Electrical Business magazine reviews the highlights of IRCG's seminal partnership book.

Say Good-bye to

'win-win' relationships

Aim for legitimate cross purposes By Anthony Capkun

You hear a lot of catchphrases in the world of business—synergy, turnkey, mission critical, going forward, etc.— and, like all of these, one that gets bandied about a lot is the 'win-win' relationship.  A win-win situation is equally good for people on both sides.

    Unfortunately, win-win relationships are dead, and one has to wonder if they ever truly existed.

At the 2006 Canadian Electrical Supply and Distribution Conference, held recently in Banff, Alta., I had the opportunity to sit in on a session entitled "Perspective on Canadian Electrical Industry Relationships." The presenter was Michael Marks, co-founder and managing partner of Indian River Consulting Group, who is also serving his second four-year term as a fellow of NAW's (National Association of Wholesaler-Distributors') Distribution Research and Education Foundation.  He based his presentation on a book he co-authored entitled, "Working at Cross-Purposes: How Distributors and Manufacturers Can Manage Conflict Successfully."

    Michael explained that there are two primary laws by which manufacturers and distributors must conduct their businesses to be successful. First, there is The Law of Legitimate Cross Purposes. "The age of shared prosperity and the view of mutual win-win relationships began to die in the 1970s and exists today as a memory of convenience," Michael explained. "Both distributors and suppliers need a long-term return for their shareholders, and they both achieve them by different means."

    For example, distributors make their money by monopolizing the customer’s spend, which naturally entails carrying numerous products. The supplier, however, wants the distributor to push only his product.

    The second is The Law of Perpetual Change. "Channel design optimization happens at one single point in time, then manufacturers and distributors continue to make necessary changes in their respective best interests that sub-optimize design," Michael said. "A static channel will become a dysfunctional channel where both parties lose, but ongoing change management is required."

    Ultimately, distributors and suppliers need not concern themselves with a win-win relationship, but rather work toward ensuring they are commercially aligned. After all, we're dealing with business relationships' not personal ones.

The good and the bad

    While researching the book, Michael and his co-authors candidly interviewed 53 people who agreed (under the understanding of anonymity) to discuss a primary relationship that went bad. Michael learned that many relationships ended with a distributor terminating a supplier, and many of those occurrences were in the electrical trade. The most important thing learned, however, is that, in all cases, "Warning messages were sent, but not heard."

    He then went into a discussion of both the stupid and good things distributors and suppliers do to/for one another (he also invited the assembled delegates to do the same).

Manufacturer stupidity

• Figuring you can never have too much distribution.
• Loading distributors with the old version of a product right before launching the new one.
• Launching a new product without a disciplined review of target pricing requirements.
• Loading distributors with new product (and guaranteed buybacks), then considering the launch successful.
• Launching a new product without being able to deliver in quantity.

Distributor stupidity

• Insincerely agreeing with a key supplier to support his investment.
• Placing an opening order for a product with the plan of returning it later if it doesn't sell (no risk = no investment = no commitment).
• Failing to manage core sales activities and leaving it up to chance.

Manufacturer best practices

• Demanding creation pricing versus volume pricing.
• Demonstrated willingness to invest in new product development versus harvesting.
• Involving distributors in product development, especially line extensions.
• Willingness and courage to manage channel conflicts as they occur.
• Respecting channel management as a discipline.

Distributor best practices

• Actually investing in new product development with inventory, promotion and focus.
• Respecting suppliers' annual planning process.
• Treating strategic suppliers differently than others.
• Actually managing sales activities.

    
Ultimately, every business owner needs to continually evaluate the relationships he has with his various partners. One important indicator a relationship that's in trouble, notes Michael, is one in which you describe your partner one way when he’s around, then a totally different way when he's left the room. And these words ring true for any business relationship, not just supplier/distributor. Remember, there is no win-win recipe for success: only legitimate cross purposes will get you where you need to go.

 

Michael Marks gives conference attendees his perspective on Canadian electrical industry relationships, reminding us that relationships fail when messages are sent, but not heard.