The criteria for choosing a project partner

When a company needs a certain resource or capability it doesn’t have, one way to obtain it is to turn outward, and partner with an organization that has complementary resources and capabilities. Clearly though, the need must be reciprocal, and the alliance that emerges will be the product of positive interplay between needs, preferences and restrictions that characterize each of the partners. So a successful partnership is a question of finding the right match between the two parties involved, where the key word is complementarity.

So far, this is nothing new. Resource complementarity between two organizations is usually seen as that extra “something” that hopefully comes from combining resources with as much scope and variety – and as little overlap – as possible. But here’s where the recipe for a successful partnership seems to be missing a few ingredients. If the partnership is project-specific, we have to take contingent factors into account too. These might have nothing to do with resources (for example, geographical or cultural distance between partners), or even circumstances that directly impact the usefulness those resources. In other words, two companies could have different sets of resources, but combining them may not be very relevant to attaining specific objectives. What’s more, the partnership may be motivated not by the need to integrate different kinds of resources, but instead by the possibility of utilizing more of the same resource, or tapping deeper levels of a given capability. So complementarity should be interpreted in light of the specific tasks inherent to the purpose of the partnership. From this perspective, we can see task resource complementarity as one of the determinants of the choice of partner.

Another situation that might come up is asymmetrical complementarity between partners. In other words, one might bring much more to the table than the other, either in terms of quantity or quality of resources. Such a scenario would give greater bargaining power to the partner with the resources that are more strategic for achieving the objective, which would then skew the equilibrium in the partnership (task resource imbalance). So resource imbalance – both general and task-specific – represents an additional factor to consider in terms of matching two potential allies.

To fully understand the criteria that underpin the creation of partnerships, we tested a number of specific hypotheses regarding task-contingent resource complementarity.

In assessing this type of complementarity, the first thing to bear in mind is the actual utility of the resources that each partner can contribute to achieve the task at hand. The more the partnership helps fill the individual “resource gaps,” with respect to the task requirements, the more effective the alliance will be. But if one of the two partners alone has all they need of a given resource (in other words, they’re self-sufficient), we can’t talk about complementarity. What’s more, if combining a given resource leads to an excess amount of that resource in relation to what the project requires, this resource could be considered redundant. Finally, when the resources of the two partners overlap, this is a potential source of competition which can lead to problems too. But there’s one notable exception: if neither of the two parties has the minimum quantity needed of a given resource, which they would have by joining forces, then we still have complementarity.

Building on these criteria, our first hypothesis is that for two potential partners, the higher the complementarity of the resources they have to accomplish the task at hand, the more likely they are to form a partnership. This would hold true both in terms of resource scope (that is, interdependence in order to accumulate the entire range of resources they need) and depth (interdependence as far as the quantity of resources the project requires). The reason for this is that with critical resources or capabilities, other options for acquiring them all or in part, either on the market, or via other partnerships, are less effective if not unactionable.

Added to this are the effects of resource imbalance: the more pronounced this is between two partners (again as far as the resources they need to achieve a given task), the less likely they are to enter into an alliance. This is especially applicable to resource scope (that is, if one of the two parties has exclusive access to crucial resources and the other has none). Instead, for depth this imbalance is less relevant. In fact, if one partner has a given resource, they can more easily and accurately assess the value of adding more of that resource, which gives the other partner less bargaining power.

To verify our hypotheses, we analyzed the processes companies followed to form partnerships to participate in call for tenders for public works in Italy. When these tenders refer to major projects (over 30 billion lire), bids are often presented by coalitions of firms that form associazioni temporanee d’impresa (temporary business associations), with a single lead firm heading the project. When evaluating bids, the resources that each participant can contribute are examined in detail (for everything from surveying the construction site to digging the foundations) along with the amount associated with each one.

Our study focused on 316 temporary business associations that were awarded contracts in calls for tenders that took place from 2006 to 2008. For each one, we compared the profile of the winning partnership with the four fictitious alliances between the successful lead company and other potential partners. To assess resource complementarity, we took into account a set of 47 resources and capabilities which are serviceable for construction projects in general, and the requirements of the specific tender, in terms of scope and depth. We also examined resource imbalances within partnerships.

What we found was that resource complementarity, defined in general terms, proved to be a key factor in explaining the choice of partner. But the effect is far more pronounced when we consider complementarity in light of the task at hand, the scope of resources, and - even more importantly - depth. Likewise, resource imbalance in general does have a negative impact on the possibility of setting up partnerships. But here too we can assess this impact more accurately as far as the tendency to establish alliances if we also take into account the task in question. In any case, this effect is significant only in terms of the scope and not the depth of resources.

The motivation to set up a partnership springs from a complementarity of resources, both in terms of the type of resources each party has, and the quantity or depth of those resources. In fact, complementarity is an incentive to form an alliance both in general terms, and even more when the potential partners consider the specific set of resources they need to accomplish a specific task. But if we take resource complementarity an add an excessive imbalance between potential partners, this can end up being a deterrent because the weaker party could be at a disadvantage at the bargaining table.

When embarking on new projects, a company might have to look for new partners based on the work that needs to be done. These situations call for a careful analysis of the necessary resources and what each potential ally would be able to contribute. The purposes of a partnership are not necessarily only tactical, but strategic as well, such as product diversification or rapid access into new market. Even for research and development projects, building alliances with complementary companies to accomplish a well-defined task can represent a success factor.

But this doesn’t mean that when companies form a partnership to achieve a specific task, a high level of general resource complementarity is irrelevant. On the contrary, it could allow the two parties to deal with unexpected contingencies, and could serve as a launch pad for future collaboration on other projects. Although this strategic aspect of project partner selection is less relevant with respect to the context that we’ve analyzed here, i.e. public works contracts in Italy, it could have a greater influence in other sectors and for other types of projects.

Our final observation: since complementarity and imbalance need to be viewed in light of the project-related activities, even the portfolio of partnerships that an organization has with other companies can be reconfigured based on the project flow that the organization wants to pursue. So this dynamic should be more common than what we would normally suppose, and not wholly dependent on the stable characteristics of the actors or the portfolio itself. Companies should not only partner with the “usual suspects” but also with allies that look like the “perfect match” to suit the circumstances.