Managing Strategic Relationships

The Key to Business Success

Leonard Greenhalgh

• Publisher: Free Press
• Year: 2001
• ISBN:
  9780743213721
• Topic: Business
• Subtopic: Gestione
• Index: Business

Contrary to the gospel of a century of management thinkers, the primary job of the manager is no longer to plan, organize, direct, or control, asserts management expert Leonard Greenhalgh. Instead, he argues, today's successful managers are primarily negotiators who are judged on their ability to foster, coach, protect, and support collaborative relationships -- and manage conflict -- with peers, workers, bosses, suppliers, customers, regulators, competitors, and stakeholders.
In one of the most comprehensive analyses of business relationships ever written, Greenhalgh shows how relationships -- not technology or "know-how" -- are the foundation of the new extended enterprise. In immensely readable prose, he describes how companies have moved beyond adversarial relationships of command-and-control hierarchies to a new communal world in which internal networks of autonomous professionals and external networks of collaborating organizations compete against rival networks. In order to manage, managers must acquire a whole new set of negotiating skills, he argues. Traditional negotiating techniques promoted winning and self-interest, leaving a wake of bitterness and acrimony. Here Greenhalgh introduces for the first time a brilliant concept he calls "Commonwealth, " which promotes ongoing relationships and the common interest. Using scores of detailed case studies and examples, he offers a set of cutting-edge tools managers can apply immediately to repair and improve relationships between people at all levels of responsibility, between groups, between organizations themselves, and between personalities involving gender differences.
Timely, stimulating, and powerful, Managing Strategic Relationships is essential reading for every manager who hopes to succeed in the organization of today.

CHAPTER 1

MANAGING IN THE NEW ERA

Gaining competitive advantage has become more difficult than ever before; and sustaining it, almost impossible. This is the result of several emerging trends. Agile competitors have sped up their time-to-market, and can quickly nullify a first-mover advantage. New technology is usually available to anyone smart enough to adopt it. Consulting companies identify industry best practices and soon “clone” them within competing organizations. And quality levels have become so uniformly high that people can’t tell the difference between good and best. Meanwhile, markets have become crowded with competitors from all over the globe, major industries have more capacity than demand, and few market niches remain unexploited.

Managers describe it as a new era for business. And it is. Old pathways to success lead only to mediocrity in an arena that won’t tolerate it.

Being good at some things is no longer good enough. In fact, being good at everything doesn’t assure success if the organizational elements being managed aren’t properly aligned. Thus, the organizations that will make out best in the new era are those that really have their act together — those that can successfully integrate strategy, processes, business arrangements, resources, systems, and empowered workforces. We’ll learn that this can’t be accomplished unless managers do a good job of creating, shaping, and sustaining business relationships.

But before we get too far ahead of ourselves, let’s briefly contrast two companies to see the competitive disadvantages that arise when relationships aren’t managed well.

TWO DIFFERENT ORGANIZATIONS

Joe and Josephine are twins, now in their late twenties. They live in the same city, but work in different organizations. The different organizations are pursuing sound strategies, have been reengineered to have good business processes, are dealing with the best available suppliers, are not lacking resources, have fully developed systems in place (such as state-of-the-art management information systems), and have a workforce trained well enough that they can do their jobs without being micromanaged. Nevertheless, the two organizations produce very different experiences, and very different outcomes. Let’s look at a day in the life of each of the twins.

Joe arrives at the office a few minutes late, as usual. He nods a courteous but unfeeling greeting to his co-workers and boss as he walks through the office, then sits down at his desk and begins the day’s work. He checks his voice mail and e-mail, organizes his paperwork, and then begins his first task.

He calls a supplier to try to expedite a late delivery of components. He listens to the reasons why the delivery is late, applying pressure by implying that the supplier might lose future business. When this fails to improve the delivery date, he calls alternative suppliers to see if they can do any better. (They can’t.) Then he calls his own customer who is expecting delivery of the finished product, and explains the problem with the supplier not delivering components on time. He assures the customer that he has called alternative suppliers and can’t get a better delivery date, and concludes the conversation by saying, “I’m sorry if this causes you inconvenience. But this is beyond our control.”

