4.5
Marketing strategy conditions
IT conditions CRM, however well
designed and executed, can only work within an environment delineated by marketing strategy, cultural and IT
parameters.
Cultural conditions
Figure 4.4
Readiness for CRM
and the most frequently cited benefi ts arising from improved business relationships are
● improved bottom line
● long-term differentiation
● growth
● shifts in behaviour
● increased trust
● fruitful co-operation
● improved working patterns
● enhanced capacity for problem solution.
4.5.1 Forms of business relationships
Business relationships exist in many forms. 13 Some are complex and long-term often forming part of a wider network of relationships. Others are short-term. Some are close and collabo-rative while others can be contract-driven and quite adversarial in nature. Some of the most frequently encountered business relationships include the following: 14
● Contracts are often non-equity agreements ‘specifying the cooperative contributions and
powers of each partner’ 15 , where greater power usually lies with the purchasing ‘partner’.
● Partnerships , sometimes also referred to as alliances, may be contractual or informal, and tend to imply parity-type relationships built on equal input of both partners with shared goals and for mutual benefi t. Some partnerships are focused on short-term activities;
others might be a prelude to a full merger of two or more companies. 16
● Strategic alliances , sometimes also referred to as global alliances, are ‘voluntary arrange-ments between fi rms involving exchange, sharing, or co-development of products, tech-nologies or services’, 17 though they tend to exist as asymmetric relationships since they often involve one party acquiring a partial stake in the other. 18
● Partnering is concerned with developing closer relationships between the partners in an environment of openness and trust.
● Joint ventures (JVs) are one form of alliance and involve the partners creating a new, sepa-rate body or subsidiary, jointly owned, to exploit a particular opportunity.
● Networks are structures of interconnecting partnerships, alliances or JVs, which can take many different forms.
Importantly, all inter-organisational relationships are created, developed and infl uenced by the mindset and behaviours of a small number of individuals who form and hold the relationships by their words and actions. Typically, as these players change, so can the nature of the relationship.
4.5.2 Transactional and strategic relationships
Research and consultancy work has shown that though inter-organisational relationships exist in many forms there are only two types of relationship – transactional and strategic – each with their own distinct set of characteristics. 19 Both types are valid though the differences are commonly misunderstood. The important point to remember is that the two types need to be managed and measured quite differently. The key characteristics of these two types are summarised in Figure 4.5 . 20
Typically any one organisation is likely to have only a very small number of truly strate-gic relationships, so for many managers the challenge is how to become the best they can at the transactional type. As Case Example 4.5 , illustrates, it is no simple task moving from a transactional to a strategic relationship. The decision is likely to involve a change of strategic direction – a move usually seen as the prerogative of the CEO.
Roy Staughton, SHAPE International (www.shape-international.com)
Peter Roberts was the head of assets for National Transmissions and Trading within Transco, which is part of the National Grid Transco Group. Transco is a major player in the regulated industry and manages multi-million-pound projects that create the infra-structure used to transport energy across the UK. Peter was responsible for the plan-ning and construction, maintenance and ultimately decommissioning of the high-pressure gas pipelines and pumping stations within the UK.
Peter had some experience in developing strategic relationships:
A number of organisations want to move to having strategic relationships but they are struggling with how to do it. Strategic relationships call for a change in culture from an adversarial to a collaborative style. And that takes time – because it’s a trust issue and trust is earned, not switched on overnight, and it quickly unpicks when things go wrong. People default back to type when under pressure, and that’s a problem.
In a strategic relationship each party knows what turns the other party on, what is important to them and what they are trying to deliver. And they come together to agree how they can combine to meet each other’s aspirations. There’s a realisation that each party should provide added value and each party has a right to make a decent return. Such relationships can be quite hard for some clients because they are used to dictating to the supply chain exactly what they want. Part of a collaborative relationship is accepting that you’ve got to stop dictating and actually come together and look at what is best for the whole chain.
