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Xavier Van de Lanotte

[September 8, 2003]

Strategic Relationship Management: Rising To The Competitive Challenge

BY XAVIER VAN DE LANOTTE


At the peak of the Internet bubble there seemed to be no limits to the market opportunities for the telecom industry. Companies, in the euphoria of their rising market valuations, would launch into massive M&A activities. Their objectives: Acquiring market share, building on capacity, developing capabilities, diversifying product and service portfolios, synergy, integration and consolidation. Their goal: Toughening up against the next competitor. But now that the heydays of the acquisition frenzy are over, we witness the resurgence of strategic relationships. Could the trend reversal be motivated by necessity (if you can't buy them, join them), or could it be indicative of management taking a different tack all together?

Now, while we hear that some business leaders contemplate yet another mega-merger to broaden their scope and thus plug their revenue drain and market share loss, we're kindly reminded by Samuel J. Palmisano's advertising people that in order to achieve a sustainable competitive advantage one must "think smarter and act faster." Surely, a good merger can make a lot of sense; but IBM's commercial epitomizes competitive strategy and points to the fact that there are many ways to skin a cat. It's all about doing it differently, doing it first, making it relevant for the customer, and increasing shareholder value in the process. And that's the different tack that we have been emphasizing in this current series of articles, as we discuss the merits of value chain management.

The recurring message remains: Market growth and higher profitability goals are not chimerical for those competitive firms effectively addressing in their strategies:

Figure 1

THE SPOTLIGHT ON RELATIONSHIPS
In the first two article of this series, we suggested that competitive firms focus on customer value creation and gear their operational and functional performance to optimally achieve the former. In the last article, "Core Competency And Focus: Strategic And Competitive Importance," we identified rapid technological changes and the emergence of new competitors as key contributors to the fragmentation of the telecommunications industry. In such an environment, competitive firms choose to specialize and manage the value chain to effectively address their customers' needs; the customer solution increasingly relying on intricate amalgamations of components supplied by a variety of vendors within the value chain, as opposed to the end-to-end services sold by the old-era vertically integrated operators.

This month, we will shed some light on the significance of effective strategic relationship management in the current environment. We will discuss how effective relationship management supports other objectives thus far discussed in the series, and provide some insight on how to make them work.

But first, let me share how IBM's latest catchphrase (think smarter/act faster) resounds with me in the context of value chain management.

Think Smarter

  • What provides additional value to my customers that they are not getting from my competitors?
  • How do I provide that value to them at the lowest cost and requiring the least investment and risk exposure on my part?
  • What do I want my customers and the market to believe that I really am the very best at?

Act Faster

  • Are my processes designed to tend to individual customer needs, be nimble and opportunistic and challenge the competition, without destroying value?
  • Can I retool my assets and have at my disposal the necessary resources to take advantage of new opportunities and tackle changing market parameters?
  • Will my savoir faire spill into new markets and technological environments, capitalizing on my leadership to maintain a competitive edge?

IT'S A VAST WORLD AFTER ALL
Think about all the places, the possibilities and the infinite number of combinations that exist to accomplish your and your competitors' charters; it's no wonder that with the rising complexities of solutions and choices in the marketplace, customers require more of their suppliers to get satisfied. In the face of increasing competition, that leaves suppliers with the challenge to have to do more with less. This is the age of information, in which services and support functions absorb an increasingly larger portion of the available resources to actually get a product or service to the customers' premises, and integrated into their operations. Resources freed from productivity gains and economies of scale in manufacturing and operations are reallocated to activities necessary to secure incremental sales. With supply exceeding demand, as is the case in the telecommunications industry, it is time to think smart, act fast and establish a sustainable competitive advantage.

No matter how large or how capable it is, a firm can bolster its competitive position by managing their value chain and collaborating with other firms. As demand grows more and more diverse, new capabilities and specialized resources need to be deployed to meet the unique requirement of the customers' solutions. In conjunction with its goals to maintain focus and improve performance, the competitive firm establishes and leverages strategic relationships in order to meet those requirements more effectively and manage the resources at its disposal most efficiently.