The supplier senses that despite Joe’s polite expression of regret, Joe doesn’t really care whether the late delivery causes inconvenience, or whether the customer does business with someone else in the future. This impression is, in fact, accurate. Joe and his co-workers agree that “this is just a job. There’ll be other customers if we lose this one. There’ll be other hassles. The boss will always be breathing down our necks, looking for opportunities to write us up. But everyone has bills to pay, so we have to put in our time on the job.” Their cooperation with each other is limited to keeping the boss in the dark. There’s an unstated agreement that they will “cover” for each other.

Joe’s twin, Josephine, has a very different day at the office. She arrives there early, and interrupts reading her e-mail to greet arriving co-workers with genuine affection. Their caring is communicated by their touching. When the boss arrives, she pauses at Josephine’s desk to exchange stories about unruly kittens. Then they review the day’s priorities.

At 10 A.M., Josephine patches together a conference call so that her customer can speak directly with the components supplier who’s causing a production delay, and the three of them engage in earnest problem solving. The customer learns that he’ll have to adapt to the delay, but his commitment to continue buying from Josephine is strengthened as a result of the interaction.

Josephine’s organization is functioning more effectively than Joe’s. It’s more efficient and more innovative. It creates greater value for customers and is increasing its market share as a consequence. It has low employee turnover, and attracts good people as it grows. It’s very adaptable, with employees responding quickly to the need to change, which happens a lot in their volatile industry.

Josephine and her co-workers work hard, yet they look forward to going to work each day. Their tasks aren’t always fun, but their camaraderie gets them through difficult times. This is a stark contrast to Joe’s work situation, which is drab and gray, and operates far below its potential.

Joe’s boss is as frustrated with the state of affairs as Joe is. But he doesn’t really understand what’s wrong. He followed the consultants’ advice about installing a tougher control system and providing more training. He tightened up the performance appraisal system and began providing incentives for good results and penalties for poor outcomes. He even singled out the best performers for recognition as Employee of the Month. But nothing has made a real difference, and he has become discouraged. At this point, he, too, dislikes coming into work each day.

Many of us — in fact, most of us — have worked in underperforming organizations like Joe’s. And all of us have had the misery of dealing with someone who has developed an attitude like Joe’s: a store cashier, an airline ticket agent, a motor vehicle registration clerk, or a hotel telephone operator. It’s easy to attribute the bad attitude to personality, but you know from your own experience that some situations bring out the worst in you, and others bring out the best.

TWO DIFFERENT SETS OF RELATIONSHIPS

Joe’s company is organized conventionally — that is, according to the economic principles espoused by Adam Smith and the economists who extended and elaborated his writings. These principles include individualism, self-interest, power, control, and competition. All of these involve adversarial relationships. To the old-school economist, adversarial relationships are seen as a positive factor, because they are the means of survival and prosperity in a dog-eat-dog world. But they are also the relational dynamics that create a dog-eat-dog world. The success of Josephine’s organization shows that it doesn’t have to be that way. After all, dogs are by nature pack animals with genetic predispositions to live their lives cooperatively rather than individualistically.¹ We’ll learn that this is also true of Homo sapiens as a species.

In relational terms, Josephine’s organization is a community. The people who work together form the same bonds they might form outside of work. From 8 to 5, they function as if they were close neighbors engaged in a common project. Their primary focus is on their shared task, but comradeship and social support are integral to getting the work done. Of course, they like some co-workers more than others, and they experience intermittent strains in relationships that need to be healed. This system is, after all, a human one, displaying all the friction, misunderstandings, and emotional reactions that arise when humans interact.

Josephine’s boss is not an outsider to the group: she’s a member with a specialized role. Neither are suppliers and customers seen as outsiders: they’re part of the community, too — they’re viewed as value-chain partners. Interestingly, even competitors aren’t viewed as archenemies. Josephine realizes that they can be allies when her organization needs to take on a project that’s too big or too risky for her organization to take on alone. Maintaining a positive relationship with her counterpart in the competitor organization also comes in handy when she needs to outsource work, such as when production problems in her own organization are causing delays. But even when competitors can’t help her at all, she doesn’t want them to have animosity toward her organization. Ill will could motivate them to undermine her organization in their advertising, or embroil the two businesses in a crippling price war.

