A key partner can simply be defined as any entity a business needs to rely on to achieve its value proposition. In the Business Model Canvas, the Key Partners section lists external companies, suppliers, or parties an organization does business with to perform key activities and deliver customer value.
|Component Name||– Key Partners is one of the nine building blocks of the Business Model Canvas (BMC), a strategic management tool used for visualizing and developing business models. It focuses on identifying and defining the external organizations, suppliers, or entities with which a company collaborates to create, deliver, or support its product or service. Key Partners play a crucial role in a company’s ability to execute its business model effectively. These partnerships can involve various types of arrangements and collaborations.|
|Purpose||– The purpose of the Key Partners component is to outline the strategic relationships and alliances that a company forms to leverage external resources, capabilities, and expertise. These partnerships are essential for enhancing the value proposition, reducing costs, mitigating risks, and accessing critical resources that the company may not possess internally. This component helps businesses recognize the importance of collaboration in their business model.|
|Key Considerations||– Types of Partnerships: Companies should define the types of partnerships they engage in, such as strategic alliances, joint ventures, supplier relationships, or outsourcing agreements. Each type serves a different purpose in the business model. – Value Proposition: Businesses should specify how these partnerships contribute to the overall value proposition offered to customers. Partnerships can enhance product features, distribution, or customer experience. – Key Activities: Identify the key activities or functions that are outsourced or reliant on partners. These activities should align with the company’s core competencies and strategy. – Risk Mitigation: Consider how partnerships help mitigate risks, such as supply chain disruptions or regulatory challenges. Partnerships can provide redundancy and expertise in critical areas. – Cost Structure: Partnerships can influence a company’s cost structure. Assess whether partnerships lead to cost savings or additional expenses.|
|Examples||– Supplier Relationships: Companies like Apple rely on key suppliers, such as Foxconn, for manufacturing components and assembling products. – Strategic Alliances: Microsoft and Adobe formed a strategic alliance to integrate their software products and improve customer experiences. – Distribution Partnerships: Car manufacturers often partner with dealerships to distribute and sell their vehicles. – Outsourcing: Many tech companies outsource customer support or IT services to specialized firms. – Joint Ventures: Sony and Ericsson formed a joint venture, Sony Ericsson, to develop and market mobile phones.|
|Impact on Business||– Effective Key Partnerships can significantly impact a company’s competitiveness, innovation, and ability to scale. – They can provide access to new markets, technologies, and resources, allowing the company to expand its reach and offerings. – Well-chosen partners can enhance the value delivered to customers and improve the company’s bottom line. – Poorly managed partnerships or over-reliance on a single partner can lead to vulnerabilities and risks.|
|Challenges||– Managing multiple partnerships can be complex, requiring clear communication and alignment of goals. – Companies may face challenges related to intellectual property, conflicts of interest, or differences in culture and processes when collaborating with partners. – The dynamics of partnerships may change over time, necessitating ongoing evaluation and adjustments.|
|Strategic Questions||– What types of partners are essential to our business model? – How do these partnerships enhance our value proposition to customers? – Which key activities or functions do we rely on partners to perform? – What risks do our partnerships help mitigate, and how do they impact our cost structure? – Are there opportunities to diversify or expand our partner network to drive innovation and growth?|
|Key Takeaway||– The Key Partners component of the Business Model Canvas highlights the significance of collaborative relationships in shaping a company’s business model. Identifying, nurturing, and strategically leveraging these partnerships can be critical to a company’s success and long-term viability.|
Understanding key partners in the Business Model Canvas
If a corner store sells fresh bread but does not possess the ability to make it, the bakery down the street is one of its key partners.
A relationship between two or more key partners can be classified as:
Where two non-competitors come to a mutually beneficial arrangement.
A strategic partnership designed to minimize risk, which may be associated with bringing a new product to market or accessing raw materials, among other initiatives.
Both parties work toward a common goal.
Most key partners engage in buyer-supplier relationships, where one business exchanges money with another for products or services.
Why do key partnerships exist?
In truth, partnerships between companies exist for many reasons. We’ve outlined a few of them below:
Optimization and economies of scale
In the majority of cases, a partnership with another company is a financial decision designed to reduce costs.
These arrangements occur via the optimization of resources or activities, the outsourcing of certain processes, or the sharing of infrastructure.
Risk and uncertainty reduction
Amicable partnerships are inherently less risky since each entity tends to prioritize the needs of its partners over non-affiliated businesses.
Some organizations also work together to share the risk of bringing a new product to market.
