John Maxwell talks about building relationships, personally and in business, in every book he writes. Thousands of people buy his books and read them, yet we still suffer with a significant absence of depth and compassion in the subject, in business and personally. As John has said: “If you want to be significant and live a life that matters, you must add value to others.” This is at the core of Relationship Capital.
I think it’s time that we, in business, really examine this idea of the power of relationship management because as technology continues to advance rapidly, a direct result of this change is the reduced need for face to face interaction in business. Without this interaction we are losing a significant amount of a valuable intangible asset called Relationship Capital.
We have been stumbling over how we can increase employee engagement since the first Gallup Survey broke on the scene in the early part of the 21st Century. There have been so many attempts to prescribe programs, set goals or manipulate attitudes in an effort to increase the engagement levels that it seems to be a very slippery slope that is impossible to climb. However, if you understand Relationship Capital there is a glimmer of hope in resolving this problem.
There is a chicken and egg discussion that occurs with relationship capital.
For example: If everyone in your company understands and operates with intentionality regarding personal relationships, the company relationships will benefit.
At the same time, if your business has embedded a relationship capital mentality in the culture then the people who grow out of this culture will take that attitude with them when they leave resulting in their personal & professional relationships benefitting from it.
Rob Peters and I have been friends for a number of years and he has constantly brought the topic of Relationship Capital into our conversations. He has based his company, Standard of Trust, A Relationship Capital Benefit Corporation, on the premise that Relationship Capital is critical for success in business for the 21st Century. In April, 2016 Standard of Trust Group will be releasing the PE.ER (Performance Excellence, Employee Recognition) platform which can help companies build teams that are focused on building the valuable asset.
Embedded in this tool is the idea of using commitment handling metrics with leaders, peers, customers and suppliers to help you develop intrinsic and extrinsic motivators that will benefit employees personally and professionally. The end result is that your company benefits.
First, why is Relationship Capital so vital today?
Relationships have always been critical in life and business. Communities are built around people who have a similar mindsets and values but if there is no trust or transparency then the relationship begins to crumble. How you earn and lose credibility, value and reputation is Relationship Capital.
Today there are two trends are driving the need for the value of Relationship Capital:
- Service Experience is the primary competitive edge today. Globalization and commoditization continue to reduce the impact of product differentiation as a competitive edge. The ‘experience’ you provide; the extent to which people enjoy the experience of dealing with you is fast becoming the only truly sustainable competitive edge.
- Personal interaction is being replaced with automated processes which means there are fewer human interactions. Technology is rapidly reducing the opportunity and need for people to interact personally, so when it does happen, it is critical that it be effective and contribute to the ‘experience’.
Relationship Capital (Experience) is the measure of relationship health and vitality. It is a reflection of trust, integrity and authenticity. It is can also be a lead indicator to future performance. Measuring it and growing it is almost as good as counting cash and depositing it in the bank.
“Experiences” are based on how well you, your people, your suppliers and your customers keep commitments during the relationship life cycle. Some of these relationships may be short duration and others will be long term but the ability to prove that you have kept your commitments builds credibility and Relationship Capital.
What are some benefits of building Relationship Capital(Experience)?
- Relationships with customers, employees, suppliers & investors are key to business sustainability.
- Helps you identify threats early. Low Relationship Security indicates an account may be under threat.
- Can reduce the cost of sale; many studies show that the cost of winning business from a new customer is 4-7 times greater than winning more business from an existing customer.
- Increase profit margins; business happens more quickly…at the ‘Speed of Trust’ as Stephen Covey says in his book of the same name. There is less haggling as Buyers trust you are charging a fair price, which means you can charge a fair price, not a cheap one.
- Smarter interfacing of people to people within the organization, for example, matching salespeople to buyers on the basis of those best able to relate effectively, which increases the chances of customers buying from you.
- Improve the power of word of mouth promotion and referrals because people buy from people and organizations and people the know, trust and like. Relationship Capital is a reliable measure of trust.
- Help increase customer retention. Less likelihood of customers switching to competitors, as there is no motivation to do so if their experiences are positive and profitable.
- Satisfied customers lead to satisfied employees, satisfied employees lead to satisfied customers; Either way it results in improving staff retention and reducing hiring and training costs. Improve employee engagement.
- Can help when contemplating a business sale or acquisition. You could determine the value of a firm’s relationship capital for accounting and reporting purposes to create a solid base for evaluation.
- Helps you monitor risk exposures to protect the interests of all stakeholders in the organization. It can provide early warning signs that will help you deal with issue proactively.
- Could help develop recruitment policies and practices, particularly in instances where relationship development and maintenance capabilities are important to the posts to be filed.
