807 lec 9 amended2 by welcomegong



                        Subject                      Page

1. Relationship Management                            2

2. The Spectrum of Buyer-Seller Relationships         3

3. The Stakeholder Value Model: the Ideal             5

4. A Realistic View of Stakeholder Value Models?      6

5. Stakeholder Models                                 7

6. Guide to Selecting Partnership Options in Value    8
   Chain Decisions
7. Stakeholder Performance Expectations               9

8. Shareholder-Stakeholder Interests                  10

9. Identifying Partner Stakeholder Interests          11

10. A „Relationship Management‟ Led Organisation      12

11. Summary                                           12

12. Discussion Questions                              12

13. References/ Reading List                          13

                                                            Page 1 of 12
1. Relationship Management
Walters (2002) asserts that relationship management is the managerial activity which
identifies, establishes, maintains and reinforces economic relationships with
customers, suppliers and other partners with complimentary (and supplementary)
capabilities and capacities so that the objectives of the organisation and those of all
other partners may be bet by agreeing and implementing mutually acceptable
strategies. Relationship management can influence positioning and strategy by
identifying, developing and maintaining partnerships that achieve the product service
objectives needed to meet customer expectations. Relationship management moves
the organisation towards cross-functional decision-making and control and is clearly
an important component in strategic operations management.
Hutt and Speh (1998) explain that “relationships in the business market are often close
and enduring. Rather than constituting the end result, a sale signals the beginning of a
relationship”. Much the same approach is becoming more common not just in
business markets, but also in consumer or end-user markets. Additionally, the same
basic philosophy can be extended to include all stakeholders to the company, with
monetary transactions being replaced by exchanges of information between some
stakeholder groups and the company.

                                                                                Page 2 of 12
2. The Spectrum of Buyer-Seller Relationships
Hutt et al (1998) shows that a spectrum exists in terms of buyer-seller relationships,
from pure transactions through to reciprocated transactions, to long term relationsips,
to buyer-seller relationships and finally to strategic alliances.

Pure transactions are a one-time exchange of value between two parties with no prior
or subsequent interaction. This is a rare situation in modern business.
Repeated transactions are the next step up from a pure transaction and involve greater
loyalty, trust and purchase frequency. This step often forms the basis for more long-
term relationships.
Long-term relationships involved relatively long-term contractual commitments, but
the relationship is managed in an arms-length and adversarial manner.
Companies that emphasise partnerships with suppliers have reduced the number of
their supplier list and rely one or only a few suppliers for a particular part. The chosen
suppliers promise to deliver defect-free parts on a precise timetable. Price is more of a
negotiated outcome, rather than being determined by market forces.
In some cases, the partnership between a supplier and a customer moves to the next
stage and becomes a strategic alliance. What distinguishes a strategic alliance from
other forms of inter-firm cooperation is the intent to move each of the partners toward
the attainment of some long-term, strategic goals.
Hutt et al (1998) show how relationship management has evolved.
Traditional View
 Purpose of marketing is to make a sale
 Sale is the result and measure of success
 Business is defined by its products and factories; price is an input
 Communications are aimed at aggregates of customers
 Marketer is valued for its products and prices
 Objective: to make the next sale, find the next customer

Relationship View
 Purpose of marketing is to create a customer
 Sale is beginning of relationship; profit is a measure of success
 Business is defined by its customer relationships
 Price is determined by negotiation and joint decision making; price is an outcome

                                                                               Page 3 of 12
 Communications are targeted and tailored to individuals
 Marketer is valued for its present and future problem-solving capability
 Objective: to satisfy the customer you have by delivering superior value

3. The Stakeholder Value Model: the Ideal
Walters (2002) suggests the stakeholder value model as a method of determining the
relationship goals that individual stakeholders have from the company.

