Relationship Capital and the Growing Importance of Partners

When thinking of relationship capital, most people default to customers, who obviously are fundamentally important to your business.

However, relationships with other kinds of partners are growing stronger and more important for the same reasons as those described yesterday for customers: increased outsourcing, increased linking of systems and the need for co-creation and innovation. I’ll talk about partnerships in value creation and those that provide support systems for your organization.
 
Value creation partnerships are those related to your core business—the things you do to get paid and what you do to solve your customers’ problems. Traditional suppliers for a manufacturer would fall into this category as they provide an input to the ultimate product sold to the manufacturer’s customers. A service company that uses contractors for some of its workforce or for specific projects is using relationship capital as a substitute for its own human capital. You can see that the lines between the types of knowledge capital are blurry, which is why we devote the next chapter to the concept of understanding how knowledge assets work together as a system.

Your organization develops a deep knowledge of your vendors’ businesses, their strengths and weaknesses, and how you can best work together. Technology makes it easier than ever for you to connect and collaborate with your vendors. A great illustration of this potential is the Boeing 787. The design of this plane represented a new approach by Boeing. Using an electronic system, the company was on-line with the hundred or so key vendors that would manufacture components and parts for the jet. More than ever before, Boeing pushed the design decisions out to the vendors, each of whom has specific expertise related to their part of the plane. The specifications that Boeing supplied were dramatically reduced from past plane projects reflecting the fact that Boeing gave each supplier greater freedom to innovate and design in their specific arena. But because all the suppliers were all on line together, the designs could be coordinated and integrated into the overall design. This approach reflected an increasing faith by Boeing in its relationship capital with its suppliers. It also reflected a change in Boeing’s view of its core competence away from design to design coordination, assembly and marketing of planes.

If you are familiar with this story, you may be surprised that I cite it here. Because the process has not gone smoothly and delivery of the plane is expected to be two to three years late. But despite all this, Boeing’s experience with this plane will provide incredible lessons about how to manufacture in the knowledge era. Boeing is learning these lessons long before many others in the market. It is a case worth following so that you can learn from it too.

Your organization probably also has a number of partners related to your support services. Some services such as accounting, legal and media have a long history of outsourcing. But better communication and technology are leading companies to also outsource more functions in the area of finance, payroll, IT and administrative services. Ideally, the decision to outsource a process reflects a realization that the competencies and systems needed to deliver that process are not core for your organization—but are core for your partner. That means that they will be able to do the work more efficiently and effectively than your own organization. Although price is always part of the consideration, price should not be the only point of evaluation as we will explain in the section below on intangibles management. If you pick a smart outsourcing partner, this relationship capital becomes part of your knowledge capital. But that means that you will also need to manage the relationship closely, in the same way and with the same care as internal processes.

Some of the most dramatic crises come when a company’s partner fails to live up to expectations—both in value creation and support processes. In the past, Nike had problems related to child labor used in suppliers’ factories. Mattel has had issues with lead paint used by their outsourced manufacturers. Kellogg has had to deal with salmonella in peanut butter used to make crackers. These cases illustrate that relationships carry significant risk for the organization. Relationships reach outside the traditional boundaries of an organization. But they should almost always be viewed as an integral part of the business’s value creation “factory.”

Don’t neglect partners when creating an inventory of your core intangible capital.

Adapted from Intangible Capital: Putting Knowledge to Work in the 21st Century Organization.