Well, welcome back. Let's finish off this strategic skeptic lecture with a few more thoughts about human or channel partner behavior and motivation. One of my favorite examples in this regard is the following quote. Perhaps you're familiar with this, from an Aesop fable about the hound and the hare. So what is the moral of this story? A hound startled a hare from his lair, but after a long run, gave up the chase. A goat herd, seeing him stop, mocked him, saying, this little one is the better runner of the two. And the hound replied, you do not see the difference between us. I was only running for a dinner, but he for his life. These fables always have a key takeaway. And in this case, it is the idea that incentives spur efforts. How many of your channel partners are merely running for their dinner, as opposed to their life? And how would they react if there was more on the line for them? In other words, success requires more than just information. It also requires an understanding of your partners' incentives and motivation. Why would your partners want to undertake the activities that are needed to maximize joint or total channel value? Successful channel captains are those who create the incentives for critical activities performed by the partners in order to assure that the work of the channel system is done effectively. So why is it so hard to make the channel work? Well, in this lecture, we've said, number one, that your partners don't know what you know, and this creates an asymmetry in information that you need to overcome. Number two, your partners care more about themselves than you, and this is their self-interested nature. To be frank, they are more interested in buying their next boat or house than pushing your products. Number three, you're never able to fully observe their actions, and this creates the risk that they might be cheating you. Finally, your channel partner will freeload if you give them the opportunity to do so. There is a tendency to take advantage of network externalities or other expensive resources, such as another firm's services and capabilities. These aspects alone result in a classic problem that underlie all all strategic partnerships, that is, the double marginalization, the moral hazard, and the free riding. Now, I hope that this doesn't sound too depressing. I'm not trying to do that, but I am asking you to be realistic and to recognize that there are decades of research that verifies that these things happen. So this is why I want to give you this quick checklist to refer to, so that you can always be a smart, and therefore strategic skeptic. It's not enough to be skeptical if it doesn't lead you to have a smarter strategy, and that's the goal here. So in this lecture, I've given you four sets of questions to ask about any agreement or activity that you ask your channel partner to take on. Number one, are they on board? If not, then you need to show them why. Number two, what's in it for them to do what you ask? Number three, can they take advantage of you? Make sure that they don't want to. And can free riding occur? Well, then how can you eliminate this possibility? Of course, these solutions are not exhaustive, and you likely already know that. So without going into each of these in more detail, let me just give you a laundry list of other specific ways and means that firms have used to motivate their channel partner. And this can be a reference for the future as you try to answer these questions. So a key point to take away is that business is fundamentally about self-interest. This is the main driver of why economies and commerce works, and you need to be able to manage this. Having said that, let's now turn to another part of being a strategic skeptic, and that's the part about managing the channel relationship over time. One of the things that makes business to business unique is that a lot of transactions happen repeatedly between two firms over time. On the consumer side, we don't have as many relationships that involve very high stakes on a regular basis with a firm, so you manage it differently. But in B2B, repeated transactions often result in relationships, and those can be good and bad for business. In fact, for those of you who work in business to business, you know pretty well that most business is really about relationships. Now, this is an area that I specialize in. In fact, I've written a book on this topic, and for those of you whose job involves managing relationships, I would recommend that you check it out. This book explains why more than 60% of strategic partnerships and most relationships fail. It gives you a scientific understanding of how relationships work, and more importantly, what you can do to inoculate your own relationship against the dark side. Now, relationships, like most things in the business world, have been studied for decades, and they have a number of properties that can be systematically managed. Unfortunately, most MBA programs tend to focus on the purely economic or quantitative side of business. Now, that's not bad, it's just not all of it. A lot of business is relational. So for now, though, I'd like to draw your attention to a few concepts that are relevant as we talk about how to be a better strategic skeptic. Relationships can be strategically managed, and there is research that shows some pretty regular properties. Now, I like to refer to these as relationship physics, because they happen with a lot of regularity, enough so that you should be aware of them. The first principle is that while you might think the playing nice is a good thing to do, after all, this is what we teach kids about acceptable playground behavior. The reality is that it doesn't always work in business, so let me explain. Now, opportunism is when the self-interest seeking engine of business goes bad. We said that business is driven by a firm or person who is trying to maximize their own profits, and this in itself is not bad. The problem arises when they do this in a cheating or non-ethical manner. In other words, my partner gets ahead at my expense. What's interesting is that in a lot of business relationships, there is a lot of cheating, but much of it is what I would call low stakes. So employees take office supplies home, maybe consultants fudge their hours and expenses a bit. Managers steal credit for other people's ideas or withhold information that could be helpful at certain points in time. Maybe they are purposefully slow to respond to a client, or they show up only when it serves them to do so. Now, I'm sure you've seen this type of behavior in the workplace, although I'm even more sure that you've never done this type of stuff. However, you've probably been on the short end of this behavior, and it's not great. But on the other hand, it's not something you'd take out a lawsuit for, because it happens all the time. This type of behavior doesn't get regularly prosecuted, even though it is detected. Well, a while back, my colleagues and I ran some experiments to understand what the impact of this type of regular low-stakes cheating had on a business relationship. And I want to share what we found. On the horizontal axis here, you'll see that we have the number of instances in which a business partner was cheated, so 1, 2, or 3. And on the vertical axis, we traced how much the victims either agreed or disagreed with a number of statements. So one set of statements had to do with the amount of effort the victim had to put into monitoring their cheating partner. And as you can see, the more that you are cheated, as the number of occurrences increases, the more you try to monitor your partner as a means of self-protection. This suggests that being victimized is effortful. So those seemingly inconsequential behaviors and small forms of cheating are, in fact, accumulating, and creating more work and effort on your part to safeguard your interests. In other words, it's work. The more you are cheated, the harder you have to work at business. In the research, we made sure that these occurrences were not just mistakes. So what you're seeing here on this graph is not just saying, I think they're cheating me. There is, in fact, no mistake that the partner did cheat, in this data.
