I once worked on a project on which, during interviews, both parties to a large supplier-distributor business relationship described the other as a “blood-sucking weasel”. This was an extreme case, but most firms involved in business relationships probably can cite an example of an important relationship that was constantly under strain. William Blake, the English poet and painter, has been quoted as saying “He hasn’t an enemy in the world – but all his friends hate him”. As was the case for the firms involved in the relationship described earlier, that statement applies all too frequently to the relationships between manufacturers and their suppliers and their channel partners.
Such characterizations are neither necessary nor inevitable. I have seen many instances of CoDestiny1 business relationships in which both parties gain from the association, rewarding their shareholders in the process. The potential for such “win-win” relationships came up during a lunch discussion at a recent meeting hosted by the Institute for the Study of Business Markets. The discussion participants all acknowledged how very difficult it is to keep business relationships on a positive keel, but all of them cited the benefits of doing so. Over the course of the discussion, several of the executives involved shared examples of contributions that had been made to their firms by suppliers and by channel partners that were important elements of their overall Go-to-Market strategy. Two important lessons emerged from those examples that can help to guide efforts in other firms.
A Shared Focus on Value Creation
One case study involved an electrical distributor that had faced a troubled market a number of years ago, in part due to the recession and in part due to changes in the makeup of the industrial segment in his region. One of their key suppliers came to them, explained that they recognized the situation, and offered to extend the relationship into a new vertical market where growth prospects were much stronger. The executive from the distributor organization provided the following observation: “Hearing about this opportunity reenergized our firm. And it gave us a new perspective on business relationships. The manufacturer who came to us said we’d been a great partner, that they knew we would deliver, and that they wanted the relationship to continue and to grow. They invested in helping us to get up to speed and collaborated with us on sales calls – actually leading us – as we got going in the new segment.” The two firms involved are currently profiting from their collaboration, gaining share and seeing improvements to each of their bottom lines.
Two critical lessons about building strategic relationships between manufacturers and their business partners can be learned from this case study. First, such relationships are business relationships, and both parties must recognize that the relationship will remain strong only as long as it makes economic sense for both parties. “Create value to capture value” is good advice in all business markets. It is essential advice for manufacturers and their business partners that aspire to shared successes. To reach that goal, both parties must recognize opportunities and invest in creating value for the other party, not just as a “good citizen”, but as the route to capturing value for the firm’s own shareholders.
In any business relationship, there are three routes to value creation2. First is the possibility of increasing volume. Sometimes this involves capturing a greater market share. In other instances, it can involve expanding the market by introducing new elements to the offer, frequently services or solutions packages. Second is the possibility of reaching a higher price point, either by motivating movement up the “Good-Better-Best” spectrum or by motivating the purchase of optional choices that can be added to the core products. Third is the possibility of improving the bottom lines of the two organizations by efficiency increases or simply taking costs out of the system. In strong business relationships, there is an open discussion as to the strategies that the two organizations can implement to create value through one or more of these routes. Every one of the success stories that I have heard about “win-win” business relationships built upon grew out of an idea that created value that could be shared by the firms involved.
There is a second lesson in this case study, and that is the fact that investments often have to be made in order to realize these shared gains. In this instance, the investment involved several dimensions – training, collaboration on sales calls, etc. Best-in-class partners know that success doesn’t just happen, and are willing to step up to the plate and make the investments necessary to achieve the growth and profit gains that can come from a strong and effective relationship.
An End Customer Focus
Another example was provided by a firm in the food and beverage industry, in this case selling brands through supermarkets and other such retailers. Their own research showed that one of the major issues voiced by consumers involved spoilage, in this instance an issue in terms of wasted food rather than one involving food safety. As they were addressing this challenge, one of their packaging suppliers stepped up with insights that had emerged from working with a different customer in a very different industry. The concepts that they shared with this food manufacturer became an important element of their solution, one that in fact enabled them to gain a competitive advantage over the other brands that were alternatives to consumers.
This success story reflects one of the most important characteristics of healthy supplier-manufacturer relationships, namely a shared and primary focus on the end customers served by the “team”. Unhealthy relationships are often characterized by distrust about end customers. The supplier typically fears that the manufacturer will “take their best ideas and put them out for bid”. And the manufacturer fears that the supplier will “pass information along to competitors as to innovation plans or product issues”. But best-in-class partners to these relationships realize that success starts with a happy and satisfied end customer, and that it is a shared responsibility to achieve that outcome. In the example above, the only question on the table for both organizations was about how to meet the challenge of delivering a better product to the consumer.
To deliver at a high level of quality to end customers requires proactive planning and relationship management. If all of the interactions between a supplier and a manufacturer involve the sales and purchasing teams, respectively, it’s unlikely that value creation such as described in the example above will occur. The right people in the right business functions need to know one another and feel comfortable in interacting. To get to that point, the relationship must involve a foundation of trust, familiarity, and strong “touch points”, all of which require attention on an ongoing basis.
It is interesting to contrast business relationships among “blood-sucking weasels” with those that create “win-win” outcomes that benefit both firms. Clearly, the latter is the preferred outcome, but the former is all too common. Recognition that the relationship must make strong business sense to both parties and a constant focus on end customers are two critical elements that contribute to strong, profitable CoDestiny relationships. I began with a quote from William Blake, and will end with one from Ralph Waldo Emerson: “The only way to have a friend is to be one.” It is often hard to be a good partner in a business relationship, but the payoff can be enormous from making the commitment to do so.