When we say ‘Relationship’, what do we mean?

In the US, those leading the administration’s contract reform initiatives have apparently condemned ‘relationships’ because these are seen as too ‘cozy’. Certainly, recent criticisms of defense procurement (with suggestions of tie-ins between major contracts and campaign funding) are just the latest in a series of events that rightly lead to concerns about the closeness of relationships between key decision-makers and promote a need for improved oversight.

Yet at the same time, we have IACCM members on both the buy-side and sell-side complaining about the weakness of relationships and how this prevents the delivery of value. For example, in last week’s webcast on The State of The Global Economy, one senior Procurement representative bemoaned the problems they have in re-opening negotiations on contracts affected by the recession. “We don’t want to simply push down prices or extend payment terms”, she commented. “We want to have a full discussion on how we can work with our suppliers to rebalance value. But it seems impossible to get most of them to engage.”

I think there is a common problem that underlies these two very different issues. It is not that we lack relationships – but rather that we lack the right relationships, because we tend to see them predominantly in terms of people rather than organizations.   

When I ran large business functions, or led organizational change, I was frequently frustrated by the insistence of business units that they must have dedicated and named individuals to provide services. The fact that this drove inefficiency, higher cost and frequently resulted in less skilled service provision seemed to count for nothing. There was a belief that a dedicated interface (ideally physically located with ther teams) would result in better understanding of needs and more commitment to delivery.

This same mentality often pervades the use of the Sales function and its interface to customers. When acting as a coordinator of needs and resources, there is great logic to dedicated Sales resource (though the frequency with which sales personnel are rotated often begs questions over how much they really understand the customer). However, there are many in Sales who tend to keep the organizations at arm’s length – they protect their position and perceived value by limiting direct contact.

And regardless of whether or not individual sales representatives have the right motivation, the truth is that organizations are not good at building relationships at a business level. For example, most contracts define a range of interfaces and contact points for notices, for change management etc. Yet work by groups like Integrity Interactive has shown that in a majority of cases, these are out of date – addresses, phone numbers, e-mails are simply wrong.

So the real challenge, in my opinion, is for us to move beyond relationships that depend on individual executives and sales representatives (and are thereefore unduly subject to behind the scenes and ‘cozy’ agreements) and to move everything into the spotlight of proper interfaces and governance. There are many options on how this can be achieved (groups like Integrity Interactive are specialists). It also demands a wider range of interfaces – for example, between contract managers in the respective companies – so that when the world changes they can rapidly and intelligently discuss how to adjust the existing agreements, as well as providing the ‘independent oversight’ that legislators increasingly view as fundamental to improved corporate goverance.

With modern technologies, we really do not face the stark choice of cozy and unethical versus arm’s length and adversarial. What we should be doing is ensuring personal relationships are balanced by robust and sustained organizational relationships. And embedding these principles into our contracting would be a great place to start.