time, and more of the time goes on history than on the future.
- Each side starts building what the partnership provides. A capability team appears in the partner's organisation chart that duplicates what you supply.
- Information stops flowing. Forecasts arrive late, data requests go through lawyers, joint planning becomes a formality.
- The governing committee meets less often, or only when there is a dispute.
- The partnership becomes a posting nobody wants. The best people move out. People waiting to retire, or recovering from a setback elsewhere, fill the roles.
- One side is running a confidential project on its fallback. If you are running one, assume your partner is too.
None of these is fatal on its own. Two or three together usually mean the partnership is running on the terms of a relationship that has already changed.
Keeping a partnership healthy
Write the review points into the agreement. Some agreements require a fresh look every two or three years, against what each side now needs. Those partnerships drift less than ones that run until the term expires.
Review it as if you were renewing it. Once a year, ask whether you would sign this partnership today on these terms. If not, start the conversation while both sides still want the relationship.
Keep a live fallback. Knowing what you would do without the partner is not disloyal. It keeps your judgement honest and your position credible. It also costs far less to maintain than to build in a hurry.
Track who depends on whom. Write down what each side could not replace, and update it. When that list shortens on one side, the partnership is about to change, whether or not the agreement does.
Agree the exit at the start. Every partnership ends. The ones that end well agreed how either side could leave while everyone was still friendly. The companion piece on unwinding a partnership covers what to do when that day comes anyway.
Frequently asked questions
Is drift inevitable? Largely, yes. What matters is whether the partnership has a way to adjust as it happens. Partnerships built with review points and an agreed exit can change shape without breaking. Partnerships built as if nothing would change break the first time something does.
Should we tell our partner we are looking at alternatives? You do not need to announce a fallback study. In the renegotiation, do say plainly what has changed on your side. Assume your partner has done the same homework.
When is it time to renegotiate rather than leave? When both sides still need something the other has, but the terms no longer match what each brings. Re-scoping a partnership that still has a purpose is usually cheaper than ending it. End it when one side no longer needs the other.