                               Product/ service
                              Competitive prices
                               Service support
                                 Customers                    Long-term
 Employment                                                   relationships
  continuity                                                  Growth in
 „Fair‟ rates of                                              volume in
  pay                                                          markets
 Job satisfaction                                            Mutual
                                                               profitability and
     Employees                                                 productivity


  „Community‟                                                Distributors/
   Employment                                               Resellers
   Conformity                                                Market growth
   Conservation                                                and development
   Concern for the             Shareholders                  Profitable
     environment                 Share price                   transactions
                                   appreciation               Ongoing
                                 Dividend growth               relationships
                                 Economic cash flow

Source: Walters (2002)

Each of these relationships will vary in importance, depending on the company and
other situational factors.

                                                                             Page 4 of 12
4. A Realistic View of Stakeholder Value Models?

                          Increasing quality of life
                          Clean and healthy
                          Employment at “fair” rates
                           of pay
                          Continuity of employment
                          Conformity to international
                           views on social
                          Price/ “value”


           Employees                                   „Community‟


                                   Credibility Gap

                                  Enterprise Value

          Suppliers                                            Resellers


                                      Profitability
                                      Productivity
                                      Cash Flow
Source: Walters (2002)                Growth
The above diagram illustrates the different priorities each stakeholder group has,
leading to a dilemma of how management should prioritise initiatives and resources.
If management attempts to satisfy all stakeholder needs, the fact that each group has
conflicting needs leads to a credibility gap.

                                                                               Page 5 of 12
5. Stakeholder Models

 Upstream Partners/ Suppliers
  Objectives            Profitability
  Capabilities          Productivity
  Processes             Cash Flow

                                      Interface considerations and performance
                                      requirements for optimal value chain
                                                    Specialisation
                                                   Co-productivity
                                                     Co-optetion
                                                    Prosumerism

                                   Downstream Partners/ “VARS”

                                   Objectives            Profitability
                                   Capabilities          Productivity
                                   Processes             Cash Flow
End-User Customers
 Quantitative objectives
 Qualitative objectives

Source: Walters (2002)
This diagram plots stakeholder priority throughout the supply-chain, in particular, the
priorities of the various members of the marketing channel. The closer each member
of the chain comes to creating a strategic alliance through relationship management,
the more synchronous the supply chain becomes enabling greater efficiency and
effectiveness. This ultimately leads to profitability.

                                                                             Page 6 of 12
6. Guide to Selecting Partnership Options in Value Chain Decisions

                                                     Time and Market Risk

                                      Low                   Medium              High

                                    Outsource as           Outsource as      Outsource as

                                     required               required          required
Capability expectations

                                      Ownership/             Ownership/      Outsource as
                                      partnership            partnership      required

                                   Own activity or                          Partnership with

                                     vertically                                 „market
                                     integrate                                 specialist‟

Source: Walters (2002)
This diagram acts as a guide for supply-chain members in selecting worthy strategic
alliance partners, given a specific situation.

                                                                                         Page 7 of 12
                                                                      Employment continuity
                                               Dividend                                                                           Profitable        Ongoing
                                                                                                         Competitive prices
                                                growth         Job satisfaction                                                  transactions     relationships
                                     Share price      Economic
               Value Criteria                                                      „Fair rates‟ of
                                     appreciation     cash flow                                         Service      Product/ service                Growth and
                                                                                                        support       performance                   market volume
                                           Shareholders                    Employees                          Customers
                                                                                                                                              Partners (Suppliers
                                                                                                                                               and Distributors
                                                                                                                                                 Value Added
                                                                                  Stakeholder Value Expectations
                                                                                                                                                                     7. Stakeholder Performance Expectations

                                       Economic Cash Flow                Profitability                Productivity                       Growth Rate
                Value Drivers
                                                                                                     Ratio of current and
                                     Discounted value of all cash    Profit margin on                                                   Ratio of „business‟ growth
                                                                                                     future sales to total
                                     flows expected from current     current and future sales                                           rate to growth rate of the
                                     and future sales                                                                                   „market‟
                                                                                                     (Asset base
                                     (Investment and financial       (Margin management)                                                („Market‟ management)


                   Source: Walters

Page 8 of 12
8. Shareholder-Stakeholder Interests

                             Share Price Growth
                              Market view of
                                current performance            Economic Cash
Dividend Growth                 and future potential           Flow
 Current                     Relative performance             Future net
 Relative
                                                                Cost of capital
                                                                Competitive
    EPS                           Shareholder
    DPS                           Performance

