Relationship is at the core of social evolution. Relationship
is the way in which two or more people or things are connected with each other.
While relationships are usually interpreted in terms of family ties and friendly
moorings, relationships extend far beyond family cocoons or friendship circles.
In a broader perspective, relationship is the way in which two or more people
or groups regard and behave towards each other.
Many such relationships that are beyond the family system are
experienced by us; for example, the teacher-student relationship, the
doctor-patient relationship, the employer-employee relationship, the
landlord-tenant relationship, the people-government relationship, the buyer-seller
relationship, the multiple stakeholder relationships, and so on. In fact,
virtually everyone has a relationship with someone else he or she deals with,
in one way or the other.
At the very basic level, awareness of one another results in
just a cognitive relationship. As it evolves into an acquaintance, a reciprocating
relationship develops. Reciprocation could just be in the form of exchange of
greetings or could extend to exchange of information or other material factors.
While one could experience hundreds of reciprocal relationships, only a few
would evolve into sustainable relationships. For a relationship to be
sustainable, the relationship must traverse through three stages. The first is
rapport, the second is credibility and the third is trust. Rapport exists when
two people or agencies have a close and harmonious relationship, understanding
each other’s feelings and ideas, and communicating well. Credibility exists
when one stands convincing, believable and capable of fulfilling the promise,
in a consistent manner. Repeated demonstration of credibility leads to a firm
belief in the truth, reliability and ability of someone or something. Trust has,
in most cases, a material fiduciary responsibility and accountability.
Business relationships
Business relations are varied; from one-off casual
interactions to legally binding business contracts, there are many ways in
which business relations evolve. Some are business to business (B2B) while some
are business to consumer (B2C). There are others like business to government
which are legal and regulatory, and certain others such as business to society
that are more qualitative and abstract. Whatever be the nature of relationship,
the three step process defined above, and comprising ‘rapport, credibility and
trust’ is a must. Even in respect of one-off transactional relationships, the
process builds value for the present or for the future. Business managements have
traditionally seen financial ownership and/or commercial partnership, with
legal structuring, as the predominant basis to form and protect relationships,
but there is more to it.
Relationships are also subject to competitive dynamics. Exclusive
dealerships have, in the past, been the preferred relationships for sales and marketing.
Over a period, multi-brand dealerships have started appearing (whether in the
same dealer format or co-owned dealer format). Simultaneously, companies
started setting up their own selling plazas (for example, Maruti Nexa). Just as
social relationships are disturbed by dynamics of families and friends,
business relations are also disturbed by competitive dynamics. Any amount of
legal mandating may not help when competitive dynamics disturb. These influences
could be for cost and price advantages or growth compulsions. These could also
be due to lack of relationship between the people who manage the relationships.
Interpersonal
complexities
Business relationships are far more
complex than usually imagined. It is not as simple as measuring performance or
profits as generally thought to be. Each business relation is, in fact, a
complex maze of interpersonal relationships.
There are three such principal complexities.
The first is generational complexity. When first set up, later managed or
eventually terminated, it is people who interpret and endorse or negate a
business relationship. A business relationship has four distinct phases;
commercial discovery, legal templating, operational performance, and
performance review. All the phases are carried out by individuals on either
side of the relationship. As individuals change, not only the dynamics change
but the initial perspectives tend to get lost.
The second is horizontal complexity. Although a transaction is fulfilled
at one end of a business value chain the actual utility could be far out in the
value chain. A typical example is a vendor relationship which could impact
manufacturing. If persons leading or operating at different points of value
chain cannot communicate holistically and meaningfully, even simple performance
issues could lead to enormous noise in the system and destabilize
relationships.
The third is vertical complexity. Certain business relationships are initiated,
structured and signed off at the top between senior leaders, and handed over to
operating teams below to execute. While the jobs may be handed down, the
perspectives and the subtleties may never be cascaded down. In certain other
cases, a business relationship may be established at the operating level but
could come to the notice of, and review by, senior leaders at a later stage.
The juniors may not be able to explain appropriately, or even lack the
strategic approach the senior leadership now takes. This could also create
noise in the system.
Given that business relationships are
built on interpersonal foundations, the need for a systemic yet a people
oriented approach to business relationships is self-evident. Five principles
for successful and sustainable business relationships are discussed below.
Five principles
There are five principles of trustworthy and trusting
business relationships that can be built with interpersonal trust model.
