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Relationships Matter

Relationships Matter

No organization has unlimited reserves of managers available for relationship management, and let's face it, such a touchy-feely competency would be a hard sell to most anyway. Fortunately, there is a more business-focused way to view external relationships: as a portfolio

Executives are being forced to become specialist relationship managers.

The more things change, the more CIOs have to do. On top of all the familiar challenges of dealing with user departments or that pesky business unit in Barmera, CIOs and their teams have to build robust, enduring and, worse yet, intimate relationships with suppliers and outsourcers. These days, failure to invest in relationship management means closing the door on higher-level relationships and on breakthrough competitive opportunities.

But no organization has unlimited reserves of managers available for relationship management, and let's face it, such a touchy-feely competency would be a hard sell to most anyway. Fortunately, there is a more business-focused way to view external relationships: as a portfolio. Classification is the first step in building a successful portfolio of suppliers and outsourcers.

There are four categories of relationships. In commodity relationships, like you might have with your supplier of stationery, everyone has the same information about products, services and prices. Process rules for transactions are clearly defined. Commodity relationships are all about saving money by increasing transaction efficiency. In a commodity relationship you do nothing special. You use only standard technologies, and standard products. As an economist might say, you do everything you can to reduce relationship-specific investments.

Performance relationships are the sort you have with the person who looks after your car; it's a sort of partnership. A performance relationship partner typically provides a more customized product or service - with higher value than an off-the-shelf offering. It's harder to find an alternative supplier at the price, so they deserve a little more investment from you.

A specialized relationship is the one you have with the person you have entrusted to restore your Donald Bradman cricket memorabilia. You are starting to get into cherished, and therefore expensive, territory. Now it's worth investing in fully customized business processes. After all, it's hard to get the same products or services from anyone else. Each customized process may be based on widely available tools and technologies, but the process knowledge is closely held. This specialization is a nail in the coffin of flexibility, so the payoff has to be worth it.

The most exclusive of relationship types is the unique relationship, the sort you might have with your plastic surgeon. There is scarcity since expertise is often restricted or secret. There is also an element of interdependence. For example, if your supplier brings a unique technology (product or service) to the relationship; then they are only dealing with you because that is their best way to get access to a specific market. Rather like marriage, they are great when they work and fantastically expensive when they go wrong.

Not surprisingly each of these four relationship types needs a different management approach.

You must manage each relationship differently. Humdrum commodity relationships can be taken up and cast aside fairly freely. The downside is that, because they're available to anyone in a market, they usually don't provide competitive advantage. Nonetheless you don't want to find yourself locked into a supplier or outsourcer and at their mercy. And be mindful that a poorly managed, commodity relationships can damage competitiveness by raising costs and reducing execution capabilities.

Performance relationships are more of a management challenge. In essence the supplier is able to do something better and, usually, cheaper, with you having invested in processes or applications to reduce your mutual costs further. This investment, along with the familiarity of your people with theirs, makes switching from one supplier to another harder than it is with a commodity relationship. But if there are a number of equally capable suppliers you can turn to it's not a crippling move. Many consulting companies use this basic model: capture knowledge about industries and processes, package it and deliver it using lower-cost labour to a range of customers.

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