Ricardo R. Fernandez, P.E.
Ricardo R. Fernandez, P.E., Managing Principal, Advent Group, Inc., Miami, FL, 305/227-9478, email@example.com
Abstract. Research results have shown that building and maintaining customer relationships is key to the success of any organization. The same concepts that are used to create and manage customer relationships are now being utilized to manage other relationships in an organization. Supplier Quality efforts are concentrating on building partnerships and ongoing business relationships with their critical suppliers. Organizations are now renewing their efforts to understand the needs of employees and to build long term relationships with them in order to keep the best employees and lower overall turnover. This presentation shows how all of these efforts can be synthesized into one common relationship building model that is systematic and is based on preventive and continuous learning approaches. Applications and the benefits of the model are also discussed.
OBJECTIVES. Discuss the key tools that will help you build, maintain and improve relationships with other entities in an out of your organizations. Broaden your perspectives and become more useful to the whole business rather than just the financial side. Move from a technical to more of a people orientation. Improve your leadership skills through a better understanding of the relationships you need to create. Emphasize the importance that relationships have on the success of all organizations and especially in a Purchasing organization. Improve the ability of Purchasing Professionals to consistently deal with and gain the support of others in their organization. Relate these concepts to applications in different industries.
LOYALTY. Just what does loyalty mean to you? This is a very personal question. When you listen to the national anthem, or some other patriotic song, do you feel something? Do you get goose pimples? Does it remind you of your childhood, when you had to say the "Pledge of Allegiance" at the beginning of every school day? That is one of the strongest forms of loyalty, the loyalty that one has for their country. Another form of loyalty is the one that you feel for your favorite football or baseball or basketball team. This loyalty differs since most people would not die for their favorite sports team. It is this strong bond that is created between a person and an organization that helps make that organization what it really is and what it is known for.
Wouldn't you like your organization to be known for the loyalty it creates between itself and all of its stakeholders? Would you like to work for a company like that? Would you like to be associated somehow with that organization? Would you like to be one of its suppliers? Would you go out of your way to do what is right for that organization? Would you think that this type of organization is destined for excellence and success? Of course you would.
The relationships that need to be established with all of the stakeholders of the organization are similar in nature to the relationships that need to be established with your customers. Wouldn't you love to have a customer look at your organization as if it was their favorite sports team? Wouldn't it be great if that customer became a raving fan of your organization? Visualize what your business would be like if you had fans that would be your advocates. They would be more than just a customer, they would be out there in the marketplace recommending your services or your products to their colleagues. In effect, they would become the best marketing department that money could buy, except that you would not be paying a penny. In order for this to happen, you would have to move your customer much further up the ladder of customer delight. They would need to move past satisfaction up to advocacy. How do you do that? One of the best ways is through Relationeering(tm).
FIVE STEPS TO ORGANIZATIONAL PERFORMANCE EXCELLENCE. More and more, organizational leaders are finding it imperative to look at their overall organizational performance rather than the performance of one single area or function within the organization. Inefficiencies that once the marketplace would forgive, now become penalties that must be paid in order to survive. Some cases in point include the major reorganizations that large blue chip companies have had to face, such as IBM, Apple, GM, Ford, Chrysler, and large utility companies. Each has had to make major adjustments to their whole business practices in order to survive. In each and every case, the needs of the customers, the suppliers, the employees, and the stockholders had to be considered. Most recently, another round of reorganizations is occurring. Most notably, Kodak and others have announced significant layoffs of approximately 10% of their workforce to become more competitive. Organizations have found that they must adjust quickly and have an integrated approach to improving their organization's performance if they are to survive. They have delayed listening to the "voice of the customer" and are now having to take drastic actions. A more systematic approach to organizational performance management would have prevented or foreseen this need and would have better managed the problems they are facing. This integrated approach can be broken down into 5 steps:
Step 1 Policy. Policy includes the ability of the organization to determine its direction, it's vision, its mission, and the actions it must take in order to reach that vision. This policy starts at the top but must be negotiated and deployed through all levels of the organization so that even the person at the lowest level can understand their role in achieving that vision. The targets the measures and the means to achieve that vision at each level must be clearly defined and shared by everyone. Alignment of all the efforts of your decision must take place so that the synergy of the organization can push toward one common target. They must be guided by a common set of business drivers that when followed, will assure the success of the organization.
