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This chapter is from the book

How Relationships Could Have Changed the Path of the iPhone

Does how a firm manages relationships really affect the range of strategic options available to us? Of course it does. Consider the case of Apple, a firm that historically has not understood organizational relationships or how best to leverage them. In 2011, Apple reported $29.4 billion in profits. This number is astounding; however, the more I learn about Apple’s relationships with its strategic suppliers, the more I have to ask, why not more? Apple could have sold more if it had made enough product to meet demand. I don’t believe Apple would try to stage a “scarcity” of new products; this is always risky. While it can create positive buzz and increase demand momentum in the short-term, the larger risk is that consumers get angry when they line up to buy a product that’s unavailable. In fact, this was Apple’s fate in China in 2012, where an Apple store had to close because of fights outside its doors among customers who could not buy the new products. Why didn’t Apple have its suppliers make enough product to meet the high demand? It’s not because Apple hadn’t anticipated consumer response. Although Apple bills itself as a design firm, it conducts extensive research on how consumers might use and respond to its products. Apple clearly anticipated high demand, but Apple couldn’t deliver.

If we turn back the pages of Apple’s history to 2011, $3.9 billion was spent among a handful of key suppliers for strategic items such as solid state drives for the MacBook Air, chip systems, and high-resolution LCDs for the iPhone 4 and iPad. As a design and marketing firm, Apple must rely on manufacturing partners to produce its products. And while Apple might have desired that these relationships be purely transactional, or economic based, most high stakes relationships with repeated exchange over time benefit from the development of trust, implicit understandings, and information sharing. Few if any partners at that time would use those words to describe their relationship with Apple.

Since 2005, Apple has accounted for more than 40% of Foxconn’s flash outputs volume (representing more than $1 billion in purchases) for the iPod. These firms are absolutely critical to Apple’s success, and yet this partnership could not supply the quantities Apple needed to meet or come close to satisfying market demand in 2011. Apple’s reputation at the time was summed up in the phrase “Apple-centric.” Steve Jobs was known as a formidably difficult negotiator with partnering firms (recall his attempts to price-collude with book publishers). Apple would have made more money had it better managed relationships with these strategic suppliers, earned their trust and support, and got them to flexibly supply or respond to rapid changes in demand with the highest priority.

If Apple had been willing to be nonexclusive in its route to market for the iPhone, Samsung might not have pursued the inroads it later made with Google. By 2011, Samsung was tied with Apple in US market share and number one worldwide. Samsung’s approach to global domination rested on the use of simultaneous retail partnerships to rapidly extend its market reach. In other words, Samsung met the market volume demands and accomplished this with the help of its partners.

So the answer to the question regarding whether a firm’s relationship management practices can affect its range of strategic options is a resounding YES. Apple failed to dominate worldwide market share because of its inability to collaborate and partner with non-Apple organizations. The good news is that Apple did not stay there. Its subsequent Siri and Retina display innovations were the result of partnering efforts engaged in with startups and other companies. But the takeaway is that many firms are better at partnering with others, and they reap the benefits of greater success: Cisco, Corning, Eli Lilly, IBM, Pfizer, and Procter and Gamble, to name a few. The good news is that it is possible to identify relationship management practices that lead some to better results than others, and managers can be educated to discern the difference.

Partnering in the Cloud Era

It’s worth contrasting Apple’s approach to what is happening now in the high-tech industry. This is one vertical where partnerships are constantly coming together, being built, rebuilt, and dissolved. In this industry, it is vitally important to partner with others in order to quickly create customer value and maintain pace. Consider Microsoft Office 365, which needs to catch up to market leader Amazon.com Inc.’s Web Services. Microsoft must develop a network or ecosystem of partnerships to assist. Office 365 is positioned as helping CIOs move to the cloud on their terms. Provisioning cloud services is not a historic strength of Microsoft but represents a necessary move for growing revenue in the future.

The biggest impediment to cloud service adoption is the simple fact that every customer firm has unique technical, cultural, and process concerns. Many firms rely on highly customized applications in SharePoint or have built their competencies on proprietary software such as salesforce.com or Azure. The transformation is not a trivial task. In fact, many of the central cloud providers—Amazon, Google, and Microsoft—are not 100% on the cloud themselves. They still use proprietary software on local servers. Becoming completely cloud-enabled is something few firms can actually do. However, that does not stop them from driving others to their cloud platforms.

Microsoft needs partners that can help them close the adoption gaps. A good partner is one that can help clients determine what aspects are beneficial in a cloud versus an on-premise deployment. They can also span a client’s work culture and enable Microsoft’s cloud computing solution in a way that aligns with a client’s goal-setting, work flow, and process assessment activities. Microsoft needs partners that can tailor Office 365 to work with mobile applications and device management, monitor identity access and management, evaluate user experiences, and configure a wide range of services to get organizational customers on board.

Microsoft’s partnership portfolio includes global systems integrator partners such as CSC and Unisys to help Microsoft target large government agencies and global workforces and to manage complicated technology implementations. National and regional partners with deep Microsoft expertise assist customers who want to use Office 365 together with other Microsoft on-premises and cloud services for an end-to-end solution. And service partners are needed to bundle Office 365 with other value-added services, such as those offered by AT&T and Vodafone. These services include but are not limited to technical support, enterprise voice services hosted on the Web, and device management. To this end, Microsoft has partnered with Rackspace, a firm known for top tier technology support and service.

Partner Ecosystems for Apps

Virtually every major high-tech player requires a partnering network or ecosystem to move forward competitively. As CIOs must manage this move, a powerful partnering network is critical to using and deploying the cloud- and app-based solutions. Customers like Costco, Sealed Air, and the Roche Group must move their complicated on-premise collaboration infrastructures to a cloud-based system supported by apps. Like Microsoft, Google also segments its apps partners into four groups according to customer size: premier enterprise resellers, authorized premier resellers, small and medium size business resellers, and authorized SMB resellers.

One thing that Google does differently is to certify its partners for specialized deployment offerings. Google’s by-invitation partner program called the Google Cloud Transformation Partner Program identifies partners to build cloud apps, predictive analytic tools, and storage solutions that are customized to and optimize Google’s technology capabilities. These partners ultimately own the client relationship, which makes the partners, many of whom are small and have considerably less market power, indispensable to Google’s market strategy.

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