Effective Business Relationships, Part 2

by  Charles Smith

In part 1 of this series we discussed the importance and underlying assumptions of successful relationships at the strategic business associate (SBA) stage (See Fig.1).

Given some focused concentration, our supplier company can define and analyze elements of the characteristics, goals, focus and approach of the four customer relationship stages: vendors, preferred suppliers, partners and strategic business associates (SBA). Evolving and studying this information carefully will allow you to determine exactly where your company is in the relationship route with each of your customers. By looking at each key customer in the context of these elements, you'll develop a basis for determining the strategic value of each potential SBA, including the ways their futures mesh with yours and the costs of such a relationship. All of your customers (and some you aren't yet dealing with) are initially candidates for focusing your efforts toward becoming true strategic business associates. But not all of them can become SBAs. Remember the 80/20 or Pareto Rule: you get 80% of your business from 20% of your customers. And conversely: you put 80% of your efforts into 20% of your customers.

Assume you have selected those customers which meet your requirements for growth potential in both their own markets and in their requirement for products or services of the sort your company manufactures. Assume also that those customers selected are compatible philosophically and demonstrate that your investment (and it will be substantial) will yield the required return. You must now proceed with a realistic analysis of your own company's capabilities. Does the company have the financial staying power, the management and systems infrastructure, and the cultural characteristics including management determination, versatility and flexibility, to successfully secure strategic business associate status with the selected candidates?

Building a successful relationship starts with producing an excellent and reliable product at a competitive price which you can support in your customers world. If that building block isn't firmly in place at the start, you're not yet ready to press toward either partner or strategic business associate status with an important customer. And if that is the case, stop and spend the time putting this relationship platform into place. If you begin to build a relationship of interdependence and fail, there is no second chance.

RELATIONSHIPS AREN'T ALWAYS IMMORTAL

Supplier-customer relationships often have endings as well as beginnings. A good relationship which dies a timely death usually does so because the long term strategies of the customer or the supplier or both are changing; they agree that their mutual goals will no longer be best served by the heretofore successful strategic relationship. A plan is thus conceived to allow a successful and profitable disconnect -- a timely dis-integration.

A premature dis-integration of a successful relationship results because one or both the strategic associates aren't carefully nurturing all elements of the relationship, and the mutual advantages are not so obvious as they previously were. As with any "marriage", carelessness can be the beginning of the ultimate demise.

Thus, when deciding to embark on GAM, it's wise to realistically evaluate all your current relationships and decide which ones are worthy of the substantial effort you'll expend to become a strategic business associate. For a relationship you wish to keep and build, there are some skills needed in order to evolve, nurture and monitor it, and we'll cover these in Part 3 of this series. [NOTE: The QUEST Team does a full relationship module which has more workshop elements in these areas and takes about six hours.]

EVOLVING THE RELATIONSHIP

Most supplier companies have relationships at some level (see Fig.1) with most of their customers. And. sadly, most companies don't monitor those relationships in regular and analytical fashion to see what they are doing right, what they may be doing wrong, and how they can advance the relationship to their mutual benefit. How we spend resources is a quick and easy means of checking on how we think we value a customer. Suppose you look at two customers, one which is relatively easy to work with and which we regularly please without significant resource expenditure, and the other which is difficult and requires a great deal of expensive support. It may be a good idea to determine what each is costing your company versus its relative profitability. Now, what if the "easy" company is quite profitable for you while the "difficult" one is marginal. You should immediately look at how much more could be gained from the "easy" one with more support versus the "difficult" one. (Remember the 80/20 rule.) But further, you should evaluate why the "difficult" one is so difficult, and act on your results. Perhaps they can both be good accounts (it could be as simple as a personality clash with a team member). Or perhaps one customer should be phased down.

Time and commitment and a reasonable amount of patience are required to build a relationship that can ultimately be a strategic business association. The GAM drives it; the team is responsible to make it work. But its success is a company project. If senior executives in the company and senior managers in engineering, operations, and yes, even in finance, don't fully understand and buy into the GAM concept and the discipline it requires throughout your company, it isn't going to work, and SBA status will never be accomplished

In the third and final part of this series, we'll discuss nurturing the strategic customer relationship -- and growing it and you.

‹‹ Charles Smith [About the Author]