Step 2 Process. Everyone in the organization must understand their job and how their job supports the overall direction of the organization. They should understand how the needs of their customers, suppliers, and coworkers can best be met with the processes of which they are in charge. The processes must be designed by translating the requirements of those stakeholders, to process steps that assure those requirements are met. Suppliers play a key role in this process step, since the quality of their products and services establish a quality limit for the product and services of the organization. The supply chain can be no stronger than the weakest link.
Step 3 Measure. Employees must understand whether they are doing a good job or not. They need to know this independently of their supervision. Clear expectations should be established at each step of the process and the employees should clearly know whether or not they are meeting those expectations or not and to what degree. Without established measures, a comparison is not possible and a judgement of good vs. bad cannot be made consistently if it is left to each person's expectations and prior experience. Measures should not be made of every detail of the process as this tends to dilute the effectiveness of measures. Instead measures should be limited to those process characteristics whose variability affects the outcome and thereby customer satisfaction with the process. Measures should also be prioritized so that the most effort is spent on those processes that are the most important to the organization and which need the most improvement.
Step 4 Learning. An organization must systematically learn from everything that it does. Every process, every system, every product and every service must use the information that was gathered during its design, development and execution to further learn how to improve the ultimate outcome or performance. Everything from customer complaints, to employee feedback, to supplier feedback, to process measures should be analyzed to determine what can be learned and applied as changes to the processes in order to improve their performance and the overall performance of the organization.
Step 5 Relationeering(tm). Employees need to be empowered to make decisions, but they need to be competent in the areas of knowledge that encompass their jobs thereby assuring that the right decisions will be made at the lowest levels. They must trust management, supervision, coworkers within and outside of their department, suppliers, and the other stakeholders that they deal with. The integration of the other items takes place in this step. This step also provides the fertile soil in which all of the other approaches will flourish. Relationeering(tm) is the corporate culture, the combined shared values of the organization, the rules that they live by, the guidelines that they use to conduct business. In the end it is the engine of the organization. Without it, nothing else will work. Everything will be to no avail. Relationeering(tm) is the axle in the wheel of organizational success. Without Relationeering(tm), the spokes of the wheel have no common center and the wheel bounces instead of turns. The wheel may or may not reach its goals, that just depends on how lucky it is. With Relationeering(tm) one controls the outcome and luck has little to do with reaching the goals.
RELATIONAL VS. TRANSACTIONAL MANAGEMENT. If one looks at much of the current and past research conducted in many areas of business, one finds that there are many common themes. One of the themes is applicable to just about any business function. The theme that I am referring to it is the difference between relational and transactional management. For example banks used to focus on their customers' individual transactions. They would focus on the time that they would take in the teller line. They would focus on the time it would take to cash a check or make a deposit or even open a new account. Similarly utility companies would focus on the efficiency with which phone calls were answered, how well customers were hooked up, how efficiently they could produce 1 kWh of electricity and how many complaints were registered with their state public service commission. Hospitals would focus on how quickly they could process a patient through the hospital with as few resources used as possible, and of course correcting the ailment that the patient experienced prior to hospitalization. Now all three of these industries have changed their paradigm about their customers and about their businesses as a whole. They are all looking at all of their stakeholders including customers, suppliers, and employees differently. They want to create relationships with the stakeholders that go beyond individual transactions. They want to build the foundations, and the values that will create more consistent, long-term, win-win environments for everyone associated with their organizations.
