The management of relationships has been a facet of business for as long as business transactions have existed. On the most basic level, Relationship Management is about interaction with customers. From a broader perspective one can consider employees, suppliers and consumers as customers, the employees being the internal customers of the organization. Relationship Management deals with the treatment and management of partnerships, connections, linkages and chains between business entities.
For the purposes of this paper, we view Relationship Management (RM) as a conscious and planned activity. It would be misleading to suggest that there have not been relationships in business or any focus on relationships by companies. However, the thrust of RM, as expounded in recent times, points to a more tactical and strategic approach to focusing on the customer rather than a relentless focus on the competition.
After the economic downturn of the 90s, many companies started to examine the possible benefits to be gained from less negotiation strong-arming, closeness to suppliers and the establishment of constructive relationships with strategic stakeholders. This does not suggest that RM was founded in the US, or has not existed before then; the Japanese had perfected RM and value-concretisation into an art form on the basis of social structure and communal creed.
RM itself has not just many types but many levels. The manufacturer has his suppliers and the end users as his customers; the retailer has the manufacturers and the end users as his customers, and manufacturer, the supplier and every organization with a tactical or strategic agenda have internal customers.
There have been several different sub types of Relationship Management introduced by writers, marketers and business pundits, starting from the most widely known Customer Relationship Management (Buttle, 2004; Kracklauer, Mills & Seifert, 2004) to Customer Centricity (Gummesson, 2008); Collaborative Customer Relationship Management (Kracklauer, Mills & Seifert, 2004); Supply Chain Relationship Management (Kracklauer, Mills & Seifert, 2004), Integrated Supply Chain Relationship Management (Kracklauer, Mills & Seifert, 2004), and so on. Hines (2006) delineates three types of relationships: the strategic alliance, the functional partnership and the one-sided partnerships. Donaldson & O’Toole (2007) outlines four types of relationships: partnership, friendship, adversarial and detachment. Our discussion here centres on four components of Customer Relationship Management: Customer Identification, Customer Attraction, Customer Retention and Customer Development; all of which, for the purposes of this paper, we shall consider all of these under the blanket term Relationship Management; Relationship Marketing, the management of, not the cooperation with customers; the latter being the job of relationship management, is not within the scope of this paper but since from a conceptual perspective, the difference between the two may not be as simplistic and marked, it may be mentioned or discussed in passing.
Traditionally, RM was an activity (or non-activity) that involved an electronic customer database of an organisation’s customers or consumers,which reports on consumer buying behaviour. Contemporarily, RM delves much deeper than this: undertaking intensive research on customers and customer behaviour and using the result of such research to (re)design business culture. RM, at its strategic level, advocates for a business culture with a concentrated focus on the customer rather than on the products or the sales, but what seems to be the biggest trump card of and in RM is loyalty. The customer-centric concentration in business relationships in recent times has forced a move towards shared goals and shared benefits, and for this to work there has to be commitment; each party being committed to their personal objectives but also to the shared goals; each party having the competence to carry out their responsibilities and believing and relying, having a confident and positive expectation that the other party will act within the ambits of the agreement.
The focus on the customer (which is the basis for a relational existence) runs across certain concepts: price, quality, innovation, reliability of product, reliability of associated service and brand reputation. On the proven premise that it is easier and cheaper to retain a customer than to attain a new one or regain a lost one, customer RM on the concepts already discussed should be the goal of the contemporary business.
Different types of RM have been identified, ranging from the transactional, the collaborative and the formation of alliances, which is also known as partnerships or value-added exchanges. The alliance is a partnership with suppliers that involves a mutual beneficiary arrangement where cost-cutting ventures are jointly addressed by both buyer and seller, the seller being considered an extension of the buyer’s organization. The business relationship between Japanese suppliers using JIT is a good example. For example Toyota holds a strong alliance even with its 3rd tier vendors. The result of such partnerships means added value, reduced production and transport costs, a more seamless supply and delivery network, and maintenance of exceptional quality, as per TQM considerations.
Traditionally, companies were preoccupied with rigorous competition, firm-induced and firm-controlled business strategies, focus on short-term profits and strategies and independent decision-making. This transactional existence meant a focus more on the competition than the customer, a concentration on short-term profits rather than long-term strategic gains and likelihood to be blind to opportunities for expansion and change. Today’s strategically-minded companies are pre-occupied with partnership with other firms, collaboration and coaction, boundarylessness, joint decision-making and a focus on long term benefits. With today’s business climate, one can easily foresee a rapidly changing business environment where manufacturers will have the most fruitful partnerships with every member of the supply chain and the consumers, a scenario where the manufacturer will run a ‘virtual factory’ with the effective and efficient use of value chain networks unlimited by geographical location or consideration.
