Hi everyone. Today we're talking about channel relationships and how to manage them. So actually is a science to managing relationships between firms and organizations. This is what I spent most of the past 25 years doing. So I only want to highlight a few things that many managers don't realize. The first, is that in the same way that products have life cycles, relationships do too. Over time there are many aspects of relationships that will predictably start low, grow, hit a peak and then decline. This is true of performance outcomes such as sales, profits, but also in terms of collaboration, commitment, and trust. Here we have plotted this response function, and you can see that there's a period of time in which a channel partners may be aware of each other, but they don't interact. Then from the point of introduction they made test the waters with some transactions and small orders. So you can see sales increasing slightly. As they realized that transactions are efficient and reliable, they might decide to expand what they do together, and maybe try different ways of doing things, or increasing the quantities and frequencies of products and services exchange. In the same way that our personal relationships develop with each other, often the partners discovering that they work well together or have common goals and time frames makes easier to build trust and liking. This leads to an expansion of their joint activities. Maybe they experiment with new ways of doing things together, or retailer and supplier come up with a more efficient inventory management system, that works particularly well for them. This expansion allows the pair to grow further and expand the joint pie between them. Of course, nothing lasts forever, and over time their efforts began to taper off. Perhaps because of constraints in the capabilities of the firms, the nature of demand for what they are doing together, or increased competition. There could be a number of reasons for why joint efforts taper off. But the point of all this is to say that these development phases are predictable and they happen regularly. So in the same way that product managers forecasts a product's life cycle, we should also be forecasting our relationship life cycles. Why? Because a life cycle implies that your strategy must be dynamic. It's got to change and adapt to the relationship over time. If you think about your own personal relationships, every acquaintance that you meet does not necessarily become a closer friend or dating partner. Some small subset becomes closer to you than others. You relate differently from those you are close or friends with, than those who you marry or date seriously, right? At least I hope that you interact with a spouse or partner differently than with an acquaintance or a social or work friend. However, many managers don't really think about adapting their business and work relationships with partners. Some gets stuck and fail to recognize the opportunities to build trust or expand the pie. Others may try to do these things too early before implicit understandings are in place to take the exchange to the next level. In the business school, we primarily teach students how to maximize profits and returns or drive down prices in one shot encounters or transactional relationships. But a lot of businesses repeated, and by not understanding the dynamics of relationships, many managers leave a lot of money on the table. Like most things anatomical, there are some rules that are hard wired. For example, it turns out that there's a lot of empirical evidence that relationships that progress through life cycle in this fashion are more likely to be successful than those who don't. In other words, relationships that have taken the time to grow together towards maturity, as opposed to going from introduction straight to maturity, generally perform better than those that skip this buildup phase. So why does this matter? Because one way to gauge the health of your current channel relationships is to understand the developmental path that they've taken. On the other hand, if your relationship has had some dips and turns, this does not bode well. For example, some longtime partners in a mature phase will try to reinvent itself by rebuilding. Or sometimes conflict occurs, trust is broken and the partners go back to a basic state where trust can be rebuilt and earned back. None of these sound bad in theory, in fact you might think that it's laudable, that they tried to stick together and make things work. Like couples who avoid divorce and rework things to a state that's mutually acceptable. But that logic works well with personal relationships because the goal is longevity. But in business relationships, longevity can actually work against you. Partners get stale, markets change and new opportunities are constantly arising. In marriage, the goal is to last forever. But this mindset hurts business relationships. In business, you should be suspicious when partners celebrate being together too long. Now you may think I'm cynical, but let me tell you about a study that we did that involved over 1200 distribution channel members of a major chemical supplier in the agricultural industry. Sorry, not allowed to disclose their identity. However, we studied these relationships over a period of five years and you know what we found? 69 percent of those we studied, had relationships that developed in a normal pattern, systematically through these phases. But some did not. 24 percent regressed over this five year period. You know what we found quite robustly about those that did regress? They performed systematically worse than relationships that did not. So what's the law of the universe, the takeaway here? That relationship regression is bad for business. Once things go south, trust is broken and commitments aren't kept, it's difficult to move on. This is because we remember these infringements. They create uncertainty and suspicions in our mind and that casts a negative light that colors everything that partners do from then on. It doesn't matter if the suspicions are correct or not, our perception becomes our reality. You can read more about this in my new book on business relationship management called Partnering With the Front of Me. But for now, I want you to take away one thing. In fact, I tell many firms to move on if possible, rather than to try and invest the time to repair the relationship unless there is no other alternative. In other words, if the relationship is so important that it's worth taking the time to save. In general, firms have a hard time saying goodbye and that's a bad thing. That's how you get stuck marinating in these regressive relationship patterns. I have seen firms that carry on for years and no one is better off as a result of it. Better to say goodbye and move on.