Two primary relationship principles determine how strong a sense of community Josephine and her co-workers will experience: inclusion and commonwealth. Inclusion gives Josephine a sense of belonging — the belief that she’s an insider rather than an outsider. Commonwealth involves the sense of having a common fate — the notion that success is everyone’s success, and failure is everyone’s problem.

Inclusion and commonwealth are the building blocks of collaborative business relationships, and are vital for business success in the new era. We need to understand them in detail, because they’re a source of competitive advantage that’s largely overlooked.

We also need to understand why Joe’s organization is such a failure. Even though the organization is still economically viable, nobody wants to work there, customers and suppliers don’t like doing business with it, and it’s neither efficient nor adaptive. Its failure is attributable to opposite relationship dimensions — exclusion, and a culture of self-interest.

While Josephine’s organization is a communal form, Joe’s is a conventional hierarchy — a vertically layered structure with power and privilege at the top, and subordination and deference at the bottom. Its designers had envisioned an entity that functioned more like a machine than a social system. When the human element was taken into account at all, the design was guided by misapplied economic assumptions about human nature: that self-interest is the ultimate determinant of behavior, and is maximized when employees earn as much as possible from contributing as little as possible. Managing such people involves setting up constraints, controls, rewards, and punishments to overcome these supposedly “natural” inclinations.

There’s a cost to being wrong about human nature. The down side of managing this way is evident in Joe’s response to the work culture in which he spends his days, and his response is both understandable and predictable. If he’s viewed and treated as a cog in the machine — the current occupant of a role programmed to carry out a job description — psychological withdrawal is an adaptive reaction to the circumstances. Being sullen and reserved is appropriate and healthy behavior within the relationships he experiences. How else could he react?

Furthermore, if customers and suppliers are viewed as simply pursuing their own self-interests, then it makes sense to limit the relationship to arms-length contractual arrangements, and deal with each other as adversaries. If the economic bargain is attractive enough, they’ll take the deal. If it isn’t, then Joe has to put more on the table, or find others who are hungrier for the business. He doesn’t need to think about relationship factors other than roles in an economic transaction: any other considerations are irrelevant.

From this perspective, Joe is a model employee: he sticks to business and doesn’t get involved in distractions. In contrast, Josephine wastes a lot of time engaged in “touchy-feely stuff.” She needs retraining and close supervision. Yet she’s bringing in twice as much business as Joe, and at a higher profit margin; she retains customers while increasing market penetration; and, she gets suppliers to contribute ideas and information that increase her company’s competitive advantage.

Something is obviously wrong with conventional models that visualize mechanistic structures and promote adversarial relationships. If managers don’t fully understand why Josephine is more successful than Joe, they won’t be very competent in the coaching role. And if they don’t fully understand why Josephine’s organization is more successful than Joe’s, they won’t be competent in designing organizations that create and sustain competitive advantage. Note that if you were to transfer Josephine into Joe’s organization, before long, she’d start acting just like Joe — if she didn’t quit first.

A NEW APPROACH FOR THE NEW ERA

The themes of this book outline an approach to designing and managing businesses that differs sharply from the one that prevailed throughout most of the twentieth century. The old approach is not well suited to the changing business environment. Look closely, for example, at the new generation of “subordinates.” They consider themselves autonomous — as independent professionals who can be given a general goal and left to accomplish it without any micromanagement. They look to the manager to facilitate their achievement rather than to direct and control their work. They want to be supported rather than supervised as they strive to provide increasing value to the client or customer.

The Old-Paradigm Hierarchical Organization

Despite the changes and our growing awareness of them, Joe’s plight is not unusual today. Many managers’ understanding of organizations is seriously outdated. It’s easy to see why. The management books written during most of the twentieth century were based on Western experience with traditional businesses competing with other traditional businesses. Their struggle for dominance took place in a domestic marketplace sheltered from global competition. A business didn’t have to be well managed to survive and prosper in this environment: it only needed to be managed better than its domestic competitors.