                                                            Enterprise value
                            “Added Value”                    Current performance
 Current
                             $/% added value                Growth options
                             share of VCS added             VC performance
 Market
                               value                         VC options
                             added value profile-           Value migration
                               migration patterns            Asset values
                             ROAVI

Source: Walters (2002)

This diagram illustrates how various factors affect shareholder returns. Each of these
factors can be determined, in part, by the company‟s ability to manage relationships,
especially in the case of a relationship management led company. For example,
economic cash flow is the company‟s ability to generate future cash flows. Through
good relationship management, the company can improve its prospects by reducing
risk and improving long-term returns.

                                                                             Page 9 of 12
                                               Share of Profits                     Ratio Performance – outside
                                                                                        Value Chain System                                      “Cash flow” – outside
                                              Expected share of profits                                                                          Value Chain System
                                              in Value Chain System                    Ratio Performance in Value
                                               Current share                          Chain System                                         “Cash flow” – in
                                               Profit pools                            ROS                                                Value Chain System
                                               Profit/ Added value                     ROI                                                 Accounting

                Source: Walters (2002)
                                               Profit migration                        ROE                                                 Operational
                                               Anticipated                             ROAVI                                               Strategic
                                                  performance                                                                                VCS cash flow

                                                                                    Stakeholder Performance
                                                                                                                                                  Profitability – outside
                                                                                                                                                  Value Chain System
                                                                                                                                                                            9. Identifying Partner Stakeholder Interests

                                         Share of Added Value–
                                          outside Value Chain                                                                               Profitability in Value
                                                 System                                                                                     Chain System
                                                                          “Innovation” – outside Value                                       “Margins”
                                          Share of Added Value in                Chain System                                                profit Pools
                                          Value Chain System                                                                                 profit migration
                                                                          “Innovation” in Value Chain
                                           $/ % of total added
                                                                           Returns to R & D                        Productivity– outside
                                           Profile/ migration
                                                                           NPD/ Revenues                           Value Chain System
                                           Growth of added value
                                                                           NPD/ AV
                                           Growth of share                                                  Productivity in Value
                                                                           Sales from NP/ Sales
                                           Added value                                                      Chain System
                                                                           Capability management
                                             components                                                       Plant utilisation
                                                                           Asset management (Tangible/

Page 10 of 12
                                                                             Intangible assets)               Labour utilisation
                                                                                                              Capacity management
 10. A „Relationship Management‟ Led Organisation

              Development                       Application

 Joint product
  and process
  definition                                          Develop strategic marketing
 Investigate                                          partnerships
  economies of                                        Shared product-market databases
  integration               Stakeholder value         Joint market forecasting
 Joint product                strategy and           Joint product market response
  market                          mutual               scenarios
  development                  competitive            Shared costing data
  programs                      advantage             Develop joint strategic
                                                       operations partnerships
                                                      Integrate „asset-base‟
Information      Technology
 technology      management
    Operations        Develop online
    technology         product management
                       and product support                    Internal
                      Develop online
                       management for
                       procurement and

 Source: Walters (2002)

 11. Summary
 Relationship management is an essential activity within the value chain. It can be one-
 off in nature or more long-term in nature and concerns managing relationships
 between the company and each of its various stakeholders. The diversity of
 stakeholder groups can lead to conflict that manifests itself in a credibility gap when
 management attempts to meet all stakeholder priorities simultaneously.

                                                                              Page 11 of 12
12. Discussion Questions
1. What kind of relationship is the most profitable for business in a stable
   environment? Why?
2. How can a company effectively manage stakeholder priorities? Which stakeholder
   group should be the company‟s highest priority?
3. What kind of company should be relationship led? Why? Give examples.
4. References/ Reading List
 Walters, D., 2002, “Operations Strategy”, Palgrave Macmillan.
 Hutt, M. D., and Speh, T. W., 1998, “Business Marketing Management – A
   Strategic View of Industrial and organisational Markets”, Dryden Press.

                                                                               Page 12 of 12

To top