Why these Australian businesses are $430,000 worse off

Posted: 25 October 2017 8:00 am
business partnership

Bigger businesses want to collaborate with smaller businesses – and it can lead to a significant jump in sales.

New research has revealed that almost half of mid-sized Australian businesses (48%) want to work more closely with smaller businesses, and businesses that did invest in collaborative efforts achieved profits of 1.4 times their investment.

The research, from the 2017 American Express Business Collaboration Index, found that these collaborative efforts equated to savings of more than $319,000, or an average increase in sales of close to $430,000 for mid-sized businesses. Smaller businesses averaged a $28,000 increase in sales or a $44,000 reduction in costs following their most recent collaboration.

"What is clear is that collaboration provides an incredible advantage to those that invest in it. Still, many businesses have only dipped their toes in, playing it safe in their partnership strategies," said Martin Seward, general manager and vice president of American Express Global Commercial Payments in the report.

"Today's increasingly competitive marketplace means businesses must think more innovatively and form alliances to improve their offerings."

Uncollaborative businesses

The survey, commissioned by American Express and undertaken by RFi Group, surveyed over 700 businesses, 400 of which were small businesses earning up to $2m in revenue and 300 mid-sized businesses earning between $2-300m in revenue.

Of all the businesses surveyed, almost half (48%) were defined as having low to no levels of collaboration while one-fifth were "highly collaborative".

The businesses that were uncollaborative meant they had one or two collaborative partnerships in place but "there had been limited success or return on investment (ROI) from the relationship". Out of these uncollaborative businesses, 51% had experienced no growth in the past 12 months. This is compared with 34% of moderately collaborative businesses and 21% of highly collaborative businesses.

Financial success of collaborations

And for the businesses that did collaborate, the research found that the investment definitely made a worthy return. The Index revealed 42% of mid-sized and 21% of small businesses had achieved ROI on their investment faster than expected. This took the form of increased sales (53%), reduction in costs (20%) or both (26%).

On average, 69% of small businesses and 61% of mid-sized businesses achieved an ROI within six months from their most recent collaboration.

In terms of dollar value, small businesses averaged a $28,000 increase in sales or a $44,000 reduction in costs following their most recent collaboration. Mid-sized organisations averaged a $430,000 increase in sales or a reduction in costs of $319,000.

"With ROI being a key question for CFOs, the strong performance of collaboration investments makes a compelling case for all organisations to place even greater emphasis on partnerships in 2018 and beyond," the report said.

Given the success achieved by both larger and smaller businesses, it may be time for your business to consider a strategy that incorporates collaboration as a key objective. If you are considering a business collaboration, American Express offers the following tips:

  • Know what you want to get out of a partnership before you get into it
  • Make sure you have the fundamentals right. Make sure your processes and systems are aligned.
  • Measure the return throughout the process in as many different areas as possible. For example, many businesses told American Express they went into collaborative ventures to improve sales but the largest benefits from the collaboration were improved operational efficiencies.
  • Don't be constrained about what a partner should look like. Look outside your industry or even globally to find a business to match your goals.

You can read a full copy of the report here.

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