THE 4 P'S OF RELATIONEERING(tm). In my experience as a consultant to many of these firms I have found that you can classify and group the requirements for Relationeering(tm) into four key drivers:
Principled. This driver focuses on the values and principles of the organization. It answers the questions of direction, alignment, focus, motivation, flexibility, commitment, and security. These are the guidelines of the organization, the rules of conduct, the basic foundation upon which an organization can build its future. Probably the most important element in the principal driver is trust. Without trust nothing else will function correctly, but trust serves as the grease that will reduce the friction that normally would interfere with the establishment and improvement of long-term relationships.
Participative. The second driver deals with the issues of being a part of or belonging to a relationship and the responsibilities that come with it. It deals with accountability, empowerment, shared problem solving, shared information, shared decision-making, and camaraderie.
Permanence. Permanence has to do with the longevity, consistency, and long-term nature of a successful relationship. It is here that the concept of loyalty falls, since loyalty is one of the key results of a successful relationship. This driver is concerned with elements such as vision, strategy, long-term performance, and overall careers and experiences. The permanence driver creates a feeling of continuity which allows parties of the relationship to perform in the short-term in order to maintain a long-term relationship.
Partnering. The last driver, partnering, has to do with performance that is aimed to benefit all parties of the relationship. This includes looking at all actions from the point of view of the other partners rather than from your own point of you. It also involves creating an interdependent relationship where all parties need the other parties to succeed and also use with a synergy created to improve the outcome that anyone of the parties could create independently.
CIRCLE OF RELATIONEERING(tm) SUCCESS. Now that we have established the definitions of Relationeering(tm) and how it fits within the overall Organizational Performance Excellence model, we need to determine how best to create, maintain and improve them into the future. A systematic 4 step process is used as follows:
Establish. The establishment of the relationship must start by identifying all the members of the relationship; who they are, and what their needs are. Common objectives and limits must be established between all parties of the relationship. A win-win negotiation must take place that creates a contract or a set of guidelines for conduct where all parties feel that they are getting something of benefit out of the relationship. The strengths and weaknesses of each of the parties should be identified so that the strengths of each party can be used to help the weaknesses of others in the relationship. Expectations need to be clarified with measurable outcomes and these measures should be clearly identified, including the methods by which the measures will be taken.
Maintain. The maintenance of the relationship is probably the toughest of all. It involves the performance of the agreed-upon actions according to or beyond expectations. This is where the original argument of loyalty comes in. At this point all parties of the relationship must feel like an advocate of the relationship. They must feel and act like a raving fan. We must look back to our contract and reinforce the guidelines for conduct and try to go beyond if possible. We need to look at additional opportunities for the parties of the relationship to work on together. We need to consider the cost of establishing new relationships vs. the cost of maintaining existing relationships. Usually the cost of establishing new relationships far outweighs the cost that may be involved in maintaining existing ones.
Feedback. One of the keys to failure in any relationship is the lack of proper communication and feedback. One of the most important keys to a systematic approach is the establishment of consistent and understandable measures. These were supposed to be established along with the original relationship but often we do poor job of communicating and consistently applying these measures. Two-way feedback is needed and mechanisms to share the information are not applied. Often a simple report is used to make the communication happen. This report is not understood as simply filed thereby reducing the effectiveness of the feedback. Eventually one finds out that the feedback was actually never received are understood and you are now at ground zero.
Learn. The same concept that was used to in the Organizational Performance model needs to be used here. Using the information that was captured for the feedback process, all parties of the relationship should analyze the results and determine what action should be taken to improve the process, improve the performance, and improve the contract and guidelines that were established initially. This will prevent problems from re-occurring and will tend to improve the relationship and promote its long-term nature.
BENEFITS. The benefits of the establishment of a Relationeering(tm) culture provided tremendous return on the investment. For example with this type of culture, the loyalty that parties to the relationship feel for each other instigates a willingness to do more and to provide better ideas that will further improve the relationship. There is an increased level of productivity, people feel more passion for their jobs and enjoy themselves more, costs are lowered, there are more repeat sales, reduced training costs, increased referrals, and an improved bottom line.
