Large corporations are being urged to behave like start-ups – to be nimble and agile.
Bigger enterprises are breaking apart into smaller ones. Smaller ones are becoming part of ever expanding networks. Outsourcing is rampant. External, business-to-business relationships are underpinning all of these changes.
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. Fortunately, a more business-oriented approach exists: managing external relationships as a portfolio.
Four categories of relationships
Relationships can be sorted into four types, depending on what’s in it for both parties.
Commodity relationships – the sort you have with your stationery supplier – are those in which everyone has the same information about products, services and prices. Process rules for transactions are clearly defined.
Performance relationships – the sort you have with the person who looks after your automobile – deliver a more-customized product or service, with higher value than an off-the-shelf offering, to a wide range of customers, using a standardized platform.
Specialized relationships – the sort you have with the person you’ve entrusted to restore your Winnipeg Falcons 1920s hockey memorabilia – result in customized business processes that offer high value for few participants. Each customized process is based on widely available tools and technologies, but the process knowledge is closely held among the participants.
Unique relationships – the sort you have with your plastic surgeon – are those in which one of the parties usually brings a unique technology (product or service) to the relationship; the other brings access to specific markets.
Commodity relationships revolve around simple execution. Management’s job is straightforward: to make sure you’re getting what you paid for. Given sophisticated buyers, prices tend to drop over time to a point consistent with market equilibrium.
In a performance relationship, management is a little more tricky since your supplier is more tightly integrated into your operations. Risks revolve around the seller failing to meet performance standards, dragging you down too. Management has to watch service level like a hawk, resorting to penalties and rewards to keep things running smoothly.
The greatest risk to the buyer in a specialized relationship is becoming locked into a seller who then provides poor performance. Management in this type of relationship need to be wily enough not to get caught, and focused enough to drive continuous-improvement programs aimed at getting even more value from the relationship.
Unique relationships are the highest risk of all. Since they are usually created to chase new market opportunities, the risk is that these hoped-for opportunities fail to materialize. Management here is a combination of old-fashioned person-to-person relationship management, risk containment and vigilance.
How IS can help manage external relationships
IS has a role to play in two places. First, it can share its own experiences. After all, many IS groups have gone a few rounds in the ring with a monster outsourcer, and this experience is invaluable to those that are new to the game.
IS can also provide technologies that directly benefit each relationship type. Effective commodity relationships require EDI, e-mail and product databases. Performance relationships require investing in process and knowledge management systems. Specialized relationships rely on technologies such as CRM, supply chain management, XML and Web services to achieve that integration. And unique relationships are based on unique technology on one hand and unique access to certain markets on the other. Strong sales and marketing systems, including CRM, are examples of technologies that provide access to markets.
Relationship management has become yet another core skill for the well rounded IS executive. Taking a portfolio approach to external relationships helps avoid some of the nasty pitfalls, and helps prioritize time and management effort.
Andrew Rowsell-Jones is vice president and research director for Gartner’s CIO Executive Programs.