Do Relationships Matter?

In this age of technology we are constantly barraged with the concept that we must join the wired world in order to prosper. There are many still that maintain that purchasing power is the only catalyst for success and that focusing on soft issues like relationship management merely dilutes this power. At the same time the thrust towards Partnering and Partnerships, particularly from the public sector suggests that building relationships is or should be a strategic driver.

In recent years we have seen a growth in the number of weddings, which suggests that personally there is an awareness of the need to provide a show of commitment. Whilst not surprisingly at the same time the statistical divorce rate is increasing, which perhaps suggests that the commitment or effort being put into building and maintaining these relationships is less robust.

On the business landscape we have been seeing a growing trend, and in some sector’s a flood, towards outsourcing and off shoring. These relationships if they are to deliver real value cannot be left to contract compliance. Globalisation has always been a factor but here again we see an explosion in the market place, which is not likely to abate. There can be few, if any, organisations that are not touched by the impacts of global interaction and competition. The trends in business models are moving towards more holistic networks of customers and suppliers fuel by competition and facilitated by improved communication connectivity.

Behind this wave of decentralisation, complexity and alternative more variable trading approaches the vista of CSR and sustainability are looming as serious concerns for business leaders, particularly where this may reflect back on reputation. Sustainability though not simply in the sense of environmental and ethical trading but more basically in terms of continued wealth generation and supply security.

At the forefront of much of these dynamic developments is the purchasing community which whilst faced with the demands for ever reducing costs and best value has to maintain structured processes and deliver the goods. Sadly procurement is still more frequently than not seen as a clerical function and not as a strategic player in the overall business plan. When pressure is brought to bare the result is often not best value but best price that becomes the overriding ethos and with it much of the real value chain is lost to academic number crunching. Even worse on occasions the focus on price deflects the opportunity for the relationship to deliver enhanced value

Having spent most of my career in the hard-nosed environment of engineering and construction procurement I fully appreciate the value of strong purchasing teams and sound discipline. What I learned however very early was that whilst a solid contract was a necessity the strength behind the process of delivery, dependability and performance was in fact the strength of the relationships between individuals and organisations across the trading gap.

Relationships are the glue and facilitate success, companies make contracts but people make business. In fact we contract for risk and failure, the more dependence we place on electronics to bridge the divide the less we cultivate the relationships that make things happen. The following chart perhaps reflects these views and has provided lively discussion when presenting the importance of relationships, particularly in the context of E-procurement.

What should be obvious is that the more complex the business arrangement the greater the impact of the more emotional or soft issues on success. This is not to suggest that at the functional end the underlying relationship is not important. Many might suggest that they do not need a relationship when putting petrol in their car but good service from an ethical oil company plays its part in the transaction. But as you move away from the transactional interface people develop value not machines.

From experience purchasing around the world the value of relationships becomes even more noticeable. In some parts the relationship is more important than the contract and failure to establish the interface can prevent a good deal being done. It is also important to recognise that contracting approaches and negotiation styles can enhance or damage the down stream performance. Purchasing power is transient and when working to a critical path changing suppliers is seldom an option thus whilst the contract may defend the position it frequently does little to help the in the short term.

Perhaps more importantly the way in which a deal is developed and negotiated impacts the down stream relationship. The not so clever negotiator may pull the wool over the eyes of an opponent to get the contract in place but failing to understand where the relationship is intended to go means that manipulation during the pre-contract stage will under mine the stability of the players later. The tough negotiator is often heralded as a champion but future problems may be as a result from not planning ahead. It is therefore crucial when starting out in a business relationship to have a clear view of the long-term proposition. It is also dangerous to assume that established trading relationships could simply be enhanced without potential risks.

Collaborative relationships and partnerships have become vogue, with the public sector and government leading the charge. However, changing the nature of a relationship from simple contracting to integrated operations raises expectations and thus increases the chances of disappointment and friction.

As we move towards the need for a more agile and interdependent business models the vista of risk should be high on the profile of considerations. Alliances are a valuable option but they rely on the parties having common objectives and a culture of sharing responsibility. The recent challenges within the PPP programmes highlighted the ‘fiction’ that risk can be fully transferred through contracts and thus risk management ought to be a joint consideration.