When applied to the procurement function, the benefits are multiplied. This is true because the same positive benefits that are applicable inside the organization now are extended to all the suppliers that are involved in the relationship. The function of the purchasing manager and the buyer becomes more focused on relationship building than on transactional processes. They look for and work with suppliers who share the same values and direction as they do. They spend less time pushing paperwork and more time building and maintaining and improving their relationships with their key suppliers. This in turn helps all parties benefit in the long run.
APPLICATIONS. Some sample applications of this Relationeering(tm) philosophy include:
Purchasing. Long term supplier partnerships and joint ventures. Each party considers their own responsibility and brings that to the negotiating table. Rewards for both parties are determined according to joint performance criteria. The criteria is built on common goals. Both parties share in successful outcomes. The creation and maintenance of successful relationships would be rewarded.
Manufacturing. Not only supplier partnerships but actual outsourcing of complete manufacturing functions for a particular Product or product line. The total manufacturing cost over a few years including engineering, materials, equipment, capital investment, inventory carrying cost, distribution, and maintenance could be minimized by a team of suppliers with common goals and ways to achieve those goals. The reward system would be set up toward acknowledge individual performance as well as team performance.
Employees. Employees would be allowed to work within specific guidelines, but performance contracts would be drawn up to clearly define expectations and consequences of meeting those expectations. A high level of trust and empowerment would be necessary to achieve employee participation. Fear should be minimized to allow the employees the freedom to risk innovation, and either succeed and be rewarded or fail and learn from their mistakes.
Healthcare. The healthcare industry is shifting from a repair mentality to a maintenance mentality. Reimbursement will no longer be based on specific services provided but rather on the ability to maintain a healthy patient. The amount that they make will be directly related to their ability to keep the patient healthy and away from the need for special costly procedures. In this relationship the healthcare provider must enlist the trust of the patient and at the same time look out for his and the patient's long-term interests.
Education. Today we're seeing a change in the educational environment which joins teachers students parents and community partners in an interdependent relationship or students are no longer a product but rather are a main customer of the system. The emphasis must shift from specific knowledge being passed on to students, to a proficiency in a self-learning and self-improvement capability that will last them a lifetime. This in turn will assure a well-trained workforce for the community.
Government. The time has come for government to become more efficient and effective by creating relationships with all of its stakeholders by working on common or related goals. Through a Relationeering(tm) process, government can look cross-functionally, to its suppliers, to it's outsourcers, and to other agencies in order to work together to meet the needs to their constituents. In the past they have all concentrated on their areas of responsibility rather than on ways that they can support overall goals in the community. This creates duplication and sub-optimization of resources. By creating joint cross agency efforts this could be avoided and better results could be attained.
Financial. Banks, insurance companies, stock brokerage houses, and others in the financial field were some of the first to find the benefits of applying Relationeering(tm) concepts. They segmented the marketplace and attached services correctly related to those segments. They assigned representatives of their organizations to deal with all the needs of customers in that segment. This has created a sense of loyalty of the customer to the financial institution, making it difficult to shift their business to other institutions.
Information Technology. Various companies have outsourced their IT efforts in recent times. They have found that the continuous changes in technology are hard to keep up with and they have found partners that are willing to work with them as if they were part of their organization. So much so that often the outsourcers set up shop in the buying organization and recruit many of the people that were originally doing the work. Most recently this has escalated to the point where the buying organization is actually purchasing equity stakes of the outsourcer. This is, of course, a clear cut way of inviting the Relationeering(tm) concepts to take effect quickly. When organizations share ownership, then many of the concepts are easier to implement, but the difficulties will still lie with internal relationship-building barriers.
CONCLUSION. Relationeering(tm) in its current format is a relatively new concept, but it builds upon many of the tried and true management and psychological concepts that have been found to be successful in recent years. The key is creating a systematic approach by which all these concepts can be applied in various industries successfully. We believe that Relationeering(tm) will be the differentiator for successful organizations in the new millennium.
Copyright 1997 by Advent Group, Inc. All rights reserved. Reprinted in these Proceedings with permission from the author.