Firms that engage their strategic relationships as a model for doing business give themselves permission to think smarter. As customers renounce the substandard solutions resulting from compromise, competitive firms find in their partners the resources necessary to approach the market with flexibility and innovation.

  • The pooling of knowledge and resources enables them to better track the pulse of the market and the technological evolution. Their combined insight allows them to more effectively anticipate their customers' needs, resolve their solution complexities and cater to the broader requirements of their customers' value systems.
  • To deal with the heterogeneous nature of the demand, competitive firms develop modular offer platforms which they complete with offerings from outsourcing, channel, supplier and service partners. They tap into their partners' specialized resources and expertise to maximize the value for individual customers at the overall lowest cost.
  • Their relationships allow them to leverage their own unique resources, qualifications and expertise to branch out into different market segments; they form partnerships and alliances to extend their presence into new geographical markets and to go global.

Competitive firms also grant themselves permission to act faster under the auspices of their strategic relationship networks. They aggressively seek new opportunities to grow, increase market share and capture profitability. And while they may relinquish some control over the customer solution, they mitigate that fact by significantly reducing their risk exposure. Through the use of existing specialized partner resources or the sharing of specialized investments, firms offset individual project risks and concentrate more of their resources on managing their core activities.

  • The competitive firm develops and customizes modular offerings; delivers them through flexible processes adapted to customer segment characteristics; and transforms fixed into variable costs to do it efficiently. Through its strategic relationships, the competitive firm is thus empowered to engage just the right resources in order to more adequately customize its solutions, adapt to change, tackle new segments and take on its competitors on their turf.
  • With less invested in specialized resources, the competitive firm is better positioned to adapt its core assets to the changing market parameters and/or the product/service specifications. Through collaboration, it coordinates development of platforms, technologies, products and services more effectively and gains a time-to-market advantage.
  • With the embedded knowledge and capabilities stemming from its relationships, the competitive firm puts the focus on its ability to solve customer problems more effectively and efficiently. Both its relationships and business practices provide it with the greatest potential to branch out into other market sectors and build up its resilience to market changes, competitive threats and disruptive technologies.

WINNING AT STRATEGIC RELATIONSHIPS
Maximizing tangible and intangible benefits from strategic relationships is something easier said than done, unfortunately. Often the business news is marred with reports of ventures or alliances gone wrong; best case scenario: Investment and time lost; worst case scenario: Customers are left holding the bag, the business is fleeing, there are high costs of unwinding the relation, competitive advantages are lost and proprietary information is compromised. One word of caution for the non-believers though: This stigma about strategic relationships being temporary and not working out in the long run has a knack of turning into a self-fulfilling prophecy. To make strategic relations work you need heart, commitment, a lot of hard work and most of all -- a diligent approach. While strategic relationship management is a vast subject, let's highlight some of the critical aspects.

Determine what you need
Before entering negotiations, you first need to establish your objectives, identify your alternatives and determine the type of relationship that is best suited to accomplish your objectives. This provides you with benchmarks and a framework to determine your course of action.

  • Identify the purpose of the relationship and determine whether it is strategic or operational;
  • Assess whether the frequency of your dealings will be ongoing or ad hoc;
  • Establish the importance of joint value creation in the relationship;
  • Decide on the structural autonomy you wish to accomplish for your operations and value creating abilities;
  • Define the scope of the relationship, possibly the duration, and/or the next evolutionary steps.

Figure 2

Choose your partners carefully
Some marriages are made in heaven; for the rest of us, we have to work on them on earth. A good start is to establish trust and be candid about your intentions. Share your respective goals and become familiar with each other's cultures and processes. No matter what the disparity of size may be, become comfortable with the mutual commitment to the importance of success in the relationship. Perform due diligence reviews.