When Blu-ray technology was first developed, rival consumer electronics and computing companies pooled their financial and knowledge-based resources to collaborate for mutual benefit.
Resource and activities acquisition
If a business requires something that would otherwise involve a significant investment, it can partner with entities that have the necessary technology, processes, or infrastructure already in place.
Dutch beer company Heineken partners with new bars by meeting their equipment and décor costs. In return, the bar becomes an exclusive seller of Heineken beer.
Developing sustainable and mutually beneficial key partnerships
In addition to providing financial benefits, key partners need to enter into arrangements that are sustainable for both parties over the long term.
Here is how this might be achieved:
Before a partnership is agreed upon, the organizations involved should voice and address any major concerns. This helps avoid potentially costly conflicts in the future.
A key partner helps the organization fill a critical gap in its value proposition.
However, the partnership should always be evaluated in terms of how it will be construed by various customer segments.
Lego and Shell had a strong partnership for over 50 years, but this came to an end when consumers questioned why an oil company with questionable practices was involved with children’s toys.
Selecting and suspending partnerships
Some arrangements start well but end up being to the detriment of both partners.
To that end, each organization must develop the ability to exit any partnership it deems untenable.
Correct and sustainable partnership agreements
The terms of any agreement need to be clear, concise and benefit both parties.
These agreements can be facilitated by the presence of legal representation.
- Apple and Foxconn: Apple relies on Foxconn, a Taiwanese multinational, as a key partner for manufacturing its iPhones, iPads, and other products. This strategic alliance ensures Apple’s products are produced at scale and meet quality standards.
- Starbucks and Nestlé: Starbucks partnered with Nestlé to distribute its coffee products globally. Nestlé handles the production and distribution of Starbucks-branded coffee products for consumers to enjoy at home.
- Uber and Spotify: Uber offers passengers the ability to control the in-car music experience through a partnership with Spotify. Passengers can link their Spotify accounts and play their favorite music during rides.
- Netflix and Content Providers: Netflix forms key partnerships with various content providers, including studios, production companies, and streaming platforms, to secure the rights to movies and TV shows for its streaming service.
- Amazon Web Services (AWS): AWS is a key partner for many startups and businesses, providing cloud computing and storage solutions. Companies like Airbnb and Netflix rely on AWS to scale their services.
- Coca-Cola and McDonald’s: McDonald’s serves Coca-Cola products exclusively in its restaurants, making Coca-Cola a key partner for McDonald’s beverage offerings.
- Tesla and Panasonic: Tesla collaborates with Panasonic to manufacture lithium-ion batteries for its electric vehicles. This partnership ensures a consistent supply of batteries for Tesla’s cars.
- Google and Mozilla Firefox: Google pays Mozilla to be the default search engine in the Firefox web browser. This partnership generates significant revenue for Mozilla.
- Pharmaceutical Companies and Research Institutions: Pharmaceutical companies often partner with research institutions and universities to develop new drugs and treatments. These collaborations leverage scientific expertise.
- Automakers and Technology Companies: Traditional automakers like Ford and General Motors partner with technology companies such as Microsoft and Google to integrate advanced infotainment systems and autonomous driving technologies into their vehicles.
- Airline Alliances: Airlines form alliances, like the Star Alliance and SkyTeam, to expand their route networks, share resources, and offer passengers a wider range of travel options.
- Retailers and Payment Processors: Retailers partner with payment processors like Visa, Mastercard, or PayPal to facilitate secure and convenient transactions for customers.
- Sports Teams and Sponsors: Sports teams enter into sponsorship agreements with companies that promote their brand through advertising and support the team financially. For example, Nike sponsors many professional sports teams.
- Mobile Phone Manufacturers and App Developers: Smartphone manufacturers like Apple and Google partner with app developers to offer a wide range of apps on their platforms, enhancing the user experience.
- Environmental Organizations and Corporations: Environmental groups collaborate with corporations on sustainability initiatives and eco-friendly product development. For instance, WWF collaborates with companies on conservation projects.
- In the Business Model Canvas, the Key Partners section lists external companies, suppliers, or parties an organization does business with to perform key activities and deliver customer value.
- Companies enter into key partnerships for many reasons. These include optimization, economies of scale, risk and uncertainty reduction, and resource or activities acquisition.
- For each key partner to benefit from a partnership, they should clarify expectations and define agreements in the presence of legal counsel. They must also evaluate the customer impact of such a partnership and terminate any partnership they consider detrimental to success.
