Win-Win Orientation = synergy. Organizations that increase their PQ already know how to create win-win conflict resolution and problem solving. This ability drives fear out of the relationship, lets creativity emerge, and generates the pure gold of partnership: synergy. But synergy is the outcome of a combination of components—the basic skills of Partnering Intelligence. You cannot succeed with just one or two of these components. All must be there or the partnership will not generate the synergy to move into the creative zone and blast itself away from the competition.

Organizations have an ongoing mandate to achieve continuous improvement as well as to reshape strategies and processes as missions and values change. All living entities redefine themselves daily by what they do and the environment in which they live. Full partnership is not the end of the cycle, but it does represent the ideal culture for organizations. You must dedicate yourself to making your partnerships as full as they can be every day. If you are accountable for your actions—and are intelligent enough to work with others in partnership—you will achieve your brightest future! You will succeed.

Partnerships provide value that competitors cannot duplicate. Anyone can reproduce a widget. So don’t bet the family fortune on your product or service. Sooner or later, someone will dissect it, figure it out, and make it better. And where will that leave you? What they can never reproduce is the dynamics created through partnerships. Each partnership is unique, made up of unique individuals, and the interactions between these people cannot be replicated. How do you reproduce genius? If scientists could figure out that one, cloning might become the most prevalent form of reproduction. But we haven’t figured it out because it is so complex and is the sum of so many factors that it can never be duplicated. This is true of partnerships as well.

Open systems increase information and intelligence. The more we share information, the more we learn. Different people can draw different conclusions from the same information, which can be invaluable. You may see data with one interpretation—I with another. We share perceptions and open each other’s eyes to fresh possibilities and new understandings of both the information and each other. Information is the best example of abundance. There’s no limit on the amount and how it can be used. Consequently, the more we have and use, the more beneficial it becomes. Organizations that have established trust and full partnership will benefit from this abundance of information and increased intelligence.

Mutual benefits = more for everyone. Again, the theory of abundance becomes reality in this dynamic. The more people benefit from an activity, the more they are willing to engage in it and the more it brings them. It is through partnerships that mutual benefits can be realized, generating wealth for everyone involve.

When partners have reached full partnership, remarkable things start to happen. Full partnerships between organizations are the equivalent of Olympic gold.Many try, few succeed. But those who do succeed know the work involved and the skill it takes to be the best. While the road is tricky and fraught with peril, the rewards can be rich, as we see below.

High trust enables creative risk. Only when we trust each other can we risk the quantum leap into the next generation of activity. Regardless of service or products, to move beyond the status quo takes a special talent—and that talent is best tapped into through partnerships. Some of the best breakthough examples come from the American effort to conquer space. The partnerships developed between NASA and private industry are too numerous to list— but they have yielded a lot more than the beverage Tang. From microwave ovens to insulated clothing, our lives have changed dramatically thanks to these partnerships. The creative risk taking was there. And those who formed partnerships with NASA stood to benefit like no other.

Telecommunications companies serve as a good example at this point. They used to be fixed-line operators. The introduction of new wireless technology changed their business models since they had to adapt their strategies to the new technological landscape. Capital expenditures were massively increased for the building of new wireless networks and the competition intensified for new wireless customers since the telecommunications market was liberalized, and alternative providers were allowed to compete with the incumbent telecommunications companies. Additionally government regulators in Europe asked for billions of dollars in fees for wireless licenses (3G). These technological and regulatory changes resulted in a tremendous increase of leverage for most of the telecommunications companies and a repricing of credit risk in this sector occurred that was accompanied by a negative industry rating trend (from AA_ to BBB_). Another example for the changing landscape of an industry is the electric utilities sector. This market undergoes a liberalization process which is in different stages according to the various jurisdictions. Changes of the regulatory environment have an impact on the development of credit quality.

The business models became riskier as the competition in the sector increased, M&A activities picked up considerably and some utility companies got involved in the risky energy trading business. Formerly low risk and stable cash flows generating businesses turned into higher risk (e.g. energy trading) and more volatile cash flow businesses.

The value chain for the automobile industry is representative for a cyclical sector. The various component makers interact with suppliers from the steel, textiles and basic materials industries. The car manufacturers assemble all parts together and finished automobiles are shipped through various distribution networks to the final consumer. Own financial services companies support the sales process. A vertical integration will increase the car manufacturers’ ability to control the entire value chain. Production costs are a major component for the success of car manufacturers. If a new technology or regulatory/deregulatory forces change the structure of an industry’s value chain the companies within this industry will try to adapt to the new situation. This means that management will change its business strategy in order to remain competitive. As a result, the capital structure may change which has a direct effect on credit quality.

The value chains for telecommunications wireless and electric utilities are examples for noncyclical sectors. Wireless operatorsinteract with equipment suppliers and their biggest cost positions are for subscriber acquisition, advertising and interconnection fees. Their customer base is divided into business clients and individual consumers. The success of a wireless operator will depend on the control of all parts of the value chain. This includes the costs for acquiring new customers, maintaining the existing customer base, the bargaining power with equipment suppliers, network costs and interconnection fees. The earnings situation will depend on the market power and degree of competition.

Fuel costs represent a big cost block for electric utilities hence their profitability depends to a large extent on raw material costs. Electric utility companies can diversify across the business segments generation, transmission, distribution and trading. The customer base is divided as industrial, commercial and residential.

Structural economic changes of industries are important in the sector selection process for corporate bond investors because they determine how an industry functions and will allow to make projections about the development of the credit quality of specific industries. It has to be determined whether certain changes in industry dynamics occur which have a material effect on the evolution of the industry structure. Examples of some driving forces for change are:

• Long-term changes of growth patterns
• Changes in the customer base (demographics)
• Changes in production costs
• Product innovation
• Changes to production processes
• Structural changes of supplementary industries
• Changes of government policy
• Exits and new competitors.

Industries with structural losses have to be avoided because their profits will fall in recession and recovery as well. Defensive industries with structural gains will experience a rise in profits during the whole economic cycle.

Industry trends have to be monitored and projections about future trends have to be made because they will influence the profitability of an industry. Some major industry characteristics are:

• Pricing and cost structures (evolution over time)
• Domestic and international competition
• Technological change (pace and adaptability)
• Asset values
• Upcoming financing needs
• Potential liabilities
• Political and regulatory environment
• Government support
• Current state of regulation/deregulation.

Oil companies’ relative profits also peak during a recession because an economic downturn is usually accompanied by high oil prices. Utilities have a noncyclical business profile and they are subject to regulated pricing. They will realize their profit peaks relative to the market during a later stage of an economic downturn.

Consumer staples is a noncyclical sector and hence the profit peak relative to the market is reached towards the end of a recession. Profits are not robust but consumers cut spending on large discretionary purchases while the demand, for example, for food and beverages remains relatively stable across the whole economic cycle.

Group sectors according to their change in profits during recession and recovery. The profits of cyclical sectors will fall in recessions and rise during a recovery. On the other side, the profit cycle of defensive companies is countercyclical. Profits will rise in recessions and they will tend to fall in recoveries. Some industries experience structural gains which means that their profits rise during recession and recovery. Other industries suffer from structural losses which means that they realize falling profits in recession and in recovery as well. Those are industries which reached a declining stage in their industry life cycles.