This situation led to a lot of false learning by managers and by the scholars who studied them. Managers figured that if their business was doing well, then they must be doing things right. A more accurate conclusion would have been that if their business was doing well, then they must not yet have faced world-class competition.

Scholars fell into the same trap. They studied organizations that were apparently “successful” and wrote about what seemed to account for the success. What they didn’t do was look at what it would take for organizations that had been successful in the past to hold their ground against the new generation of competitors.

Another impediment to the development of our knowledge has come from the overemphasis on (and misapplication of) economic theory. Economics is extremely useful in certain domains — especially in understanding how markets should operate — but not very helpful when applied to a particular organization or its employees. An organization is a dynamic system of complex human relationships, most of which fall outside the scope of economic understanding. As a result, there remains a lot of misunderstanding of how to achieve organizational effectiveness as well as plenty of bad advice about how to manage people.

Economic theory isn’t the only body of knowledge that’s been used inappropriately. We can trace much of the problem with twentieth-century thinking to the inappropriate use of imagery from the physical sciences. When an organization is productive and well coordinated, Westerners tend to describe it as “running like a well-oiled machine.” But machine imagery has serious drawbacks. All the parts of a machine carry out unvarying tasks, and these are coordinated by control systems to optimize efficiency. The machine is impersonal, highly adapted to its current role, and has only one way of doing things.

When this metaphor is applied to organizations, workers like Joe are seen as cogs in the machine, each carrying out specific tasks. It doesn’t matter who carries out a task, but it’s very important that the task be carried out exactly as prescribed. Thus, each organizational role is carefully designed so as to optimize efficiency, and workers are interchangeable so long as they’re proficient at the task. This creates the role of “worker-as-robot.”

Managers’ roles in this system are almost as constrained. Their primary mission is to provide machine maintenance — to ensure that work continues according to plan. To accomplish this, managers are organized into a hierarchy with the most comprehensive responsibilities at the top and the most task-specific at the bottom. Each manager’s job is to assure that the machine runs smoothly, with no interruptions, departures from design parameters, coordination problems, or disharmony.

The problem with a machine, of course, is that once it’s designed and built, it stays fixed in form. It doesn’t adapt its basic structure as everything around it changes. And the machine can never be better than its design. Yet in reality, organizations are relational systems that don’t operate according to the laws of physics or mechanics. It’s empowered workers, not hierarchical system designers (such as industrial engineers), who are in the best position to achieve continuous improvement, responsiveness to customers, quality, and efficiency. They make these efforts when they feel included as members of an organizational community (as Josephine does) — but not when they feel like cogs in an impersonal machine.

The shortcomings of the old paradigm are evident when we consider that few conventional organizations ever achieved greatness, and those that did usually excelled in spite of their structure rather than because of it. These shortcomings are also evident when you ask Americans to provide examples of high-performing systems — situations in which they were drawn into the excitement of a group operating at the outer limits of achievement.² They almost invariably pick examples outside of business — the crew of a racing sailboat, a set of strangers striving to cope with a disaster, a surgical team, a race-car pit crew, or a group of neighbors helping to raise a barn.

This isn’t surprising: there’s a lot of evidence that conventional Western businesses don’t bring out the best in people. A song that had the title “Take This Job and Shove It” became very popular in the United States, because it conveyed a sentiment that most U.S. workers could relate to. As further evidence, bosses are usually portrayed as oppressors in U.S. folklore. And many workers who have the potential to be good managers recoil at the thought of taking on the role: the social status doesn’t compensate for the bad relationships they expect will develop with the people they now work with.

It’s important to note that the only time businesses are described as high-performing systems is in the case of certain start-up companies. In these examples, egalitarian groups exert their maximum effort and can achieve astonishing results. The people may be working harder than they would in the worst nineteenth-century sweatshop, but the work isn’t drudgery: it’s exhilarating. But start-up companies aren’t organized according to old-paradigm principles. The workers tend to have strong inclusion bonds, high commitment, unstructured roles, and a sense of commonwealth — if the enterprise prospers, it’s to everyone’s credit and to everyone’s advantage. You don’t hear these people humming “Take This Job and Shove It” as they watch the clock creep slowly toward quitting time; you’re more likely to he...