MH:  So how do you measure and monitor relationships?

DF: Usually we find that relationships are never formally appraised.  When companies do look at their relationships they find that the reality is very different from the view at head office.  It’s important to do regular Relationship Audits.  We did a study of one company and found that the way it handled relationships differed wildly from one country to another.  At another company, we asked them where they felt their distributors fitted into their strategy.  Several of their distributors they saw as "build relationships", but their operations people were actually sending out "decline" messages.

“Most suppliers attempt to exercise far more power than they actually have.”

MH: In a complex network it must sometimes be hard to disentangle relationships.

DF: Yes, and you can’t simply adopt a dyadic approach where you look at the two sides. You have to accept that how you relate to company A will shape your relationship with company B.  We did a study of two big food suppliers, X and Y, in a large European market.  Company X had a very strong relationship with the natural incumbent food-retail chain and company Y had developed a strong relationship with a food retailer who was trying to move in.  Company X then wooed the incomer and offered to do its category management.  There was a huge reaction from the incumbent retailer, who saw this as a real threat.  So you need to triangulate relationships.

MH: But understanding end-users is vital.  So how do you do that?  How do you segment markets?

DF: Segmentation should be about grouping people by their problems, attitudes and behaviour.  Instead, people tend to use simple demographics.  For instance, IT suppliers tend to lump together small and medium businesses, on the grounds that they all have the same requirements.  But you may find that a company’s rate of growth, for example, is the critical indicator of its IT requirements.  Similarly, you often analyse business airline passengers by the size of their company, but if you look at the age of a manager you get a very interesting picture.

The answer is to start interviewing customers and understanding how and why they buy solutions.  Many IT companies talk like this and advertise their "solutions".  But often they’ve not really thought about their customers’ problems and they are only trying to sell products.

MH: You said that a lack of feedback from channels and salespeople was a real weakness in the traditional channel model. How do you mean?

DF: Your product, by the time it reaches the end-user, has been wrapped into a complex solution by intermediaries using their skills, technology and service ability and also by the end-user itself.  It is very dangerous to design products to maximise their performance without understanding these processes.  Often channel salespeople understand what is happening but don’t have a voice in product marketing, let alone product development.

You can spend a fortune on market research and find that it merely tells you what your sales force already knew.  Large companies have this problem with how to use the knowledge they have out in the field.  There is a great quote from Percy Barnevik, the former chief executive of ABB.  He said: "If we knew what we know, we would be unbeatable!"  So some companies have invested heavily in knowledge-management systems to solve this.  The head of Siemens was recently quoted as saying: "Siemens knows what Siemens knows."  That is revolutionary.

MH: Let’s just recap on what you are saying...

DF: OK.  The key is to see the world as a network, and not as a flow from manufacturer to customer.  The key is to see other people’s perspectives, including those of your distributors, suppliers and co-developers.  You depend on these and you must use your relationships with them to develop and fulfil a solution for an end-user.  You must audit each major relationship and the network as a whole.  The bright people are those who are very sure about where they are in the network and what they need to know themselves, and are very good at using other people’s skills.