One day in the middle of last year, General Motors Corp. Chairman John Smith Jr. was shooting the breeze with Edward C. Johnson III, chairman and CEO of FMR Corp., better known as Fidelity Investments. The companies' ties run deep; Boston-based Fidelity administers GM's employee savings program.
The executives got to talking wireless. Smith mentioned Virtual Advisor, a voice-enabled information-delivery system from GM subsidiary OnStar Corp. Johnson said Fidelity was looking at wireless to keep clients informed anytime, anywhere.
Nine months later, Fidelity and GM announced an alliance that lets GM's 800,000 OnStar subscribers monitor their investments (and will eventually let them buy and sell stocks) from behind the wheel. But how much the pact will contribute to either firm's bottom line remains to be seen.
Business alliances among not-so-obvious allies are skyrocketing. According to McLean, Va.-based Booz Allen & Hamilton Inc., the 1,000 largest U.S. companies earned less than 2% of their total revenue from alliances in 1980. By 1996, that percentage had hit 19%, and by next year, it's slated to reach 35%.
If you rely on the press releases that announce such partnerships, the reasons for them are many and convincing: cost reduction in the supply chain, access to new markets and the opportunity to bask in the glow of another respected company's reputation.
In the age of "co-opetition," even longtime foes are teaming up. FedEx Express, a subsidiary of Memphis-based FedEx Corp., recently partnered with the U.S. Postal Service. FedEx will fly about 3.5 million pounds of Postal Service packages each day and in return will be allowed to place FedEx drop boxes in post offices. FedEx says the seven-year deal will earn it more than $7 billion - $6.3 billion in transportation charges and $900 million in increased drop-box revenue.
A FedEx spokesman says there will be little IT expense. All U.S. mail will be the Postal Service's responsibility; FedEx will share that responsibility only when the mail is actually crated up for flight. At that time, each crate will receive a FedEx tracking number, just as any package would.
"There's little systems overlap," the FedEx spokesman says. "They pick up the mail, they put it in containers, we haul it and they pick it up [when the plane lands\]."
The alliance cuts cost by minimizing IT interaction - a theme echoed by partnerships such as the one between Blockbuster Inc. and RadioShack Corp., outlined below.
Still, the FedEx/Postal Service deal is an exception. Most partners find it tough to quantify exact returns on their joint activities.
An examination of some recent pairings reveals that cold, hard ROI numbers aren't easy to come by and that subjective feel-good benefits seem to take precedence over measurable bottom-line results. That's not necessarily a reason to shun partnerships, but it may be cause to adjust your expectations if your organization does team up with another.
THE PARTNERS: GM, Fidelity Investments
THE BENEFITS: GM gets free content for its in-car information service; Fidelity wins access to more than 800,000 commuters who spend an average of 90 minutes per day in their cars.
Under the GM/Fidelity agreement, subscribers to OnStar - GM's in-vehicle information-delivery system, which offers such services as stolen-vehicle tracking, emergency assistance and directions - can manage their Fidelity accounts through Virtual Advisor, OnStar's hands-free interface. Initially launched in the Northeast, the program is expected to be available nationwide this summer.
Tom Koulopoulos, president of The Delphi Group, a consultancy in Boston, and author of The X-Economy (Texere LLC, 2001), says the GM/Fidelity partnership is a natural.
"It's a next-generation distribution channel," he says. "OnStar essentially owns a community, and by reintermediating the value chain this way, Fidelity's going to be there where and when customers need it."
Koulopoulos' assessment of the partnership jibes with the stated goals of GM and Fidelity. "We're adding a new service to Virtual Advisor that we didn't have to build," says Mike Peterson, GM's director of the program. "We offered a distribution channel; they offered a service that's attractive to customers."
Joseph Ferra, a senior vice president at Fidelity, says the investment firm wanted to establish a leadership position in a place where lots of people spend lots of time: their cars. "When you peel all the technology away, it's about improved customer service," he says. "We're expanding the ways customers can remain informed - anytime, in any mode."
Fidelity has two key metrics for the partnership: awareness and actual use of its wireless offerings. Ferra says the firm has goals for both metrics but declined to say what they are. In the meantime, Fidelity's financial services offerings are getting play on GM's Web site, and the company is first to market with hands-free, voice-activated mobile financial services.
THE PARTNERS: Staples Inc., NowDocs Inc.
THE BENEFITS: NowDocs gets revenue, a big partner and cash; Staples gets a new service without a major infrastructure build-out.
When Staples decided to expand its Web site, Staples.com, one major goal for the Framingham, Mass.-based office supply retailer was to increase its product offerings without taking its eye off its core business: its 1,100 brick-and-mortar retail stores. Establishing partnerships was the way to accomplish that goal, according to Staples.com Chief Technology Officer Mike Ragunas. "In our catalog, we've got 8,000 items," he says. "At Staples.com, we've integrated with wholesalers and manufacturers to offer 45,000."
Staples.com is seeking to limit its IT investment by acting as a portal to partners' Web sites, rather than linking to their order entry systems or creating a shared data center. This is especially notable at the company's business services center. Through this portal, Staples customers can do everything from insuring company cars to hiring debt-collection agencies.
Because Staples.com acts as a portal to partners' services, it has invested in an area some may find surprising: content and content management. To manage the ever-changing partner-related content on its own Web site, the company chose software from Sunnyvale, Calif.-based Interwoven Inc. Ragunas wouldn't say how much Staples.com has spent.
