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Embrace the Complexity of Business Relationships to Grow and Retain Your Most Valuable Customers

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Embrace the Complexity of Business Relationships to Grow and Retain Your Most Valuable Customers

In today’s environment, business relationships are necessarily varied and complex. Market conditions, customer needs, regulation, competition make them so. To succeed, organizations must learn to embrace this inherent complexity, grow and retain relationships based on concrete intelligence, then build competitive advantage from this more fully informed place.

This educational white paper offers insight and strategies for building a best practice mindset of embracing and mastering relationship complexities. Check out the Competitive Advantage through Mastering Complexity chart on page 7 for a quick list of rich opportunities you could be missing out on.

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Embrace the Complexity of Business Relationships to Grow and Retain Your Most Valuable Customers

  1. 1. Relationships are essential to any company’s business success. Creating and growing relationships with customers, of course, is at the core of every company’s mission; in fact, this is why businesses exist. Other relationships—with suppliers, for example—can be just as critical. In today’s environment, business relationships are necessarily varied and complex. Market conditions, customer needs, regulation, competition make them so. To succeed, organizations must learn to embrace this inherent complexity, grow and retain relationships based on concrete intelligence, then build competitive advantage from this more fully informed place. Contents Complexity in customer relationships .................................................. 2 Complex forces constantly at work ....................................................... 3 Resistance is futile ........................................................................................ 4 Embracing complexity ................................................................................ 5 Mastering complexity .................................................................................. 6 Gaining competitive advantage ............................................................. 7 Embrace the Complexity of Business Relationships to Grow and Retain Your Most Valuable Customers © 2016 Pramata Corp. All rights reserved.
  2. 2. 2 Some companies have simple businesses, with just a few products and only one way of doing things. Most companies today can’t afford to be like that. As technology changes, markets fragment, and customer needs evolve, successful businesses must respond; in doing so, they become more varied and complex. Great businesses seize upon this growth to gain competitive advantage. Your customers want variety Ignoring complex needs Dealing with complex needs Ford (in the 1910s) – “Any color as long as it’s black” Folgers – Standard ground; decaf ground GM (in the 1920s) – “A car for every purse and purpose” Starbucks – Half-caff macchiato with light foam Yahoo search (in the ‘90s) – Curate websites and catalog them into fixed categories Google search (in the ‘00s) – Continuously crawl and index the ever changing web Complexity in customer relationships Every large b-to-b company has a number of large, complex customer relationships. Nearly every area of your organization —including sales, contracts administration, customer support, and finance—exist to find, start, build and maintain these relationships. The quality of these relationships—and how well your organization manages them determines revenue growth, costs, profitability, compliance risks and enterprise value. But in many organizations, sales, finance and operations teams alike can’t answer important questions, such as: yy Which customers have bought which products? yy How many customers are due for renewal next quarter? What is their combined volume? yy Which customers have most favored pricing? yy What is the history of our largest relationship? yy Who will be affected by a product’s planned end of life? yy Which suppliers have changed their return policies? It’s not surprising. Different customers buy different products and services, at different times, at different prices and in different circumstances. Also, your own business changes over time: products, prices and support policies evolve; you expand into new markets and new geographic regions; departments and teams reorganize. Through it all, contracts are the most tangible source of insight into your complex customer relationships. Key contract terms and conditions, such as products, prices and expiration or renewal dates hold immense importance, so gaining insight into this information holds the key to growing and retaining strong, high value relationships.
  3. 3. 3 Contracts are numerous and varied. Over time, contracts multiply. This is especially true of your oldest, biggest and most profitable relationships. You may have multiple contracts with such customers, negotiated years apart by different people, covering different products and services, etc. Without ready access to detailed information buried in these contracts, people in your organization may miss critical compliance deadlines, fail to spot significant revenue or cost-saving opportunities or find themselves working from outdated or incomplete customer data. Complex forces constantly at work Despite standardization, automation, product-line pruning, total quality, business process re-engineering and any number of other attempts to reduce confusion and simplify access to information, variation and complexity continue to characterize the customer relationships of most