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November 21, 2012

Using MCDA to Evaluate Business Partnerships

Strategic partnerships play a vital role for any firm that is into selling solutions. A lot of effort goes into joint marketing campaigns, product development and branding in order to emphasize the value of a solution provided in partnership with another firm. It is very important to partner with a firm that synergies with your Brand. In a large corporation with hundreds of alliances, there is a marked need for a framework to evaluate and prioritize partnerships. Recent survey/specific instances for a large Technology firm indicated that:
  • Sheer volume of partnerships dilute messages in the market
  • Some partnerships are detrimental to the firms Brand
  • Some partnerships are under-leveraged and do not drive maximum value
  • Partnerships need to be strategically aligned with evolving Line-of-Business (LOB) priorities
This would be a common scenario in many large corporations. To address this need, we need to be able to rank partnerships based on relevant criteria and draw actionable insights. MCDA (Multi Criteria Decision Analysis) techniques come across as very effective and transparent when used in structured decision making processes.
The main steps involved in a MCDA technique are :
  • Identifying the parameters involved in the evaluation/decision making process
  • Gather data on the parameters involved and score them
  • Assign weights for every parameter based on decision makers preference and evaluate the final score
  • Formulate priorities and recommendations based on the final scores
Consider the example of the Technology firm mentioned earlier. Let us use the MCDA technique to evaluate partners across this firm.
Identifying the decision parameters:  First, we need to identify the parameters based on which we will evaluate every partnership. It is vital to identify every possible criteria for a more accurate result. After a discussion with all the stakeholders, it was agreed upon that the partners would be evaluated based on the following parameters:
P1. Brand Strength
P2. Financial Strength
P3. Strategic Alignment and Product fitment
P4. Marketing Spend
P5. Consumer perception
P6. Other preemptive criteria
Depending on LOB priorities, these parameters can be altered for different verticals.

Scoring the parameters:  Second, all the partners that get flagged by the preemptive criteria would be highlighted for review. One would not want to partner with a firm that is bankrupt/scandal hit/etc.
The parameters involved would be rated on a quantitative and qualitative scale making it difficult to combine them all at the end of the exercise. To compare all the parameters on the same scale, we rank the outcomes of each parameter in hierarchy and score them on a scale of 1-10. Consider the example of a partner in the Healthcare vertical: When scoring the parameter - Marketing Spend as a % of revenue, the outcome could be anywhere between 0%-15% and above across the vertical. Segment this range into 5 buckets and assign them a score between 0-10 in hierarchy. The range may vary for different verticals and appropriate adjustments may be made. A similar approach can be used for qualitative criteria by scoring them relatively in hierarchy.

Scoring partners and prioritizing them based on final score:  After every parameter is given a score, weights are assigned to each parameter based on the decision makers strategy to arrive at a final score for every partner.  The final score(S)  boils down to a weighted average of the parameters :

At the end of this exercise we have all the partners scored across an index across relevant parameters.
Ex: Decision scorecard on potential partners for a Tech firm in the Education Vertical

Ex: Scorecard to prioritize existing partners

Insights and Recommendations:
  1. The marketing team compared the scores for existing partners against the marketing funding received from the partners for the joint marketing activities. When viewed from the strategic alignment perspective, some partners had a very high synergy but were not being fully leveraged in terms of marketing activities. This resulted in $20 M in increased partner funding towards marketing activities.
  2. 7 partners were identified as Brand diluting and Risky and are being reviewed.
For further reading on MCDA, refer these links. Link1, Link2