RM functions on a strategic, a tactical and an operational level. Businesses that are product-oriented ensure effective performance of their products, in the design, the features and output; the production-oriented business (not to be confused with the product-oriented) believe in mass production at a cheap scale on the notion that the customer uses low-price as a singular consideration; sales-oriented businesses put a lot of stock in advertising, promotions and public relations while the customer-centric enterprise strives to understand its customers preferences and purchasing behaviour and models its business activities to suit this. This is considered strategic RM. The operational level deals with automating the customer management process using computer applications and devices across market, sales force and service categories. Tactical RM deals with using the data from customer management computer applications to add value both to the customer and the company.
While it would be immensely useful to run a customer database to keep the organization in sync with full information with its customers, RM especially from a strategic perspective delves deeper than mere software; it deals with a ‘pull’ strategy, letting the wants and needs of the customer dictate what products and services are offered, rather than the other way round, using a production-oriented strategy to ‘push’ products and services that the consumers may or may not need, but which does not ultimately satisfy the customer.
Companies generate more revenue when they satisfy – and because of this retain- their customers. It is hereby propounded that the simple economic fact that customer retention is cheaper than customer attraction provides the customer with an intrinsic importance to business performance than anything else.
Discussions on RM, or even relationship marketing, cannot be possible with the exclusion of the word ‘customer’. The customer is the object – and sometimes also the subject – of RM. Attainment of an effective RM is consistent upon customer satisfaction, customer retention, customer loyalty and a host of sub-concepts preceded by the word ‘customer’.
But while it is known what the customer represents, it is not always known who the customer is or how many different representations of the customer we have.
A vehicle manufacturer for example will have its suppliers of raw material in tiers, its distribution partners, and the actual end users. From a business point of view, all these are customers and even though there is only a single set of consumers. The basis of the RM between these different customers (and even between different sub-levels of customers – supplier tiers for instance) could be immense. Customer Relationship Management in its true sense may refer only to the end users or consumers in this case, for the attraction and retention schemes may not apply to first tier suppliers, though development will, albeit from a different perspective.
In business, the customer therefore is not someone who pays for goods and services; it is evidently a unit that has some considerable stake – not stock- in the business and whose input contributes in one way or another to the bottom line. By the same token, the employees in an organization are customers; internal customers. Paradoxically, so are senior management; and middle and junior management. On the concept of ‘keiretsu’, the Japanese takes the word ‘customer’ to a disparate level. Kaoru Ishikawa, one of the top five Quality Management gurus, supersedes that when he suggests that ‘the next process is your customer’ as an appropriate maxim for the drive towards customer satisfaction. For Ishikawa, the customer is not merely an object, it becomes an activity, a process, a goal.
Supply Chain Relationship Management
From a supply chain management perspective, RM is centred on the chief players: the manufacturer and the supplier. There may be several suppliers, several tiers of suppliers and several types of suppliers (retailers, resellers, etc). There would obviously be the end user. Of major importance is the relationship between manufacturer and principal suppliers.
Three major types of relationship types in the supply chain are hereby identified: the adversarial, the transactional and the strategic. Both sets of authorities on the subject hold that the transactional relationship (as opposed to the relational variety) has a transactional rather than a partnership focus; is competition rather than collaboration-oriented; is firm-benefiting as opposed to being partnership-profitable; is independent and therefore myopic rather than interdependent and is viable only for the short term.
Strategically, it is the relational type that is considered a partnership. The traditional partnership is that between the manufacturer and its principal supplier(s). There are also lateral partnerships, between competitors; buyer partnerships between firms and eventual and/or intermediate customers; internal partnerships which refer to the concept of the internal customership within organizations and across functional departments.
A relationship is considered adversarial where there is fear, threats (whether tacit or overt) and coercion (whether esoteric or actual). In the automotive manufacturing business for example, a manufacturer can have an adversarial relationship with suppliers if the bargaining power of the manufacturer is considerable in a case where a good percentage of the supplier’s products are purchased by the one manufacture or a chain of them. In such cases, the manufacturer attempts to attain value by pursuing only its own interests; being strategically independent (rather than interdependent); communicating unilaterally; influencing decisions using force or the threat of force; using competitive bidding rather than establish strategic relationships with few suppliers; and entrench all discussions, agreements, terms and conditions in detailed formal contracts.
