A model for analysing and building business relationships throughout your value chain. By Peter Langford
The importance of closely managing the critical business relationships with all key stakeholders throughout the value chain has been demonstrated in the successes that organisations have achieved with customer relationship management, key account management, and supply chain management.
The Value x Loyalty matrix (Figure 1.) is useful in providing a starting point for thinking about managing all forms of business relationships. It highlights two main goals in any business relationship: the extraction of economic value; and the creation of long-term loyalty.
The matrix outlines four typical approaches that organisations and people adopt.
Figure 1. The Value x Loyalty matrix.
© Connexture, used with permission.
Death Row, characterised by low value and low loyalty, has a limited lifespan. You are adopting this approach if, for example, you manage a string of joint-venture partnerships that provide little value to yourself or to the other parties but the partnerships continue because of a tenuous connection at the senior executive levels or because there is a long history to the partnerships and no one is willing to buck tradition. Sooner or later, the lack of value will be exposed and the partnership will be forced to shape up or ship out.
The Revolving Door is characterised by high value and low loyalty. You are adopting this approach if your efforts are directed towards maximising short-term performance while doing little to build the commitment of the other party to the relationship. Many organisations, for example, push their suppliers for price and quality but leave little in the relationship to tempt them to hang around.
This approach is sustainable as long as a constant flow of suppliers can be found to match the turnover in existing relationships. The Revolving Door is profitable if the value being extracted from the relationship exceeds the cost of the turnover. However, organisations rarely recognise the true cost of the turnover so they inadvertently get stuck on Death Row (characterised by poor performance) even though they think they are in a Revolving Door.
At the opposite extreme is the Welfare Shelter, in which value is low but loyalty is high. You are adopting this approach if your focus is on keeping the other party satisfied with little regard to the value you are receiving. Organisations can unknowingly get stuck in a Welfare Shelter when a core aspect of their operations provides sufficient profit to hide or compensate for underperformance elsewhere. A Welfare Shelter can be appropriate if the cost of ending a particular relationship exceeds the cost of maintaining it. Alternatively, a Welfare Shelter can be appropriate on grounds of moral or social responsibility.
Finally, there’s the Hot House, characterised by both high value and high loyalty, the only approach that allows you to truly maximise performance.
You are in a Hot House if, for example, you are doing an outstanding job of managing relationships with internal stakeholders, if you have developed close relationships with key players in other divisions, and if you are in regular communication about ways of streamlining your joint processes and attacking business opportunities.
However, achieving a high level of loyalty in business relationships takes time, talent and the commitment of resources. If this investment is misdirected, you will find yourself in a Welfare Shelter with high loyalty but insufficient return.
You can use the model to plot the “as is” and the “to be” conditions for any existing business relationship.
Choose a customer, supplier, alliance partner and give a rough score from one to 10 to showing the present levels of value and loyalty (one = “extremely low” and 10 = “extremely high”). Plot this point on the diagram, labelling it “Now”. Do the same for where you want the relationship to be in six to 12 months. This can give you a quick estimate of where you are in the relationship, where you want to be, and a sense of what needs to be done to move between the two conditions.
How not to
How not to refer to September 11
Worst advocate for truth and beauty was Karlheinz Stockhausen, the godfather of electronic music. At a Hamburg press conference, the guru-like composer invited people to think of the September 11 attacks on New York and Washington as the “greatest work of art ever”. Amid the furore and furious backpedalling, he said that what he was really referring to when he said the “greatest” was Lucifer (a character in his opera-cycle Licht), confirming how out of touch he is with his own planet.
How not to guard against Anthrax
Some believe you can never be too careful. But the award for taking vigilance too far goes to the Nevada man who received a suspicious letter containing amorous writings and underwear. He immediately turned it over to sheriff’s deputies, who stored it in a biohazard barrel before determining it did not come from a terrorist and did not contain anthrax spores. The man said he became concerned about the threat of anthrax contamination because the unsigned letter, containing a sexually suggestive message printed on two pages and black underwear, was mailed in an envelope with no return address. The woman who made the overture notified the sheriff when she heard that the letter had been turned over for investigation. Churchill County Sheriff Bill Lawry confirmed that it was not the work of terrorists. “It was from a secret admirer,” he said.
How not to deal drugs
This month’s most incompetent crook award goes to Gabriel John Lajoye, who bought 56 grams of cocaine from a uniformed police officer in his marked patrol car, in a public parking lot in California in broad daylight. Police say Lajoye told an acquaintance, a Carmel police officer, that if he came across a large amount of cocaine during a traffic stop or in the police evidence room, Lajoye could sell it in another state. The police provided the officer with 56 grams of cocaine and the officer told Lajoye he had it. They arranged a meeting. “This guy pulls up, gets in the police car, gives our officer a couple of hundred bucks for the coke, and tells him he will pay the rest when he gets done selling it,” Carmel police officer Major Randy Schalburg said. “He said: ‘Thanks’, hopped out of the officer’s car and needless to say was arrested. I’ve done this (drug investigations) for 20 years and I’ve yet to see anyone ask a uniformed police officer for some coke. This has got to be the easiest drug bust we’ve made.”
How not to budget for defence
The ever-austere British Government has shown the world how not to equip and train armed forces. Naval recruits at a gunnery school were required to shout “bang” rather than fire real shells as part of the Ministry of Defence drive to save money. The sailors at HMS Cambridge, near Plymouth, were ordered to check the co-ordinates, line up a target and prepare to fire. Then they had to shout “bang” rather than fire their guns, saving a £642 shell each time. The move has saved the Navy more than £1 million a year. A Navy spokesman said the gunnery school was closing and it was felt that live firing from the shore was no longer necessary. He said: “Gunnery training is now being delivered through static, non-firing training and simulation. This is part of the Armed Forces’ efforts to achieve the best possible value for money.”
The end of live firing meant no more noise for locals and a reduction in the restricted areas of sea for fishermen, the spokesman said.
Many important management books have been written over the years: Hamlet, the human resource conundrum, Crime and Corporate Governance, Remembrance of Things Past: A Guide to Accurate Audits, to name but a few.
In a recent continuance of this noble tradition, Slithershanks was delighted to discover a novel of IT management entitled The Search.
The Search presents a gripping narrative about how the power-tools division is failing, and how the central character, the general manager (a woman) is to save or sell the unit.
Penned by Jed Simms and Jon Sturgess, this great contribution to the literary canon was ghost written by Russ Gleeson. And it has it all. Dirty tactics in business, jealousy, sexism and intrigue. Plus the occasional use of the English language.
It can only be described as a book that should be read close to the fire. The suspense is tedious without ever being riveting, the dialogue, at once spoken and vocal, speaks for itself:
” ‘Kate, I have some news for you. I think we can soon break out the champers.’
I feel a surge of excitement. ‘Let me guess. The tests?’
She pirouettes on the spot.
‘You are so right.’
‘You’ve got the results?’
‘Not all of them, but enough.’
‘For God’s sake, Linda, tell me.’ “