In today’s complex world of constant change and increasing interconnectedness, the importance of strategic relationships – whether with suppliers, customers, partners or outsource providers – cannot be overstated.
(Interpersonal relationships are of course crucial, too, but our focus here is on relationships with other organisations.)
However you define and measure value – revenue, reputation, brand, intellectual property, risk management, etc – your strategic relationships are typically those 20% of relationships that contribute directly towards delivering 80% of that value.
Your organisation is part of a much larger ecosystem:
- The suppliers you rely on and the partners you work with play a pivotal role in growing your “reach”, enabling you to participate in bigger projects, whilst helping you meet quality, efficiency and delivery obligations and goals.
- Meanwhile, your customers are the heartbeat of your business: they are the foundation of your financial health, and the relationships you build with them are paramount.
- Increasingly, important functions are also outsourced to benefit from specialist expertise and enable you to focus on your core business.
What Strategic Relationships Currently Look Like
Reflecting their importance, strategic relationships almost always have associated contracts – attempting to set out the value involved, and placing conditions around how the relationship is conducted – and usually have dedicated account managers.
An organisation’s relationships are often represented on a Kraljic matrix (where the quadrants are the same size, but where the number of relationships in each quadrant will not be the same):
Strategic relationships are not just those in the Strategic quadrant, but also some of those in:
- Leverage, where you may not be investing significant resources, but which are critical to realising value and were likely once in the Strategic quadrant – mature alliances, long-standing customer or supplier relationships, etc.
- Bottleneck, which may not (yet) be realising huge value, but where you are investing significant time and effort to develop or restore them into Leverage or Strategic ones – M&As, perhaps, or customer or supplier relationships that have hit difficulties.
The Challenge and the Opportunity
Strategic relationships are your biggest single asset – crucial for profit, for growth, for learning, for innovation and for resilience – but also your biggest stumbling block if they don’t realise the value they need to.
And, because relationships are inherently complex themselves, issues can rapidly snowball exponentially – both within and between relationships, and in response to external factors – so it is no wonder we see so much attention being put on them.
However, unless this is the right attention, your relationships won’t just be sub-optimal; they will get worse.