RESEARCH: by Professor Paula Jarzabkowski, Dr Michael Smets and Dr Paul Spee of Aston University: Industries characterized by relatively low-volume but often high-value transactions with a limited number of market participants (such as professional service firms, many investment-based financial services and the reinsurance industry) require deep knowledge of clients in order to evaluate the quality of their business proposition and tailor packages to their often complex needs. We term these “relationship-intensive” industries because deep relationships that involve significant investment of time and resources are critical to establish and maintain the basis for doing business.
It is thus critical to develop a strategic approach to relationship management in relationship-intensive industries that both identifies the best ways to meet, and which levels of strategic decision-maker in the company should be meeting in different situations. A strategic approach can help to distinguish between clients and allocate firm resources appropriately.
It is important for managers to understand that perceptions of liking and trust are actually grounded in informational properties, which can be developed in many ways, not all of which are dependent on personal relationships. Trust is critical to business relationships and is likely to be developed through repeated, long-term engagement. However, the real basis of this trust is not based on the personal likability of the respective managers, but on trust in their business practices and their business context.
Our research indicates that there are three types of trust with unique informational properties: (1) personal or goodwill trust, (2) processual trust and (3) institutional trust. Not all of them are dependent on personal relationships. Rather, we like to think of these as three complementary lenses that progressively zoom out from the personal relationship to the wider business context.
In long-term business relationships, goodwill trust is thus not just about personal likability but is also based on information, built up over the lifetime of the relationship, about the transparency with which a business partner acts and their honesty in past behaviours. It may supplement the other forms of trust described next.
A second dimension is “process trust”, that is confidence in an organization’s operating standards, governance, controls and policies. This perspective on trust and information zooms out from the personal relationship and anchors trust in the context of the organization. Your business partner may be a teetotaller with different personal and social interests to you. But even someone you find socially boring could run a tight company with which you wish to do business.
To predict current and future behaviour, you can zoom out further and look at the institutional context in which your partner organization operates. This perspective can instil “institutional trust” in a relationship based on the judgment that legal and political systems, professional standards or reputational networks would discourage dishonest behaviour.
Relationship management is time intensive and costly, but can also be a very valuable business tool. Therefore, it is important not to indiscriminately apply the same relationship management techniques to all existing and potential clients without distinguishing exactly what a relationship can add, and how to best foster each type of relationship to gain the appropriate benefits.
Maintaining meaningful relationships takes a lot of effort. In this respect business and personal relationships are alike, but in business relationships we expect a measurable, value-adding payoff. Understanding relationship value ensures that those relationships which generate the most solid returns to a firm receive the highest levels of relationship management. At the same time it guards against over-investing in personal relationships and other costly mechanisms of relationship management where opportunities for value-adding payoff are limited, no matter how congenial the individuals concerned.
Executive Education at Aston Business School
From Aston Business School, “Ready for Change?” published 2012, Palgrave Macmillan, reproduced with permission of Palgrave Macmillan'.