University of Southern California

The Key to Partnership Success
May 21, 2011

No firm can survive alone. As the economy has become more globally integrated, firms are relying on an increasing number and variety of partnerships to perform a number of key functions including accessing new markets, sourcing, developing new products and many others. While partnerships of various types are increasingly common, they frequently fail to achieve the goals for which they were formed. USC Marshall Associate Professor Kyle Mayer examines how firms go about governing inter-firm relationships in ways that help them maximize the value of these partnerships.

In his research and his MBA elective Alliances and Cooperative Strategy, Mayer examines many factors that contribute to the success and failure of different types of inter-firm relationships. One of the main lessons from his work is the importance of the contract and the contracting process to the success of alliances. While contracts are typically treated as onerous documents that are the domain of lawyers, savvy firms are increasingly involving managers and engineers in the contracting process in order to ensure that the parties can better align their expectations. While term sheets can be helpful in this regard, what firms choose to put in the contract and even more importantly their motives for why they do so, can have a significant impact on the success of the venture.

When a partner does something you don't expect, how can you tell whether it was the result of an honest misunderstanding or whether the action is designed to strategically enhance their own benefit? While no contract will ever be complete, the contract and the process the firms go through to create it can help push them to identify key issues that need to be addressed before work can begin. There is a delicate balance between a contract that is so open-ended that it leads to disagreements over the roles of the parties and a contract that is so detailed that it provides no flexibility and stifles any ability to adapt. The more complex the activity undertaken by the parties, the more room for misunderstandings and the greater the potential benefit if the contract and the process of crafting it can provide the parties the framework or blueprint to execute successfully. The contract should fit the needs of the exchange and can certainly be crafted to allow flexibility, which is crucial in many partnerships.

Bottom line: Don't just view the contract as a necessary evil that is best left to the lawyers; view the contract and the contracting process as an opportunity to lay the groundwork to make sure you are on the same page and have a strong blueprint to execute as you work together.

Kyle Mayer studies how firms govern relationships with other firms, with particular attention to the contract and its role in establishing a framework for the relationship. Learn more about Professor Mayer and his research here.