Wharton@Work

July 2022 | Strategy

No More Going It Alone: Every Business Needs Partners

The value of strategic partnerships has never been higher. Accelerating disruption and competition, rapidly changing consumer preferences and behavior, and an environment that rewards innovation and speed mean any one company rarely has the resources and know-how to succeed by going it alone. But even companies with existing partnerships rarely possess the ability to maximize their value, and as those partnerships evolve into ecosystems of connected firms, the skills required to manage them become even more complex and rare.

Doubtful? Wharton management professor Harbir Singh, a leading researcher on partnerships, says Tesla illustrates the point well. In fact, Elon Musk might be the last person who comes to mind as a leader who built a company on the strength of partnerships — but that’s exactly how his company became the dominant player in the U.S. market for electric vehicles. “Tesla was only able to launch its first few electric vehicle models because of a network of partnerships,” says Singh. “Then to build a viable market, they needed an ecosystem of partners to build out the necessary charging infrastructure and solar technologies for generating and storing energy.”

As academic director of the Managing Strategic Partnerships and Ecosystems program and co-director of Wharton’s Mack Institute for Innovation Management, Professor Singh has worked with thousands of leaders from a range of industries on identifying partners, managing a partnership through its life cycle, and becoming a “partner of choice” to help secure future relationships. “As they do in the EV market, networks influence the paths of industries and individual organizations,” Professor Singh says. “The key is to choose one that can provide you with the greatest benefits and be the kind of strategic partner that others want to work with.”

Building and Managing Ecosystems

Managing Strategic Partnerships and Ecosystems includes a module on multi-party partnerships and ecosystems. Led by Wharton management professor Rahul Kapoor, it shows participants how to identify and map the ecosystems their companies are a part of, understand the inherent challenges of those ecosystems, and learn tools and frameworks for working within them to maximize growth potential.

For Elon Musk, that ecosystem has included the charging infrastructure, battery technology, and even sales framework — all of which require their own sets of partnerships. Early on, in an effort to bypass the traditional car dealership model, Tesla partnered with Nordstrom to create mini-showrooms in the men’s department of the retailer’s Los Angeles store.

“This is a very different way of thinking about growth and strategy,” says Kapoor. “What I want participants in the program to come away with is a holistic assembly of ecosystems that they are a part of. Then, be clear about the growth challenges of those ecosystems and use the tools we provide to help navigate and orchestrate them.”

Value that Outweighs Skepticism

Although the benefits for Tesla of both single partnerships and ecosystems are clear, Elon Musk has been on record for nearly a decade about his derision for such arrangements. On a 2016 Q3 earnings call, Musk said he hated them, calling partnerships much too complicated and prone to failure. But because Tesla wasn’t a typical car manufacturer with its own technology for developing products internally, it needed deals with more than 10 major companies, including Panasonic and Lotus, to harness their expertise, infrastructure, and capital.

An anonymous former senior executive at Tesla described the CEO’s thinking: “Elon doesn’t want any part of his business to be dependent on someone else. And for better or worse — sometimes better, sometimes worse — he thinks he can do it better, faster, and cheaper.” But despite his preference for going it alone, Musk is a pragmatist, understanding that that preference wouldn’t get him where he wanted to go.

He chose Panasonic in 2009 as Tesla’s preferred lithium-ion battery cell supplier, and Panasonic then invested 30 million dollars in Tesla. As the partnership continued, benefits for both companies grew. By 2016, Panasonic chose to invest 1.6 billion dollars in Tesla’s Gigafactory project in China, and it made internal changes to support the partnership, developing the kind of firm-level capability Singh says is a hallmark of successful partnerships: “No matter the business or the country of origin, a key measure of success is how well a partnership is supported at an organizational level. Research shows that those companies that consistently generate greater levels of value have one thing in common: a dedicated alliance function.”

For Panasonic, that meant making Yoshihiko Yamada, previously the CEO of Panasonic’s North American operations, the company’s liaison to Tesla. Over one year, Yamada worked with Tesla to overcome the significant cultural differences between the companies and resolve more pragmatic concerns, including financials. The long-standing partnership continues to pay off for both companies: Panasonic’s new lithium-ion batteries, which provide a 15 percent increase in the range of electric vehicles, will be mass produced starting next year — and its first shipments are going to Tesla.

Singh says leadership and give-and-take are critical. “You need people who can manage relationships and take the lead in investing in the network. Don’t look at it as solely a resource that you take value from — you need to feed it, not just drain it. Determine where you can add value, and be an effective partner while also protecting your interests.”