  • Ensure that your respective goals are convergent and that their importance will trump any conflict of interest that could emerge;
  • Determine whether your management and operational styles are compatible and verify that your processes can integrate;
  • Set specific goals for the relationship in terms of volume, market share, performance, etc.;
  • Make mutual commitments with respect to specialized investments and dedicated resources required to succeed;
  • Deal with the asymmetry of the relationship and figure out cost, control, leadership, organization and sharing of the risks and rewards;
  • Verify your partner's capabilities, availability, resources and organization to ensure that objectives and commitments will be adhered to, and allow your partner to do the same.

Figure 3

Build the relationship
Like with any relationship, things don't occur all of a sudden just because you agreed to them, or even less by happenstance. Expectations must be kept in check and concessions should be made to keep objectives and results on track. To garner the benefits of your associations, you must establish an ongoing process through which you'll guide the relationship, report on its progress and accomplishments, deal with emerging issues, grow and strengthen it.

  • Keep working at the value concept that underscores the relationship. Increase your competitive advantage by enhancing the effectiveness and efficiency of your proposition through continued specialization, innovation and performance improvement.
  • Develop the relationship by putting the emphasis on complementing and cooperating and implement processes that will promote coordination, synergy and economies of scale. Structure and organize accordingly.
  • Maximize cross-learning and foster effective relationship routines that contribute to the creation of embedded knowledge. Learning promotes mutual adaptation and enhances the overall efficiency of the relationship.
  • Manage the relationship to the objectives of all parties involved. Remain cognizant of your objectives and the market circumstances that gave rise to the relationship. Understand your role in the relationship and embrace leadership with fairness and responsibility. Promote trust and loyalty through equitable distributions of gains (think Win-Win scenario).

Nurture the relationship
Strategic relationships have a lifecycle of their own. They start, grow, change and mature along the way, and may eventually outlive their usefulness. They impact organizations and people on all sides of the partnership, which leads to a much greater diversity of perspectives on the markets, goals and objectives from all parties involved. Lest you have the firm intentions to terminate it, keep the dynamics within the relationship in check and provide it with the support and resources necessary to pull through. Don't fail it for the wrong reasons.

  • Resist the temptation of falling back into your old routines once the newness wears off. Competitive dynamics tend to resurface when organizations and people perceive themselves as independent rather than interdependent. With the loss of perspective of the total system, you are in a Zero-Sum-Game.
  • Support the relationship by implementing change management and company-wide PR programs. Enlist facilitators, specifically for your brainstorm, planning and negotiation sessions, and appoint coaches in the executive ranks of your respective organizations. Hold them accountable.
  • Help your partners become stronger and better whenever you can. Their success will add value to your relationship, your customers and you.
  • Prepare for contingencies and implement escalation and conflict resolution processes. Agree to disagree from time to time, and know how you are going to handle it.
  • Celebrate results, make plans to grow, and spread the word. Keep the relationship attractive to your best clients, your best partners and your best employees and you will have a significant competitive advantage.

When it comes to maximizing customer value and most efficiently deploying your resources to that effect, strategic relationships provide significant advantages. While you may have many options at your disposal, avoid arrogance: Rise to the challenge of strategic relationships by charting your course carefully and discussing it with your partners openly and candidly. In this field there are success stories, and then there are statistics. Manage your strategic relationships to succeed: Stand behind your commitments, build trust and give it your full support. Unless you do so, be careful what you wish for´┐Ż

The subject for our next article will be on collaborative management. Join us to read about its significance in the context of value chain management and to learn about how you can prepare for the future dynamics of your competitive environment.

Xavier Van de Lanotte is the president of VXTConsulting, Inc. Xavier advises telecommunication services and equipment firms on Competitive Strategy, Customer Value, Alliance Management, and Distribution and has worked in this industry in various parts of the world for 15 years. For more information on value chain management, please visit us at www.vxtconsulting.com, or contact us at info@vxtconsulting.com. We welcome your questions and thoughts about this article.







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