We did it by identifying which of our project managers had the mindset to move towards a collabora-tive way of working. We started to think about how we could bring the supply chain together in a spirit of trust and understanding. We had to stop dictating and start involving our contractors in important issues.
We brought project managers and contractors together, outside a project context, to start to work col-laboratively on things like policy and procedures for, say, health and safety and environmental issues. In that way both parties learned what collaborating involved, while working on issues that were important to the industry.
Case Example 4.5
National Grid Transco GroupSource: National Grid
Figure 4.5
Transactional versus strategic business relationships
Source : Developed by SHAPE International.
• Arm’s length
• Value specified
• Contract-led
• Asymmetric
• One of many
• Shorter-term
• Tightly defined Transactional type
• Arms linked
• Value created
• Spirit-driven
• Parity
• Selective
• Longer-term
• Continually developing Strategic type
While some of the issues and approaches contained in the previous section on customer relationships apply also to business relationships, there are three additional aspects to man-aging business relationships: measuring business relationships, using key account managers, and additional ways of developing personal relationships.
4.5.3 Measuring business relationships
Among the questions frequently considered by managers involved in inter-organisational relationships are:
● Where is the relationship currently?
● Why is it like that?
● What is the best the relationship might be?
● What might need to change to get there?
● How should we monitor progress?
These questions highlight an area that is of key concern to operations managers: how to assess and measure relationships. ‘Regular assessment of a customer relationship is a prerequisite for conscious, purposeful intervention in it. Assessment is particularly valu-able when any major change in the relationship is being considered, such as developing or adapting an offering or investing in operational capability for the relationship.’ 21 Yet, surprisingly given its importance, measurement of relationships is poorly understood.
From an operational perspective, managers need to assess and measure relationships to understand where the defi ciencies are, in order to work on them with their suppliers or partners. Measurement of existing relationships will also infl uence decisions about which partners to use in the future.
It is vital to recognise that the two types of relationships call for completely different approaches to measurement.
Assessing transactional relationships
Managing highly contractual, transactional relationships is often fraught with diffi culty.
This is particularly true where an aspect of the customer’s business has been outsourced to a Peter believes that developing strategic relationships is not easy. He added:
There isn’t a hard and fast rulebook that works for everyone. It requires a leap of faith. If you think it’s the right thing to do you should go with it and, if you’ve got any sense, you’ll put some key performance indica-tors in place to help you and your partners.
Using a process designed and facilitated by SHAPE International, Transco and one key partner agreed a jointly developed set of performance indicators, or metrics, to assess and develop their relationship. The process involved the key players from each party in identifying the things that make a difference to their relationship. These included a range of issues, from the attitude of key players, to document quality and the nature of communications. Once this was agreed, Transco and each partner shared their two sets of inde-pendently developed characteristics to agree a joint set. Using descriptive anchored scales for each agreed characteristic, the two parties were then able to agree on their existing and desired current position.
Peter Roberts concluded:
This process provided us with a jointly constructed set of weighted metrics that defi ned the relationship, together with agreement on the current and required performance for each one and a shared action plan to move things forward.
specialist provider. Examples of this lie in the area of facilities management or information technology support.
Measurement of transactional relationships tends to be concerned almost entirely with fi nancial and hard measures of operational performance, such as price and on-time comple-tion or delivery quality, and is frequently defi ned by service-level agreements (SLAs) which are often imposed on the supplier by the purchaser.
It is important to be aware that relationships by defi nition are ‘owned’ by both parties.
They are fundamentally two-way and shared, so this approach, whilst perfectly valid in a transactional context, cannot be seen as genuinely measuring the relationship. What is actu-ally being monitored is the performance of the supplier against the contract – something which in itself is entirely proper but it should not be confused with measurement of the rela-tionship which is something that is and can only, properly, be measured jointly. Table 4.3 gives examples of key measures included in typical SLAs.