Key Highlights of Key Partnerships in Business Models:
- Definition of Key Partners: Key partners are external entities that a business collaborates with to carry out essential activities and deliver value to customers. In the Business Model Canvas, this section outlines these crucial relationships.
- Examples of Key Partnerships: Consider a corner store that sells fresh bread but doesn’t have the capability to bake it. In this case, the nearby bakery becomes a key partner, supplying the store with fresh bread.
- Types of Key Partnerships:
- Strategic Alliances: Non-competing companies enter into mutually beneficial agreements to achieve common goals.
- Joint Ventures: Key partners with shared interests collaborate to develop new businesses, often in emerging markets, with each partner contributing resources.
- Co-opetition: Strategic partnerships aimed at risk reduction, particularly when introducing new products or accessing resources, where both parties work together toward a common objective.
- Buyer-Supplier Relationships: Most key partnerships involve buyer-supplier relationships, where one party exchanges money for products or services from the other.
- Reasons for Key Partnerships:
- Optimization and Economies of Scale: Partnerships often aim to reduce costs through resource optimization, outsourcing, or infrastructure sharing.
- Risk and Uncertainty Reduction: Partnerships lower inherent risks, as partners prioritize each other’s needs and share risks, as seen in the collaboration on Blu-ray technology.
- Resource and Activities Acquisition: Businesses partner with entities that already possess necessary technology, processes, or infrastructure to avoid substantial investments. For example, Heineken partners with bars, covering equipment and décor costs in exchange for exclusivity.
- Developing Sustainable Key Partnerships:
- Clarify Expectations: Before formalizing partnerships, organizations should openly discuss concerns to prevent potential conflicts in the future.
- Customer Impact: Evaluate partnerships from the perspective of various customer segments to ensure they align with the company’s values and goals. Lego and Shell’s partnership ended due to customer concerns.
- Selecting and Suspending Partnerships: Some partnerships may start well but become detrimental to both parties. Organizations should have the ability to exit such partnerships.
- Correct and Sustainable Agreements: Partnership agreements should be transparent, mutually beneficial, and legally sound. Legal representation can facilitate these agreements.
- Key Takeaways:
- In the Business Model Canvas, Key Partners identify external entities crucial for performing key activities and delivering customer value.
- Companies enter into key partnerships for reasons such as optimization, cost reduction, risk mitigation, and resource acquisition.
- Sustainable key partnerships require clear expectations, customer impact assessment, the flexibility to terminate unviable partnerships, and well-defined, mutually beneficial agreements.
Alternatives to the Business Model Canvas
This framework has been thought for any type of business model, be it digital or not. It’s a framework to start mind mapping the key components of your business or how it might look as it grows. Here, as usual, what matters is not the framework itself (let’s prevent to fall trap of the Maslow’s Hammer), what matters is to have a framework that enables you to hold the key components of your business in your mind, and execute fast to prevent running the business on too many untested assumptions, especially about what customers really want. Any framework that helps us test fast, it’s welcomed in our business strategy.
This framework is well suited for all these cases where technology plays a key role in enhancing the value proposition for the users and customers. In short, when the company you’re building, analyzing, or looking at is a tech or platform business model, the template below is perfect for the job.
This framework is well suited to analyze and understand blockchain-based business models. Here, the underlying blockchain protocol, and the token economics behind it play a key role in aligning incentives and also in creating disincentives for the community of developers, individual contributors, entrepreneurs, and investors that enable the whole business model. The blockchain-based model is similar to a platform-based business model, but with an important twist, decentralization should be the key element enabling both decision-making and how incentives are distributed across the network.
- Key Partners: In the Business Model Canvas, key partners refer to external companies, suppliers, or parties that a business relies on to deliver its value proposition and perform key activities.
- Types of Relationships: Key partnerships can take the form of strategic alliances, joint ventures, co-opetition, buyer-supplier relationships, and more.
- Reasons for Key Partnerships: Companies enter into key partnerships to optimize costs, reduce risk and uncertainty, acquire resources or activities, and improve their value proposition.
- Developing Sustainable Partnerships: To ensure sustainable partnerships, organizations should clarify expectations, consider customer impact, select and suspend partnerships as needed, and create clear and mutually beneficial partnership agreements.
- Alternatives to the Business Model Canvas: There are other frameworks available, such as the FourWeekMBA Squared Triangle Business Model and the FourWeekMBA VTDF Framework for Tech Business Models, which can help businesses analyze and develop their business models effectively.
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