Despite a personal commitment to partnering and its potential value, it must also be appreciated that not every relationship is a partnership. Relationships are a factor in every business context and that understanding the nature, depth, value and long term implications of that relationship are crucial to delivering best value. Yet in the majority of cases the training programmes that are available remain focused on command and control concepts that fail to recognise the changing more fluid face of the business landscape.

Whether customer, supplier, alliance partner, or in the context of internal divisions, relationships are a critical part of operating efficiency. Whilst we should not detract from the discipline of effective processes and good governance, if we are to exploit innovation then a proactive approach to relationships, rather than the traditional head in the sand position, are important. If the traditionalist would for a few moments look back on their successes I would suggest they would find good relationships at the core.

Knowledge transfer is the current buzz in the developed world, mainly one might suspect because traditional manufacturing has shifted to low cost regions. This exploitation of skills and experience depends on developing effective relationships to both capitalise on and protect this knowledge. Despite increasing efforts to secure and control IPR, reverse engineering and in many cases the need to hand over the family jewels to a third party creates a situation where only trust and mutual benefit provide the real safe guards. This knowledge fusion will increase rather than decline, as the global market place becomes more holistic. At the leading edge in many cases will be the procurement operations that are creating new opportunities and hopefully integrating with business strategy.

Organisations are introducing new roles such as Risk Managers and Relationship Managers but these may be seen as removing the need for those in the front line to be aware and trained to handle the realities. The creation of integrated business propositions and network clusters may be the future but they must be managed with alternative approaches if they are not to flounder because of a failure to value the catalyst of relationship management.

Some may suggest we are seeing a paradigm shift in the structure and nature of the business community. In my experience this focus on relationships is what has always been at the core of good business but has perhaps of late become subdued by perceived power and technology. As a result we run the risk of forgetting traditional skills at a time when we perhaps should be enhancing them.

‘Back to basics’ is perhaps a trite term that has been overly politicised along with the concept of partnership. Lets not lose sight of the principle of business which is credit and which in tern comes from the Greek word for trust. Trust cannot be contracted it can only be built up from performance and good risk management. Yet I see few risk management approaches that place relationships on the agenda. Understanding the nature of the relationships you have and working towards the relationships you strategically see as beneficial to your objectives is a key factor in success.

There are many that would promote the idea that relationships happen but if business depends in some part on successful relationships can we afford to leave it to chance. Developing a relationship management approach that raises awareness, rather than say CRM programmes that create vast libraries of data, should be a serious consideration to business managers. In particular procurement professionals who’s own performance will be judged more on the impacts of external organisations than internal processes.

The CRAFT programme was developed around straightforward processes that helps organisation to understand the nature of their relationships and thus enhance the value contribution. Whilst created in the environment of Partnering the methodologies and approaches can be deployed in any level of relationships. In basic terms relationships all follow a common development process:

• Awareness  where are we?
• Knowledge   where do we want to get to?
• Internal assessment   what are our own strengths and weaknesses?
• Partner selection   how do we find the right players?
• Working together   how do we want to work together?
• Value creation   where can the relationship add value?
• Staying together   how do manage continuous development?
• Exit strategy   what happens when the relationship is over?

Experience suggests that of these the most two most crucial influences are internal assessment and Exit strategy. The first comes from the basis that at least 50 percent of the problems organisations encounter derive from internal cultures, approaches and processes. The second from the recognition that before organisations will emerge themselves in a relationship they want to understand the rules of disengagement. Once the exit rules are defined this facilitates a more open and free exchange.

Establishing sound relationships focused on business aims and drivers are common sense but sadly as we become more systemised its not so common. The initial question was ‘Do relationships matter’ it is certain that they do but each organisation needs to understand how these fit with the business strategy and ethos of their operations. Technology can facilitate communication and speed transactions but it is only part of the equation and failing to recognise the so-called soft issues may completely negate the effectiveness of the process.