Alliance governance at Klarna : Managing and controlling Risks of an Alliance Portfolio

Group-31 Abhishek Singh Anshuman Tigga Sudhanshu Shukla Bobeita Nampo Pegu Mamata Madhumita PGP/16/003 PGP/16/005 PGP/16/052 PGP/16/136 PGP/16/029

Agenda

Introduction
About Klarna
A Swedish Company , formed in 2005 Provides invoice based and part payment options for online shoppersCash After delivery Assumes credit and fraud risk for e-stores Handles entire invoicing and debt collection process Witnessed a rapid growth Turnover crossed 42 mn Euros in 2010 Connected with more than 8000 e-stores in Sweden , Norway, Denmark etc.

Alliance Challenges
Business model based on collaboration- e-stores, e-store platform providers ,debt collectors, credit rating agencies etc. Key questions to addressed are Binding contracts or build trust How to take decisions in such an alliance What priorities should be included in the initial agreements How to design the exit options

Klarnas Process
Customer selects Klarna as the preferred payment option at the time of check out and enter their details Klarna runs a credit worthiness check for the customer based on past purchase records Fraud risk and creditworthiness for new purchase is estimated and decision(Yes or No) send to e-shop

After receiving the product customer makes the payment to Klarna within 14 days

An invoice is generated and send along with the product to the customers

Given a Positive credit rating, purchase order is accepted

E-shop merchant is paid after deducting the fee amount irrespective of the payment made by the customers

Hassle free buying experience to customers Offers safety to customers by making them after receiving the products

Initial Strategy
Challenges
Initial challenge was to deal with the unknown identity of the company Neither customers nor e-stores were willing to try out the services Merchant were reluctant to share consumer data with new players Payment history a strategic asset for eshops Klarnas business model was considered highly risky Neither e-shops nor platform providers had trust in Klarnas technical capabilities

Mitigation Strategy
Association with Walerud helped in trust building in early days- signaling effect Initial approach via telephone, personal presentations helped in generating trust and goodwill Reimbursement for software development cost to platform providers Waleruds reputation Affiliation with Stockholm School of Econimics

Initial failures in partnering with big e-stores Integrated smaller ones first In 2011 contracted with the largest e-store in Sweden

Business growth and Challenges

New Challenges
Increasing network size brought complexities in management Informal agreements created difficulties Absence of Partner and Risk management Threat to the Reputation

International expansion
2006 Norway and Denmark Leveraged Success in 2008- Opened subsidiary in Finland Sweden to expand and 2010- Started operations in Germany and Netherland build trust

Additional Services
Started offering consumer insights to partners free of cost Published magazines and helped partners to improve sales Organized information sharing and training events for channel partners

Collaboration and Reputation Risk

Contract
Formal written contracts with e-shops and platform providers

E-shop Platform providers

Agreement with platform providers to offer invoice and part payment solutions Partners will actively market Klarnas service to e-shops All complaints to be informed to Klarna Privacy and confidentiality clause Contract duration, termination and dispute resolution clause Commissions E-shops Similar to platform providers Purchase ,payment process and merchant obligations Over the years contracts had evolved to safe-guard the company from frauds by eshops Inclusion of more restricting and controlling clause Klarnas image of being a fair partner despite a high inclination towards individual negotiation of fees and rates

Collaboration and Reputation Risk

Monitoring and Controlling
Close monitoring of activities of e-shops In cases of irregularities ,directly contacts customers Support from platform providers and e-shops is informal Internal standards and Benchmarking to control the efforts Clause of forwarding customer complaints to Klarna is difficult to monitor

Increasing Challenges
Highly demanding customers in Germany, France and Britain Contracts and risk management? Willingness to pay extra for payment processing is decreasing Threat of competing services- e bay Alignment of Klarnas objective with that of merchants New commission structure Improved contracts for better partner management

Alliance Portfolio Management

Portfolio Strategy
Alliance strategy and alliance policy is required to direct and monitor partners Lack will create more difficulties in future A balance of exploration and exploitation strategy is needed

Portfolio Monitoring
Monitoring is limited to misbehavior of e-stores No formal system to tracking performance of partners and eshops Evaluation of the performance is highly critical for implementing portfolio strategy

Portfolio coordination
Portfolio coordination is critical, Klarna has not taken initiatives to use synergies and avoid conflicts between alliances Resource and Information sharing can improve the coordination among various partners

Alliance management system

Informal agreements to Formal contracts ,however there were differences in ways to handle and negotiate with merchants A more formal and standardized approach to alliance management is needed to support the growth of the company