The advantage of SLAs is that the measures provide a basis for review of how well the contract is working. The disadvantage is that it is impossible to describe all facets of service provision through an SLA. If the working relationship deteriorates to a ‘nit-picking’ review of performance against an increasing list of measures, it is likely that it will not continue. Worse still, SLAs are sometimes used to exert undue pressure on suppliers. For example, if a sup-plier has performed very well against the agreed measures, instead of providing thanks and an extended contract the purchaser may try to reduce the price on the assumption that the supplier had more resources than necessary to meet the performance targets. (We will cover more about SLAs in Chapter 6 .)
Assessing strategic relationships
As part of a strategic relationship, partner organisations trying to work closely together in a long-term relationship, and with mutual benefi ts in mind, will wish to assess the nature or strength of that relationship and how they might together develop it. Though many operations managers would claim that it is diffi cult, if not impossible, to measure some of Table 4.3 Examples of service-level agreement measures
Help desk support
Telephone response 95% within 3 rings
Problem resolution 65% through fi rst-line support within 8 hours 35% through second-line support within 24 hours Complaint escalation To fi rst-line manager after 8 working hours
To senior manager after 16 working hours Request for software fi x Initial response within 5 working days
Outline proposal within 15 working days Equipment maintenance
Response to non-critical fault 2 working days Response to critical fault 2 hours First-time fi x rate 95%
Schedule adherence 95% within 2 working days Spares availability 95% within 48 hours
100% within 5 working days
the softer, often more personal characteristics of a relationship, such as attitude, behaviour and trust, it is usually these softer characteristics that are essential for the success of the rela-tionship. 22 We believe it is only possible to understand and manage a relationship from both parties’ points of view rather than simply carrying out supplier assessments or customer sat-isfaction exercises. 23
This calls for a radically different approach, one which refl ects the mindset and aspirations of the parties to the relationship. This is almost always based on the joint development of a process for capturing and monitoring an agreed set of hard and soft metrics. One extremely successful way of doing this has been perfected by SHAPE International, a fi rm that specialises in the facilitation of business relationships. It involves facilitated agreement of the important characteristics of the relationship – typically a selection of elements of the seven dimensions of business relationships shown in Table 4.4 – which are then jointly assessed, using semantic anchored scales (numerical scales with descriptive anchors for the two extremes). 24
The jointly agreed scores then form the basis for discussion and agreement of action plans for improvement. 25 Case Example 4.5 demonstrates how a progressive organisation is addressing the development of strategic relationships and the process for jointly developing metrics of their key strategic relationships.
4.5.4 Key account management (KAM)
An approach appropriate for those situations where organisations have a relatively small number of strategic customers is key account management (KAM). KAM recognises that these relationships are complex, with more than one channel of contact between provider and customer. Figure 4.6 illustrates the transition from a traditional (‘bow tie’) approach to buyer–supplier relationships, to the KAM approach represented by the diamond.
In the traditional approach, transactions are channelled through one point of contact, a sales or contract manager. As Figure 4.6 indicates, the weakness of this approach is that the relationship is only as strong as the link between a single buyer and the sales or contract man-ager. This relationship is vulnerable to changes in personnel, so some organisations regularly change their buyers in order to maintain ‘arm’s length’ trading conditions. The danger for the supplier is that a change in a buyer might lead to a less favourable environment. The key point to note is that the relationship may be easily broken by competitors who manage to forge a strong contact with other infl uencers in the customer organisation.