For the most part, RM in the supply chain is vertical, as partnerships are built with firms along the value chain. Some companies do not realize any value because their customer/consumer RM is kept separate from their supplier relationship management; for supply chain networks to thrive effectively, establishing partnerships is simply a means, not the end itself. The mere establishment of partnerships does not suggest a collective move towards a shared goal. For that to be existent, the partnerships must be collaborative. Collaboration involves significant investment of those involved incorporation mutual understanding, shared vision, shared resources, united goal achievement, trust, trustworthiness and complete functional interdependence.
Culture and Relationship Management
Culture refers to the way things are done and have been done in an organization or social setting for a considerable period. Culture determines behaviour patterns; it is integrated into the behavioural framework of a person or a group of people; it is the result of not only learned, but acquired behaviour patterns, and it is a collection of behaviour, attitudes, character traits, convictions and belief shared by a group of people.
Cultural differences could not only limit the functional success of relationships, it could derail the effectiveness of RM, or terminate it completely. Cultural differences cover personality traits, gender differences, geographical, social and business disparities. Social culture defines how people manage relationships, and effectively therefore, to what extent relationships can be properly managed. Corporate culture issues aptly capture the issue of RM and the extent to which relationships can be successful across two or more firms: The essence of corporate culture is an organization’s conviction about how its business is to be enacted. Then there is culture based on geography; Country culture determines corporate culture(s) to a large extent. One of the main determiners of country and corporate culture may be the extent to which people treasure personal relationships. While the long-standing relationship of two firms in Asia may be maintained primarily because of some earlier personal connection, the long-standing relationship of two firms in the US may be maintained primarily on the betterment of the bottom line of both firms. While using coercion as a conduit for good RM may be an effective negotiating strategy in the US for example, it may be considered grave disrespect in many parts of Asia and may lead to the premature severance of a good business relationship.
From a country culture perspective, it has been suggested that the French are not interested in whether they are liked; the Americans are impatient and negotiate to tie up every loose end, as opposed to the Chinese who negotiate solely to build a better relationship, not to tie up loose ends all at once, since as far as they are concerned negotiations never end; the Italians and Germans never offer praise before they criticize; the Indians feel that interruptions during discussions is a way of fostering more understanding; the Americans are said to talk too much and would ask personal questions which people from other cultures may find distasteful. These classifications may be too generic and type-casted, but if they are to be accepted (or even tolerated) as factual, then it is but natural that customer relationship management with have different results and outcomes in different countries with disparate cultures and different people. As a prerequisite to effective management of relationships therefore, a useful understanding of personal and social attitudes and expectations of the other parties may help the partnership.
‘Guanxi’ is a Chinese cultural way of interacting and managing relationships in business. It encourages supply chains and networks based on interactions and negotiations between family members, friends and people of trust. Anyone outside this circle of trust is likely to be treated with suspicion at best, and hostility at worst. In the management of relationships between international firms for instance, a subject who does not fall within that circle of trust is likely to have zero limit to manoeuvrability in negotiations and discussions. The giving of gifts which is an essential element of ‘Guanxi’ may be viewed upon as unethical or improper by another party or potential partner.
It may be easy to suggest that the establishment of relationships should not in any way be affected by culture. However, if cultural issues are likely to limit the organizations ability to manipulate or manoeuvre in business relationships, it means that realization, identification and modification of the cultural issues should be a valid point in the establishment of set objectives for the effective management of meaningful business relationships. Capon (2004) seems to concur when she says that ‘everyone lives culture, but only the clever are able to manage it’.
For RM to be successful, there has to be a constant supply of reliability between and among all parties. Every party to the relationship should have the confidence that the other party is in a position to deliver as promised, and will. This is where the issue of trust comes in. Trust is one of the most important antecedent to a successful business partnership; in the realm of retailing, many repeat purchases and purchase considerations are made based on product trust, store trust, brand trust or a combination of these.
Trust and Relationship Management
Many attempts have been made to define or (failing which, to) describe the apparently elusive concept of trust. Plenty definitions have been offered, some have been markedly different, but most have been consistent on the central issue: that trust is the anticipation by one that the other will not take undue advantage. Trust is an expectation that another will not take undue advantage; it is the chosen susceptibility of one party to be vulnerable to the possible unfairness and selfishness of another; it is the belief in the integrity of another person and party; it exists only where there is risk and uncertainty which connotes that the concept of trust is linked with the likelihood of opportunism by one or more parties. Undertaking to trust therefore is synonymous to undertaking the management of risk.
