Why Relationship Management?

Introduction

Nearly 50% of sourcing and outsourcing relationships fail as a result of poor relationship management.  Although this figure is alarming, sourcing and outsourcing is still a growing industry as corporations are looking to increase capabilities, profitability, and strategic advantage by sourcing commodities, IT, and business processes.

As outside suppliers play an increasing role in supporting corporate service delivery, the need to manage these complex relationships increases dramatically.  Nonetheless, sourcing and outsourcing remain the ONLY way to prevent value leakage; it is a continuous journey to reach operational excellence.   It represents the single largest untapped opportunity for improving an organization’s profits; it is also a relatively “painless” way to drive cost out of the company without reducing staff.   

The Challenge

The increasing complexity of the sourcing relationship and its accompanying propensity for failure motivates corporations to review internal competencies and assess the critical skills supporting effective relationship management. 

Relationship management involves interactions among dozens or even hundreds of individuals, who must balance competing priorities, resolve conflicts, build and maintain alignment among multiple stakeholders, and collaborate in the face of differences in organizational and operating procedures.  It involves change management.

Relationship management is a process, a set of competencies, tools, and techniques that support the overall sourcing process, enabling the organization to realize full, sustained value.

Observation

While working with our clients to extract additional value from their sourcing process through relationship management, we developed the depicted model.  It is a new paradigm based on mutual value creation; it manages activities essential to capturing the promised benefits and identifies additional benefits of a partnership between a supplier, the  client and the client’s business partners.  The model boasts four competencies:  contract administration, financial management, relationship satisfaction, and performance management.  These competencies form the core of the supplier relationship management process.

Effective relationship management depends on establishing a sound foundation through the integration of earlier activities including sourcing, negotiation, and change management.  It starts with the business goals and objectives set during sourcing which determine the relationship type, focus, and where the relationship should exist. 

Successful relationship management also depends on actively operationalizing and managing the relationship across all four competencies to achieve value.  Supplier performance and end-user satisfaction metrics reflect and measure that value.