Buddy Up

Microsoft and SAP team-up shows the spirit of partnership

Wow, that's quite a handshake. Source: Fotolia

In 1985, the Badische Zeitung proudly announced: “State Buys World’s Best Computer.” At the time, the German state of Baden-Württemberg had purchased a Cray 2 supercomputer for the University of Stuttgart. The high-tech world was fascinated by the computer’s speed and waterfall cooling system, which seemed to come straight from a science fiction film. NASA and the US Department of Defense used the device for their secret research, while Ford and General Motors used it to analyze crash tests.

Today only historians care about the Cray 2. Apple’s iPhone X has 10 times more computing power compared to the former supercomputer. But this isn’t Apple’s achievement alone. Apple stands on the shoulders of the IT industry’s innovative prowess, which led to computing speed increasing a trillion-fold in the last 60 years.

Such an impressive leap forward was possible because of the IT industry’s reliance on partnerships with other providers and even competitors. And the alliance formed between Microsoft and SAP, which is centered on cloud computing, is another great example. It signals that far more cooperation is needed – across all sectors – to accelerate growth.

Today everything moves faster. Our physical world is inundated with data and this information allows people to make better informed decisions, speeding up our day-to-day lives. Friends can meet at a pub for drinks and continue a conversation that began on Facebook, and car buyers are more interested in integrating high-tech accessories into their new vehicles rather than engine power. Customers know and expect more, and this is a big challenge for companies.

Far more cooperation is needed across all sectors to accelerate growth.

The “Smartphone Effect,” or the drive to always have the newest model, is expanding beyond the tech industry. It used to be that fashion trends were seasonal, showcased in boutiques in spring or winter, but today clothing chains, like H&M or Zara, are changing up the industry: They think in terms of weeks rather than months. Even car manufacturers are introducing new models every three years, rather than the traditional cycle of every seven to eight years.

These technical changes mean suppliers have less time to react. The IT industry realized early on that they can be more successful by entering into partnerships, despite the boost it also gives their competitors. Apple, for example, uses Google’s cloud service and cooperates with IBM. Silicon Valley companies know that technology changes much too fast to invest the high price alone. It is simply not worth it. This is what makes partnerships integral to a company’s success: Without them it is impossible for companies to make progress.

One day soon the ultra-modern iPhone X will join the Cray 2 in a museum exhibit. New technologies, like quantum computers, self-learning software and cloud computing will take us into unknown depths of the information age, bringing unthinkable changes to every aspect of society. Already we see the power of digitalization: Cars will soon be driving independently and machines are already communicating with one another, managing their own tasks.

Companies can better manage these momentous changes through partnerships. And while they are not easy, requiring an open mindset and a certain degree of humility – not all companies can admit when others have more expertise – the benefits cannot be understated.

In deciding whether to buddy up, a business owner should ask: What is our core competency?

It requires complex coordination, planning and control agreements, and there is always the risk that a partner is really only looking for a short-term advantage or trying to obtain business secrets. But in deciding whether to buddy up, a business owner just needs to ask one fundamental question: What is (or isn’t) our core competency? Considering whether to enter into a partnership also causes companies to reassess their identity, which can be very important and lucrative.

Tesla is an interesting example: The electric car company thinks little of alliances and tries to do everything alone. It’s a risky strategy that has been successful so far, making Tesla one of the world’s most valuable car manufacturers. However, Tesla’s current production problems with the Model 3 highlight the disadvantages of a high vertical integration strategy. Moreover, despite the company’s many successes, it is unclear whether Mr. Musk and his vision will be proven right in the end.

Competitors, like Google’s Waymo, emphasize cooperation with car manufacturers to develop autonomous driving technology. Considering the rapid pace of change, it is entirely feasible that Tesla’s Model 3 will one day be part of a museum display, just like the Cray 2. And despite Tesla’s do-it-yourself strategy, Tesla does work with partners, like the Japanese battery producer Panasonic.

“Interesting conversations with ourselves require a clever partner,” wrote the English science fiction author Herbert George Wells. In other words, no matter how egomaniacal we are, we cannot do it alone.

Thomas Jahn is Handelsblatt’s New York bureau chief. To reach the author: jahn@handelsblatt.com.

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