The thrust in all of the definitions are basically the same; that trust is an anticipation of behaviour or actions based on stated or tacit agreement that another party will not act in its own interests. While the definitions are consistent, the treatment of the concept, the construct and its relationship to management theory and practice seem to differ. There has been very little empirical research to verify how trust functions in business or what determines trust.
Models, Types and Constructs of Trust
There have been myriad views on the models, types and constructs of trust. There are three types of trust: deterrence-based (trust that exists on the basis that opportunism will have dire consequences); knowledge-based (trust based on predictable actions) and identification-based (trust based on emotional association between the parties). Similarly, there are 3 sources of trust: process-based (trust which is based on an exchange relationship of considerable longevity); characteristic-based (trust based on social or other group characteristic) and institutional-based (the inducement of trust by social institutions.
Trust is based on 5 cognitive processes: the calculative process; the prediction process – which is the same as calculative except that the analysis here is more qualitative than quantitative; capability process; the intentionality process – the assessment of the motives and intentions of the other party; and the transference process – situation where trust is based on a trusted reference from a third party.
The processes outlined here do not necessarily challenge the conceptual theories of; rather they represent disparate viewpoints based on environment and whether trust is being viewed as a social or a business construct, and whether these are mutually exclusive. It would seem that the intentionality process is a little redundant; the interpretation of the intentions of the trustee could be analysed under the calculative or the prediction process.
The deeper the examination of trust as a concept and as an intrinsic integer in business practice, the more elusive it seems to become. If the contracts, agreement or legal implications, which we can call ‘governance devices’, do exist, then it follows that these devices were created because one or both parties do not trust each other. This does not refer to distrust, but an absence of trust. Nascent literature has propounded that an absence of trust by a trustor could be based on the fact that the trustor knows nothing about the trustee and has decided therefore not to take the risk of trusting. Since this does not mean that the trustor’s absence of trust was based on knowledge and/or experience of the trustee’s actions, it is not distrust, but an absence of trust.
Relationships and Trust
These two concepts are not the same, but in today’s business environment, the discussion of one brings out the other. Unlike relationships which just exist, trust is not a given. Trust, like respect which it incorporates, is earned; thus trust cannot exist without trustworthiness, which is the ability to earn trust, the capability of being trusted. Trustworthiness is rooted in the believer’s trust that the other party possesses integrity, values and a good sense of ethics, and therefore can be trusted. Trustworthiness has to be fathered, to be engendered by firms and organizations themselves, and this, by running the organization using a visible set of values and ethics. Trust and distrust are to be understood as one ‘bipolar construct’, diametrically existing in a continuum.
Areas for Further Research
As a firm that claims to live on customer satisfaction and successful relationship management as its key to competitive advantage, Toyota does not expect the total absence of errors though it continuously drives towards it. The Toyota Production System does provide several modes of detection and fixing of errors as they occur, but not all errors are fixed, mainly because not all errors are readily visible or apparent.
The cases of the sticky gas pedals, obstructive floor mats and the Sudden Unintended Acceleration (SUA) are cases in points. A gas pedal as a component may not have been sticky up to when the car is driven and tested at Toyota’s plants, nor would any unexpected acceleration show itself. Nonetheless it is a manufacturing error that Toyota has addressed and has recalled vehicles to replace the faulty components at Toyota’s own cost. This does not mean that customers may easily forget or that their trust goes unaffected, especially since the death of an entire family in a Lexus crash after SUA occurred but these mishaps may have dented (not destroyed) the brand loyalty and trust of the world’s foremost car maker, if the customer assesses that the satisfaction considerably outweighs the errors. The recall of vehicles and Toyota’s promise to replace all defective gas pedals may suggest an innate concern for customers.
Buttle, F. (2006) Customer Relationship Management – Concepts and Tools. Elsevier Butterworth-Heinemann, UK.
Capon, C. (2004) Understanding Organizational Context – inside and outside organizations. FT Prentice Hall.
Donaldson, B. & O’Toole, T (2007) Strategic Market Relationships, from Strategy to Implementation 2nd Edition; John Wiley and Sons Ltd.
Gummesson, E. (2008) ‘Customer centricity: reality or a wild goose chase?’ European Business Review, 20 (4), pp. 315-330.
Hines, T. (2006) Supply Chain Strategies, Customer-Driven and Customer-Focused. Elsevier Butterworth Heinemann.
Kracklauer, A. H., Mills, D.Q., and Seifert, D. (2004) Collaborative Customer Relationship Management: Taking CRM to the Next Level (Kindle Book), Springer.
Source by Franklin Eze Ibemessie