By Maya Hu-Chan
Are you an equal partner with your customers, planning for long term growth together…or are the battle lines still drawn in every commercial negotiation as you try to hit sales figures and preserve your margins?
In recent years there has been a noticeable shift amongst large client organizations from buying standalone products and services to buying integrated solutions. Global companies have seen supplier rosters shrink from hundreds-strong to just a handful. Those suppliers that make it on to the new buyers’ lists are the ones that offer the customer something different, something compelling. And that something is, increasingly, a strategic partnership.
For the most successful firms, long gone are the traditional adversarial lines between customer and supplier and instead there is a more inclusive approach – where both sides work towards shared goals and treat each other with respect and trust – where suppliers seek long term partnerships with customers rather than chasing short term sales.
A coaching client of mine, David, is a regional VP for a large IT solutions provider. Originally engaged by his client to bring in a new salesforce system, he found his progress hampered by the client’s procurement and finance processes which were cumbersome, repetitive and relied heavily on manual updating of spreadsheets. The resulting delays were eating heavily into David’s profit margin from the contract.
He said to me, “Their finance systems are so outdated! They could turn things around at twice the speed and hit their growth targets in half the time with a few simple changes.” Motivated by both a desire to remove this stumbling block but also to help his client – whom he respected and admired – he made time to get to know their wider commercial objectives and understand how the whole business functioned.
Eventually he sought a meeting with his client, the Chief Executive, to share his thinking on simple, cost-effective steps the client could take which would make a dramatic shift in their performance. There was no immediate financial benefit for David’s own firm from this offer, but the client was so struck by David’s commitment to supporting their goals that it has led to the two firms working much more closely – to mutual benefit.
For me it is a shift towards encouraging business leaders to see beyond the immediate impact of their business and to look at the big picture for the business over the longer term. There are, of course, practical benefits such as benefitting from economies of scale and reducing the number of suppliers that companies need to work with, but mostly it is because there is a tangible commercial benefit from this closer and more collaborative approach.
Building a strategic partnership means more than simply delivering what your customer needs on time and at a price that bests the competition. It means understanding your customer’s business, their strengths, weaknesses, opportunities, and challenges, and identifying ways to help them achieve their objectives. It also means being committed to forging long-term relationships and working on a shared risk and reward basis.
One of my clients, Lucy, is currently going through this transition from supplier to partner and having to completely redefine what success means for her. Gone is the monthly challenge of securing best price possible from her main customer’s often unpredictable orders and the constant fear of being undercut by a few dollars per unit. Now she has a framework agreement in place with them and finds herself invited into their strategy meetings, working towards shared growth objectives that are five, six years into the future. They are even thinking about building a new plant together.
Creating a partnership with customers will help your organization to maintain the focus you need to make good decisions, giving you a much better understanding of what success looks like for them and enabling you to anticipate what your customers need even before they know they need it – ensuring your own long term success as a valuable ally for your client.
However the relationship has to be built on both sides. It’s not just about the supplier making all the changes and offering to make all the sacrifices. Client companies must recognize opportunities as well. It’s no longer a case of getting the supplier down to the lowest possible price to increase margins of profitability, it’s more about recognition that their success is closely linked to yours and they should be treated as equals, not as subservient to your needs. As my client Robert, VP of Procurement of a global IT company, puts it, “I always treat my large suppliers with mutual respect and strive for win-win outcome. They are critical partners of our success. We need them just as much as they need us.”
Today suppliers are increasingly seen as key partners. Global leaders must be able to transcend traditional client-supplier differences and focus on common goals, sharing more about the company’s long term strategies and objectives with suppliers than would have been done previously. Treating suppliers like partners also means avoiding viewing a supplier as a scapegoat when something goes wrong or imposing unreasonable demands for the client’s benefit alone.
Here’s a great example. My client George is Country President of a global engineering firm in China. He described a situation where he turned a potential disaster into a business opportunity with a major Chinese client.
A problem had arisen with his firm’s equipment which had affected production. The CEO of his client’s company was upset and angry and threatened to sue in front of members of both teams. He was flexing his authority in front of their own subordinates and asserting his dominance over suppliers.
George’s approach was to try and take the heat out of the situation by inviting the CEO out to dinner to discuss the situation 1-1. Over dinner he made sure that he listened more than he spoke. Once the CEO had calmed down a little, George was honest with him about the frailties in the current machinery and proposed a strategic solution whereby the CEO would actually invest money in new equipment in order that they could actually step up production to an even higher level. George also offered the client to trade in their old equipment with an attractive discount to purchase the new equipment. As a result, both companies would benefit from this valuable business opportunity.
By taking a more strategic, big-picture approach to finding a solution, not only did George smooth over the immediate crisis that had resulted from the production problems, he actually secured a significant investment deal that ensures a long term client relationship. Moreover, he enabled the CEO to save face (an important facet in Chinese culture) in front of his team and also with their ultimate client by increasing the pace of production and improving performance, which more than made up for any lost time.