Managing relationships has always been given a degree of importance. Positive relationships are a vital component for creating an environment where people can thrive. However, more focus is dedicated to this area of management now than ever before. The business environment is more complex, competitive and connected in today’s world where communication plays a central role is success. Value is therefore created as much inside the organisation as outside. This is why organisational structures in recent years have evolved from old fashioned chains of command into a more flexible, two-way structure based on internal networks and relationships.
Effective relationships are ones that are mutually beneficial and create value for all parties involved. In 1975, more than 80 percent of corporate value reflected in the S&P 500 was tangible assets, while intangible assets comprised less than 20 percent of market capitalisation. By 2010 intangible assets had grown to 80 percent of market capitalisation. A major portion of these intangible assets are all the stakeholders involved in a company’s everyday operations, including employees, customers, suppliers, investors and the general society. As a result, the quality of a business’ relationships with these groups influences its overall performance and also has both short and long-term implications.
Hence, long-term business success depends on understanding and responding to this trend in the appropriate way. Tomorrow’s company recommends an approach called the ‘triple context’ which involves aligning economic, environmental and social interests and nurturing the relationships that support the health of this interconnected context. The ideal strategy can capitalise on the advantages effective relationships can offer and unlock the potential value businesses might be missing out on.
Creating effective internal, as well as external, relationships is important; it is highly possible that one cannot be achieved without the other. The same way in which relationships are an integral part of a functional society, creating a positive culture within a company is probably unlikely if there is no sense of ‘society’ within it.
In today’s fast changing world, organisations are forced to adapt to constantly changing trends in order to remain competitive. A significant aspect of operational change is how to develop the correct approach to relationships. The first step in this process is identifying the relationships in and around the business and then implement effective management and decision-making strategies that will bring the most amount of value out of these connections. For this to be possible, company executives will have to first recognise the benefit of investing more in the quality of relationships their company develops and how this will add growth, value and efficiency to the firm.
There is a tendency to assess the quality of a relationship on the basis of how satisfied someone is with the current bond or affiliation. However, a relationship where one or both parties are satisfied is not necessarily one that is helping both parties to achieve their goals. It is more beneficial if their relationship ensures the accomplishment of the respective goals that are set out.
The four main requirements to build beneficial relationships are: identifying key relationships, developing them into more meaningful relations, measuring their effectiveness and finally reporting on the effectiveness of those relationships. Fostering a culture where relationships are highly valued has to start from the top level management and trickle down through the policies they delegate. These influential officials will have to take the conscious initiative of making the quality of relationships a main point of discussion and track its performance within the company with the vision of how it will be a contributing factor to long-term business success.
Tomorrow’s Relationships is a guide aimed at boards and senior management with the intention of providing them with practical steps in the form of an 18 month project which will explore what it means to develop more effective relationships. This programme has been supported by CIMA, the CIPD, KPMG and Linklaters, drawing on discussions with companies, professional bodies, practitioners and academics who are experts in the field of relationships.