RTM: I know you have become increasingly sceptical of "partner" as a way of describing channel relationships. Why?

EA: People use it so readily that now it is a euphemism. Some people use it to mean anyone who has a transaction with them.  If you believe everyone you trade with is really "my partner" then you are being extremely naïve.

And I think naivety sums up how many suppliers and  partners approach each other. This use of language from personal relationships is extremely odd if you think about it.

RTM: You mean managers who say "partner" don’t question the self-interest of the suppliers or the intermediaries?

“You often find that one party is being manipulated.”

EA: Precisely. Too many people are happy to take what may look like a perfectly good relationship at face value.  Yet all business relationships are based on self-interest. Research shows that if you probe a bit you often find that one party is being manipulated. The party who is closest to the customer – the intermediary – is the expert who really knows the market.

This is something suppliers are very reluctant to understand. When I teach, I find all the time the assumption being made by manufacturers that because they create something and understand supply that they must also understand the demand side of the equation. They don’t!  And sometimes that means they can be manipulated, even if they think they are in the driver’s seat.

RTM: But surely as individuals we have a clear idea of what a particular relationship is all about?

EA: We think we do. But we don’t. Academics frequently do dyadic studies where they ask the two people on either side of a transaction or commercial relationship to report to them separately. You then compare and profile their answers.  It is unbelievable how differently both parties often view the relationship. We joke that if we did not have identification key to match the pairs we would be dead - we simply wouldn’t be able to match the two sides together!

RTM: So you are saying that if I get on well with someone in business and we play golf together and so on and we have what I deem a good personal relationship then I may be wrong?

EA: Precisely. I know of a casestudy where a supplier to an automaker crafted close personal relationships with personnel in the automaker’s purchasing division and then used these to hide irregularities!  They would say stuff like: "if we eliminate a coat of paint then we would be forced to share that cost saving with purchasing – if we don’t tell them all the cost saving is ours."  And you know what?  I don’t think that kind of thinking is at unusual!

RTM: Yes, I know a number of senior people in computer distribution and resell who make it their business to manipulate suppliers. In fact, sometimes it is almost their business model!

EA: Yes, it happens, and it can go both ways. Plus, it is not just manipulation. I can think of an example from the Italian building industry where 49 contractors created a network to share the control and distribution of resources and to diffuse risk across all members. This worked well at first, but gradually this approach undermined their ability to be competitive and profits plummeted. Short-term gain, long-term loss.  In the same way many companies strain at all costs to retain customers. Yet often you find their most prized customers are not making them any money at all.

“A close personal relationship... is not a strong cement.”

RTM: So how should we analyse relationships?

EA: I would say profit is the best guide. And it is amazing how few companies seriously and systematically measure it properly.  Yes, it is very hard to do so, but unless you do so, you have no idea of your own self-interest! But you also need to be analytical and to constantly question whether relationships are really delivering long-term profitability.

RTM: So what are the factors which determine whether a relationship will degrade?

EA: Many companies see strong personal relationships between supplier and partner as the absolute key here. As we have already seen this is very dangerous. And research also shows that, in a crisis, a close personal relationship between the two key managers in the two organisations is not a strong cement. We did a study of relationships between 321 agricultural distributors and their suppliers.  We found that good personal relationships helped when all was going well.  But as cracks start appearing, the pressure on the two individuals from within their own organisations mounts.