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After completing the steps described above, you are equipped to begin your strategic planning. You’ll also need to use the information you gathered from your internal assessment. But probably the most valuable information you’ll need at this point is your Organizational Process Model because this will help you and your partner determine how to integrate the two organization processes to provide the value-added component for which your partnership was created.

As you build trust through your joint efforts in strategic planning, you can begin to share information and resources with each other. I know of a french fry producer who liked the potatoes of a certain farmer in Idaho. Unfortunately, the potato farmer could not produce the number of potatoes required by the producer because he didn’t have enough acreage. So the producer bought a nearby parcel of land for the farmer to use, and over a ten-year contract the land became the farmer’s property. Both sides benefited: the farmer received a fair price for the potatoes he produced on the land; the producer increased his supply of potatoes. Partners who invest in each other’s success both achieve more.

Operating leverage is the idea that companies can make more money from each additional sale if they do not have to increase fixed costs to produce more. In general, operating leverage refers to the fact that a lower ratio of variable cost per unit to price per unit causes profit to vary more with a change in the level of output than it would if this ratio was higher. So operating leverage is a function of fixed unit costs and output. The benefits of operating leverage unfold when business picks up. Then the existing workforce, plant and equipment can produce more without additional costs. Profit margins expand, and profits boom. Obviously, the profit of a business with a high degree of operating leverage varies more, everything else remaining the same, than do those profits of businesses with less operating leverage.

Greater variability of profits, of course, means that the credit risk is higher. Conversely, with a lower level of operating leverage, the business shows poor growth in profits as sales rise, but faces a lower risk of loss as sales decline.