Most companies invest a significant level of resources in activities designed to identify business partners and secure a relationship with them. Sales leaders typically identify the strategic targets that they want to win over in each year’s annual plan. Strategic sourcing leaders place a critical importance on finding those suppliers that can make a difference to their organization’s success and bringing them onto the team. Executives responsible for numerous business functions – from R&D to logistics to information technology – look to identify partners that can help them solve their most challenging business problems. But all too often, these same firms think that they have achieved success once handshakes are exchanged and contracts are signed. In truth, that’s when the real work begins.

Comments made during recent interviews with two firms that had entered into a strategic supplier-customer relationship in the telecommunications industry illustrate this problem. An executive in the supplier organization made the following comment:

“We walk on eggshells when we meet. There is always a tension in the room. Is it appropriate to share this information? Will raising [a topic related to a new technology] just trigger another discussion on price? We value having them as a customer, but nothing feels strategic to me.”

His counterpart in the customer organization offered his own observations:

“There is no sense of urgency to our discussions. It seems like everyone is waiting for someone else to take the first step. We were excited about the possibilities of shortening our product development cycles through the relationship with this supplier, but it hasn’t happened yet. In truth, while they’re a good supplier, they’re no different than any of the others out there, at least in terms of how this relationship has performed.”

More than likely, the problem is not with the two firms involved. Rather, it’s a reflection of a failure to do the “heavy lifting” necessary to ensure that a strategic relationship delivers on its promise. In this article, three actions are recommended as ones that should be taken to put the foundations into place for continuation of a strategic relationship between a supplier and a customer, or, for that matter, any two firms that want to elevate their relationship to a higher level that yields shared successes and rewards for both firms’ shareholders.

The first action is to define some form of dashboard that defines the performance metrics important to the two firms involved in the relationship, along with explicit (largely quantitative) goals for each of those metrics. It is remarkable how many significant business relationships operate without an explicit statement of the performance goals that are important. And it is even more remarkable that in the study of “relationships gone sour”, the vast majority had either never defined performance metrics and goals or only done so in a vague way. Operating without clarity in terms of goals and objectives for performance is like trying to put together a bicycle on Christmas Eve without a set of directions. It rarely turns out right. It is often useful to think of two categories of performance metrics. The first category of metrics that should be included in the dashboard involves basic “blocking and tackling” metrics that are important to the relationship. These may include such fundamentals as metrics relating to quality, on-time delivery, and support levels. The second category of metrics that should be included in the dashboard involves those that are unique to a “strategic relationship”. After all, only rarely does a customer choose strategic suppliers on the basis of the size of the buy from that supplier. Far more often, the choice is made because the customer believes the supplier can contribute to shared successes.

The second key action builds on the following fact: a characteristic of best-in-class business relationships is that there is a constant focus on the future . It stands in sharp contrast to the situation that exists in weak or troubled relationships, where almost all discussions are either about past problems or near-term transactions. Therefore, a second priority in creating foundations for long-term strategic relationships is defining the future-oriented topics on which the two firms should collaborate. The potential roster of such topics is almost endless in most industries. One of the most exciting parts of a strategic relationship is discussing which future-oriented topics should be given priority. Some choices are obvious: a new product release, the need to meet a new regulatory standard, etc. Others may have been defined by actions taken by one or both of the firms: expanding the relationship into a new market, incorporating a new technology into the product line. But many other options exist beyond these obvious ones, and the more effectively the two organizations can engage in a creative discussion of such options, the more likely they are to identify collaborative action plans that have a real potential to create value for both firms.

The third action to be taken to create the basis for a long-term relationship is that of defining a formal plan through which the relationship should be managed. As we’ve studied significant business-to-business relationships, it is remarkable how many rely on informal processes and interactions to manage the relationship. Like the failure to define performance metrics and goals, this can be fatal. Developing a relationship management plan has what, who, and when dimensions. The “who” roster can be extensive. It should include the individuals who are the point persons in managing the relationship, a pair of executive-level champions, and a roster of individuals across functional and geographic segments of the two companies that are relevant to the transactions and priorities that define the relationship. The “what” and the “when” elements of the relationship management plan will be driven by the performance management dashboard and the specific future-oriented priorities that are defined. In virtually all strong supplier-customer relationships, there are meetings at a quarterly frequency, or more often, with a formal agenda and an explicit review of progress vis-à-vis the goals and objectives. Ideally such meetings will involve the point persons, the executive sponsors, and they key participants from the two organizations that are involved in an ongoing basis in the relationship or are central to the topics on the meeting agenda. One of the imperatives at such meetings is that there is full and explicit discussion about the health of the relationship and the progress each of the two firms is making in helping to realize the goals that have been established. Among the hard questions that should be regularly asked in strategic relationships are some straightforward ones like “In terms of your expectations and priorities, what has changed since we last met?” and “This is what we’re hearing from others in your organization in terms of priorities, and this is how we plan to react to it. Are we all on the same page?” Strong business relationships can yield rewards for both of the firms involved. When a relationship is recognized as strategic to the businesses involved, they must take proactive steps to ensure that the relationship is managed so as to ensure that the value being created is sustained over time, despite the inevitable changes that will take place in both organizations and in the business environment.

The key actions that must be taken fall within three categories. The two firms must reach a clear understanding as to the key performance metrics and goals that will define success for the relationship. They must identify the highest-priority future-oriented themes on which they can collaborate and achieve shared successes. And they must put into a place an explicit relationship management plan that includes “What-Who-When” details to guide assignments, resource allocation, and interactions.

When these actions are taken, the two firms involved have established the foundations for an ongoing stream of shared successes that reward both firms’ shareholders.

Author: George F. Brown, Jr.