Saturday, May 14, 2016

A Theory of Business Relationships: Five Principles for Success and Sustainability

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. 


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.


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 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.


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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