Staples.com's partners bear the burden of making sure their Web sites can handle the traffic Staples sends their way.
"We do not ask them to share our cost to create supporting content," Ragunas says. "The partners provide their own infrastructure. . . . They have got to do their own build-out." Staples.com and its partners don't share IT staff other than for network monitoring.
Here's where the monitoring comes in: When Staples.com executives were building the Web-based business services portal, one major worry was that poor service from any of the 35 partners, which tend to be young, small companies, could reflect badly on Staples.
"With all those third parties, we needed to make sure they met our standards," Ragunas says.
Staples.com's solution is wide-ranging. For starters, the company "mystery shops" its own partners and grades them on timely response, politeness and general customer service. Naturally, the partners know of this practice; they just don't know which calls are from Staples.
Staples.com also performs network monitoring and usability testing of its partners' Web sites, each of which receives a weekly report card and any applicable customer comments. "It's almost like free consulting for these companies," Ragunas says. Staples.com wouldn't say how much it spends on controlling the quality of these partnerships, but J.B. Lyon, vice president of business services, says the payoff is indisputable.
In 1999, Staples.com's revenue was $94 million. Last year, following the launch of the business services portal, revenue grew to $512 million and repeat traffic increased by 287%. Lyon says the company's in-house studies show that the online services center was a major reason for the growth in repeat customers.
Finally, in an effort to reassure customers, Staples prominently posts a "stand-behind policy" on its home page that essentially says, in Ragunas' words: " 'If you've got a problem with one of our partners, come to us.' This way, customers know they've got a $10 billion company standing behind them."
When a partner's score falls below a certain level, Staples.com representatives visit the laggard and help coach its customer service team, Lyon says.
One of Staples' partners is 3-year-old NowDocs, an Aliso Viejo, Calif.-based online printing company. (They're partners in more ways than one; Staples has invested $6 million in NowDocs.)
Bennett Hirsch, NowDocs' senior vice president of marketing and sales, says the company welcomed the alliance because it was eager to reach the small and medium-size business markets, which are Staples' bread and butter. "We'd decided not to invest money building a broad-based name [ourselves]," Hirsch says, "because if we did that, we'd be competing against the Staples of the world."
Ragunas declined to say how much Staples spends doing due diligence on its smaller partners but insists that whatever the amount, it's a vital way to safeguard the brand and is thus money well spent. Staples.com says it has dropped partners that failed to get with the program, though the company wouldn't name or quantify those partners.
THE PARTNERS: Blockbuster, RadioShack
THE BENEFITS: Blockbuster gains windfall licensing revenue; RadioShack gets access to customers who don't sport pocket protectors.
Sometimes partnerships that appear to be IT-driven matches turn out to be very low tech. Such is the case of the alliance announced this spring between RadioShack and Blockbuster, a subsidiary of New York-based Viacom Inc. Under the deal, Fort Worth, Texas-based RadioShack will create its own stores-within-stores in thousands of Blockbuster outlets.
RadioShack - whose retail presence is already massive, with 7,100 stores of its own - stands to realize true ubiquity once it sets up shop in Dallas-based Blockbuster's 5,000 stores.
RadioShack, known as a destination store for gadget-loving guys, stands to gain exposure to new demographics. The alliance "provides us access to more than 3 million Blockbuster customers each day," RadioShack CEO Leonard Roberts said in a statement, "including more women and young adults."
For its part, Blockbuster will earn a license fee for square footage that might otherwise be wasted, given the increasing popularity of DVDs, which require much less shelf space than videocassettes.
However, once RadioShack's ministores are in Blockbuster's outlets, the companies expect to have very little interaction. Although they say they plan in-store marketing campaigns and cross-promotions, each will use its own employees, point-of-sale systems and inventory tracking, according to a RadioShack spokeswoman.
THE PARTNERS: Burlington Northern Santa Fe Corp., Union Pacific Corp., Norfolk Southern Corp.
THE BENEFITS: They achieve reduced IT costs and increased customer satisfaction.
Last year, regulatory pressures forced Dallas-based Burlington Northern Santa Fe to scrap plans to merge with Montreal-based Canadian Railway Co. However, premerger exploration had already shown that the two railroad firms could save huge amounts of money and eliminate duplicate efforts by pooling logistics data.
Bruce Freeman, Burlington Northern's CIO, decided that the death of the merger shouldn't kill a good idea. So he contacted rival railroads Union Pacific in Omaha and Norfolk Southern in Norfolk, Va., and proposed an alliance aimed at consolidating IT functions and improving customer satisfaction.
"Customers say we're hard to do business with if you're moving across different railroads," Freeman says. "It's like using two different airlines for one trip." The result: confusion and high costs for all of the railroads. Meanwhile, each competitor has a large IT organization supporting billing, shipping and tracking.
The alliance's goal is to consolidate at the infrastructure level. The project is in its early stages. "We've got a [request for proposals] for an independent consultant to help us assess the business case and how to do the shared services," Freeman says. "The model would be 'crawl, walk, run.' " The first areas to tackle will be a shared data center and help desk. "If you could do that to prove the model, you could move into the joint application arena and shared procurement," he says.
Because it's early in the process, Freeman says, it's impossible to gauge the investment required. But the potential payoff is substantial: When he was looking into consolidation in anticipation of the Canadian Railway merger, Freeman found possible savings of 5% to 15% of the IT budget "just with basic infrastructure," he says. "The farther up the food chain you go, the higher the number goes." roi