Strategic
Not every business relationship is, or needs to be, made at
the CEO or CXO levels. Consistent with the nature of business relationship, the
highest leader must, however, be involved. A new green field expansion by a
component supplier needs certainly CEO to CEO partnership. However, an
arrangement for housekeeping will not require such intervention; yet, within
the boundary at least the functional managers must be involved from either
side. The involvement of senior managers and leaders helps in the avoidance of
‘penny-wise and pound-foolish’ approaches and instead focus on long term value
creation. Involvement of strategic leaders ensures that operating executives
are not threatened by self-perceived need to save the pennies at the cost of
long term value.
Risk based
All relations aim at rewards. It would be fallacious,
however, to assume that there are risk-free approaches to business
relationships. The more novel a business relationship is, the risk profile
could be higher even as its competitive advantage could be higher. If the
relation follows a beaten or established path, it suffers from another type of
risk of eroding margins. No amount of legally binding contractual language can
identify and provide for all current and future risks. Interpersonal rapport,
credibility and trust help in addressing risk professionally. One may have a
perfectly collaborative relationship with a competitor (like Apple and Samsung
have) when the risk and reward tracks are not intermixed, and respective
leaders are allowed to deal with competitive and collaborative aspects
separately.
Stage-gated
Business relationships should not be founded on expectations
of immediate miraculous results. Adequate time should be allowed for
operational teams to strike rapport, prove credibility and establish trust. Leaders
have a particular responsibility in selecting lead managers who have positive
interpersonal approaches and sound fundamentals. Many times, conceptually sound
partnerships flounder due to cantankerous managers who are self-obsessed rather
than focused on mutual value creation. If the first stage of rapport does not
take place, the sponsor-leaders have a responsibility to either counsel the
lead managers or replace them with more harmonious ones. Similarly, if
credibility is not established with repetitive consistent performance, the
processes must be relooked. Normally, a
quarter of rapport building and another quarter of credibility establishment,
at the maximum, may be allowed to assess the precursors to trust. And,
transparency is the key to assessment of trust.
Transparency
Transparency starts from the initiation of a business
relationship. Mature leaders realize that placing mutual expectations,
strengths, weaknesses and resource capabilities on discussion table help
establish the fundamental rules of transparency in a business relationship.
Many do not realize that understanding the weaknesses of partners helps build
greater strengths in the relationship as a whole. For example, when an Indian
outsourcing partner does not have global sourcing strength, and discloses that
weakness upfront the sponsoring client would be able to leverage its own global
sourcing network to meet the gaps. This
transparency may cost the outsourcing partner a pricing advantage, and the
sponsoring company an overhead burden but will provide to both greater business
value. Transparency helps in win-win alliances as well as in developing trust
to handle risks and share rewards equitably.
Codification
There are two ways to handle interpersonal complexities,
whether generational, horizontal or vertical. One way is to have the same
people handle the business relation, longitudinally in time, horizontally in
value chain, and vertically in hierarchy. In this case, institutionalized
knowledge and practice keeps building on established relationships. However, ‘people-perpetuity’
is hardly possible. People have to be moved in and out of positions, and
careers; and even if they stay static, changes in business environment with new
competitive dynamics induce changes in people. The only insulation can be
through codification of perspectives, processes and expectations with which a relationship
is set up, and the implicit and explicit value from the relationship. Partnership
codification must be a living document, enriched with progressive setbacks and
accomplishments.
Partnership as
relationship
Partnership, in a legal meaning, is an association between
persons or entities which involves pooling of all resources and sharing of all
assets and liabilities, usually in the ratio in which respective resources are
brought in by the parties. Partnership, in practice, is the consummate form of
a relationship which brings in the concepts of sharing equally and equitably.
Relationship is a generic way of two entities connecting with each other while
partnership is a customized definition of equitable relationship. Partnership
signifies a shared future. There are times when partnership itself has to move
an even more sublime relationship.
Partnerships are challenged when one of the partners is beset
by serious business troubles for extended periods of time. Imagine the
relationship between a truck maker who makes only trucks and is hit by
recession and a component maker who caters to all types of automobiles, some of
them growing in demand. If the component maker agrees to price reductions to
support the truck maker and stays on through the cycle of recession
collaboratively without shifting capacity, it goes beyond partnership; it will
be companionship. Strange it may seem in a hardnosed business context,
companionship is the sublime form of business relationship, as in personal
relationships.
Posted by Dr CB Rao on May 14, 2016
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