- Could assist in fine-tuning the critical link between performance and reward. Currently, reward structures in most organizations are linked to financial metrics and shed little light on the underlying management of relationship capital in the long term.
- Can allow you to tailor the training needs of employees whose responsibilities center on the effective management of relationship capital, which is everyone in my opinion.
- Could provide benchmarks, the company could use to evaluate your company’s performance against that of other organizations to ensure a culture of continuous improvement to fill gaps & competitive advantages.
These are just a few, can you add to the list?
Sample applications within an organization:
So often, when we think of relationship capital, we tend to default to a customer view. Now this makes sense be they are obviously fundamental to your business. In reality, it is a micro view of other relationships within any organization, in that it is a partnership: the customer wants or needs what you are selling and you need or want to have someone buy your products or service.
However, there are other relationships with different partners that are growing stronger and more important for the same reasons as for customers. There continues to be increased outsourcing, increased linking of systems and the need for co-creation and innovation, i.e. partnering.
The key of your company’s sustainability is going to be in how you create & maintain value partnerships related to your core business—the things you do to get paid and what you do to solve your customers’ problems.
For example, raw material suppliers for a manufacturer would fall into this category as they provide an input to the ultimate product sold to the manufacturer’s customers. A service company that uses contractors for some of its workforce or for specific projects is using relationship capital as a substitute for its own human capital. There is a dependence that develops showing that the lines between the types of knowledge capital are blurry and require physical support.
You develop a deep knowledge of your supplier’s & support vendor’s businesses, their strengths and weaknesses, and how you can best work together. This is Relationship Capital. Technology makes it easier than ever for you to connect and collaborate with your stakeholders.
This trust and collaboration was how the Boeing 787 came into existence. The design of this plane was collaborative using interconnected systems. Using a specific electronic system, the company was on-line with key vendors that manufactured components and parts for the jet.
Boeing allowed some design decisions to be made by vendors, each of whom had specific expertise related to their part of the plane. The detailed specifications that Boeing supplied were reduced from past plane projects reflecting the fact that Boeing gave each supplier greater freedom to innovate and design in their specific arena.
With all the suppliers on line together, the designs could be coordinated and integrated into the overall design. This approach indicated an increasing faith by Boeing in its relationship capital with its suppliers. It also reflected a shift in Boeing’s view of its core competence away from detailed design to collaborative design coordination, assembly and marketing of planes.
The process did not go as smoothly as desired. The delivery of the plane was delayed by a simple oversight of software versions being used by the partners. But despite all this, Boeing’s experience with this plane provided incredible lessons about how to manufacture in the knowledge era and trust Relationship Capital. Your company can learn from this experience.
I guarantee that you have a number of partners related to your support services where Relationship Capital is vital, such as accounting, legal, HR and media which have a long history of outsourcing. However, better collaboration processes and technologies are allowing companies to also outsource more functions in the area of finance, payroll, IT and administrative services.
Ideally, the decision to outsource a process where you have evaluated and come to a realization that some of the competencies and systems needed support operations are not core for your organization—but are definitely core for your partner.
This means that they will be able to do the work more efficiently and effectively than your own organization. While price is always part of the consideration, price should not be the only point of evaluation. Does the partner have a great record of Relationship Capital? Can they document it for you?
When you pick a smart outsourcing partner, this relationship capital becomes part of your knowledge capital and should be monitored. It also means that you will also need to manage the relationship closely, in the same way and with the same care as internal operation processes.
Many of the most dramatic crises came about when a company’s partner fails to live up to expectations—both in value creation and support processes, in other words the Relationship Capital was debited.
For example, in the past, Nike had problems related to child labor used in suppliers’ factories. Mattel has had issues with lead paint used by their outsourced manufacturers. Kellogg has had to deal with salmonella in peanut butter used to make crackers. BlueCross BlueShield was hacked for patient information. Lumber Liquidators is still dealing with the quality and environmental protection issues created within their supply chain in Asia. What do you think could be an issue for your company? Have you ever thought about it?
These cases illustrate that relationships carry significant risk and rewards for the organization. Relationships reach outside the traditional boundaries of an organization. But they should almost always be viewed as an integral part of the business’s value creation “factory.” Relationship Capital should be seen as have real value that is capable of being lost and gained. It should be a visible part of your balance sheet.
Know your partner matrix and how Relationship Capital can be gained and lost within the daily process of working together. While the PE.ER platform is not a singular answer to creating value, it is a starting point in training, developing and understanding Relationship Capital. If you would like more information on the PE.ER platform check out Standard of Trust web site. If you would like to discuss how this affects your company, check out my website at Transformative Leadership Group or call me at 630-454-4821.