The aim of KAM is to turn the traditional ‘bow tie’ relationship into a much stronger ‘dia-mond’. In this format, links are encouraged across the boundary between the two organisa-tions. The role of the key account manager is now not to act as a conduit through which all communication must fl ow, but rather to act as an enabler for the relationship. If the customer has a particular need, KAM is focused on setting up the dialogue between the appropriate Table 4.4 The seven dimensions of business relationships
Dimension Defi nition
Partner selection Who you choose to work with
Nature of contract Impact of the contract on the relationship and vice versa Understanding each other Understanding each other’s expectations and perceptions Interpersonal relationships One-on-one relationships at work and socially
Way of working Relationships at an organisational level Dealing with problems Dealing with and learning from problems
Performance management Using measures to drive action and improvement
Source: Developed from Johnston, Robert and Roy Staughton (2009), ‘Establishing and Developing Strategic Relationships – The Role for Operations Managers’, International Journal of Production and Operations Management 29 (6) 564–590 .
parties. Of course, the key account manager must monitor the effectiveness of these relation-ships to avoid the occurrence of problems that will damage the long-term business.
This approach is particularly useful for professional service fi rms that contain individuals or groups that are encouraged to be entrepreneurial in business development. It is not uncom-mon for customers to be approached by numbers of these, all from the same organisation, effectively in competition with each other for the same business, thus giving the customer the impression that the fi rm does not know what it is doing.
For B2B customers, the customer retention approach is so vital that it is almost a ‘blind-ing fl ash of the obvious’ to say that the organisation should focus on customer loyalty. A loss of a customer can threaten the existence of many of these services. The relationship growth approach has to be the main emphasis here, looking to build more links and broadening the base of business connection.
4.5.5 Building interpersonal relationships in business
Enhancing business relationships can easily be overlooked by organisations that are opera-tionally focused and busy delivering services, and also by organisations at the other extreme, which are market focused and intent on increasing their customer base.
Interpersonal business relationships can be established and enhanced in four key ways: 26
● Going the extra mile . Providing higher than expected levels of service on a current project,
such as providing enhanced documentation, analyses, explanations or even presentations, and/or greater accessibility to staff.
● Increasing the amount of client contact . Making frequent visits or telephone calls, creat-ing contacts at different levels in the organisation, schedulcreat-ing meetcreat-ings and feedback/
development sessions.
● Building the business relationship . Putting on special seminars for the client, helping them make other contacts, assisting with benchmarking, sending useful articles, even referring business to the client.
● Building a social relationship . Providing social activities and tickets for events, remember-ing personal anniversaries, etc.
In Case Example 4.6 the head of a global trading and shipping conglomerate explains how he tries to strengthen relationships with his suppliers and customers.
Figure 4.6
‘Bow tie’ and diamond relationships
Source : Adapted from Payne, Adrian, Martin Christopher, Moira Clark and Helen Peck (1995), Relationship Marketing for Competitive Advantage , Butterworth Heinemann, Oxford.
Traditional contact through
sales to buyers only – contact
easily broken
Supplier Customer
Contact at all levels and functions of both supplier and customer – contact difficult to break
Supplier Customer
The GP Group is a global trading and shipping company based in Bangkok. It is a family fi rm, which was established 125 years ago in Burma. It now has a turnover in excess of US$2 billion and comprises over 20 companies world-wide, specialising in commodity trad-ing, ship chartertrad-ing, ship management, rice production, seed research and production, manufacturing and export-ing rubber products, chemicals, phar-maceuticals, jewellery and soya bean.
It provides services such as property development, tour operations, plastic security cards, port management and project management.
Kirit Shah is the chairman and owner of the Group, and he explained his role in the diversifi ed business.
I am no longer personally involved in running any of my companies directly. All the companies have managing directors and they run the business on their own. I have good people. For the past 25 years I have been recruiting graduates from business schools. My typical day would involve meeting some of the directors and talking about what they are doing or working on a problem that they might have. I would meet a lot of their customers, their suppliers and their buyers, and I would typically host a lunch or dinner and meet them face-to-face to help them in their work.
The way I try to strengthen our business relationships is to have face-to-face meetings with people.
I know this is very much against the trend, which is about global communications, mobile telephones and instant communication. But just think about it: if I can sit face-to-face with someone I can see
I know this is very much against the trend, which is about global communications, mobile telephones and instant communication. But just think about it: if I can sit face-to-face with someone I can see