“Bringing in fresh people can work.”

RTM: Such as?

EA: Goal congruency is important. Research shows that where goals are substantially different, and not aligned, then relationships will tend to deteriorate fast. It is a sine qua non if you like.

RTM: So how do you ascertain whether you share the same goals?

EA: You could ask them, but sometimes you will get diplomacy and happy talk back.  My experience is that your sales force in the field is likely to have a pretty good idea of what intermediaries really want.

RTM: So goal congruency is a qualifying factor. But what is the real cement?

EA:  Mutual hostages. Whilst sharing similar and mutually acceptable goals is a good indicator, we find that relationships best survive when both parties have made real investments in personnel, equipment or R&D. These investments are often the only way to achieve a really good profit. By developing mutual hostages, the partners create a self-enforcing contract in which each loses the incentive to cheat the other.

RTM: Can you give an example of a company which does that successfully?

EA: Yes, McDonalds.  It leaves a lot on the table for the franchisee, research suggests as much as $500,000. So both franchisee and franchisor have made a huge investment in a joint venture.

RTM: So how can you revitalise relationships which are going wrong?

EA: I think the first thing to say is that you need to put in place a mechanism for constantly and objectively reviewing relationships for goal congruency and profitability. If both are still there then there are a number of things you can do. We found that bringing in fresh people can work.

RTM: Really?  When we talk to intermediaries they often complain about suppliers whose account managers move every 18 months.

EA: It depends upon how you do it and how skilled your account managers are. But Lincoln-Mercury cars in the USA has a policy of moving its account managers every two years in order to reinvigorate the relationship. Another approach is to focus on the potential loss to both sides.

“Most damaging thing...is the spiral of suspicion.”

RTM: How do you mean?

EA: It really helps to clear the mind to look at what would happen if the relationship were to end.

RTM: So what do you do if a relationship goes into a tailspin?

EA: Too late to send in rafts of middle managers or, worse still, lawyers!  Better perhaps to change the account manager and try to start a new leaf.  This is also the time for a serious meeting to look at mutual goals and profitability.

But our study shows that relationships which have been damaged do not, generally, recover completely.  Nor do they become as profitable as relationships which were never damaged.

The most damaging thing of all is the spiral of suspicion.  This can start with a seemingly innocuous thought.  "Why is my partner meeting the competition?"  "Why are they scouting markets that I view as mine?"  One side often reacts by no longer sharing information or by withdrawing benefits.  Hurt, the other side then responds in kind.

“All business relationships are based on self-interest.”

A good example of this spiral is the way General Motors started to suspect that Fisher Body, its sole supplier of body parts, was taking advantage of its status and inflating its prices to GM.  This spiralled downwards until GM bought Fisher – only to find that opportunism had never existed!

RTM: So you are really saying that suppliers need to systematically review relationships?

EA: Absolutely! Do not take relationships for granted in the first place and actively and continually audit them.  I am convinced that inoculating your relationships in this way pays huge dividends.

Take aways

Understand what the other party wants from a relationship – what is its economic self-interest?

Do not take relationships at face value.

Measure the profitability and future value of relationships to your organisation.

Regularly and systematically audit your channel/alliance relationships.