Right relationships will boost profits

GETTING business relationships right will bring companies profit growth and sustainable competitive advantage, says Strategic Partnering principal Tony Lendrum.

Mr Lendrum was in Perth recently to address an SGIO and Curtin University function.

“For me business relationships are the reason business exists,” he said.

“It’s about satisfying customers. But it also implies that you not only have to have relationships with your customers but with your suppliers and employees as well.

“Getting the relationship right leads to consistent suppliers and happy employees.”

Supplier relationships are important because between 50 per cent and 80 per cent of a business’ revenue goes to its suppliers.

“You shouldn’t be treating your suppliers differently to your customers,” he said.

“If you can get the relationships right you can reduce the amount of work put out to competitive tender.

“A lot of organisations are obsessed with generating shareholder wealth. This is usually at the cost of stakeholder wealth.”

Stakeholders include suppliers, customers, employees, the community and even the environment.

Mr Lendrum said there was a relationship spectrum that had to be managed.

“It goes on a zero to 10 scale,” he said.

“At the lower end of the scale you have the combative, adversarial, tribal-type relationships.

“These are usually low-margin, little-trust relationships.”

He said such relationships were usually found in businesses whose product sales drew low margins.

“People in trading businesses, such as commodities, still need to be good at what they do – and some are,” Mr Lendrum said.

“At the other end of the scale you have quite complex private-public sector relationships.

“These are about shared risk, trust, responsibility and profits.

“In the middle of the scale you have the traditional key and major account relationships.”

Mr Lendrum believes the success of organisations, both today and into the future, lie in taking more collaborative, shared-risk relationships.

“An adversarial relationship, even done well, does not consistently deliver the benefits more likely to come from a collaborative relationship,” he said.

“Transparent systems and procedures are important.

“Statistics show there is a great competitive advantage from entering into collaborative relationships.

“There is enough competition out there without treating your customers and your suppliers like competitors.”

He said a collaborative partnership had paid off for Mobil and Transfield at Altona.

However, that partnership has taken about 10 years to build and show results.

He believes such partnerships can be applied to small businesses just as effectively.

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