companies. Product-line changes. It’s simply the nature of business that products and service offerings expand and evolve over time. You add new products to your product line and drop others; existing products are revised and updated; or one product may be replaced with another (probably with a different name and model number.) All these changes affect contract language, such as product specifications, service level guarantees, 4 warranties, disclaimers,and other terms. New customers get the new terms, but longer-standing customers may receive grandfathered terms during some defined transition period. Price changes. Prices aren’t fixed forever: The price of a single product may go up or down over time. And of course, price is seldom a single number. You may have reseller and retail pricing, differing prices for various geographies, volume discounts, product bundles and any number of other complications. Your customers may have locked-in prices for a certain length of time; some may have most-favored customer terms. Changes to your product line (discussed above) often cause changes to the price list. Customer requirements. Let’s face it, you’re in the business of satisfying your customers’ needs, and naturally those needs differ. Different purchase quantities, different purchase times. Some can make long-term commitments, while some only short-term. Customers vary in levels and types of support. Even a single customer or partner has business needs that change over time. Simply as a consequence of successfully serving your customers, your relationships—and the contracts that underlie them—become varied and complex. Corporate M&A. Your firm may have acquired others. They may have been competitors (horizontal expansion), suppliers or customers (vertical integration) or providers of related or complementary products and services (product line extension). In any case, you acquired not just these companies, but also their business relationships and their contracts. Over time you may be able to transition new relationships to your way of doing business, but until that happens you have to make the best of the situation you inherited.
  4. 4. 4 Likewise, your customers or other business partners may themselves be acquired. Stable situations may suddenly be upended, leading to renewed contract negotiations. You may need to agree to new terms to keep the business of a customer that’s been acquired by a larger entity, for example. Reorganization. Shifts in organizational structure or even individual personnel changes can lead to big changes in the way contracts are written. A new VP of sales or a new general counsel may do things differently from the prior one. Regulatory change. Regulations change over time and vary by jurisdiction. Consumer protection, tax collection and financial reporting are just some areas of regulation that often need to be included in contracts. As the regulations change, of course, so must the contracts. Evolving case law may affect contract language as well, especially in areas such as intellectual property. Negotiation. Market conditions, competition and the varying amount of leverage you have with different business partners all lead to difference in how a contract may be negotiated. At the very start, you may need to use the other party’s contract form as the basis for a negotiation. Generally you’ll prefer to use your own. In any case, the “give and take” of closing new business will create variation in the contracts you agree to. Of course this applies not only to pricing, but also to delivery times, return privileges, service obligations, marketing support and just about anything else. With all these factors contributing, it’s no wonder that your contracts and the customer relationships they lay the foundation for are so complex. Resistance is futile Some businesses try to stamp out the variation in their relationships. This is known as resisting the complexity, not embracing it. They think complexity can be eliminated by standardizing all contract forms or automating the approval process to allow zero changes. Or they create longer processes, with separation of powers, multiple checkpoints and 6 more levels of review and approval. A third method is to limit the sales department’s authority to negotiate deals—that is, try to keep them inside narrow boundaries. Such efforts can be misguided and have negative effects. More onerous policies and processes just lengthen the time needed to close deals. Taking away sales people’s flexibility weakens the people closest to the customers, alienates them from the process, and demotivates them. In any case, your company becomes less competitive on terms or just harder to do business with than your competitors who are more willing to deal. Even if successfully implemented, such approaches do nothing to help untangle the existing body of contracts.
  5. 5. 5 Of course, some types of contracts can be standardized. Examples are confidentiality agreements (NDAs), employment agreements, purchase orders, and simple, low-value customer contracts. But this simply doesn’t work for the contracts that establish bigger, more valuable relationships. Another approach, known as contract lifecycle management, can help shorten contract editing and approval processes, but does nothing to help manage business relationships after agreements have been signed. Embracing complexity Business is ever more complex, and there’s a complex world in your contracts. This world is real. The forces described above as the causes of variation and complexity in business relationships are likewise real. Denying them or fighting them is like swimming against the tide. You’re going against the way business is really done—attempting to impose order and uniformity on the real world, when the real world is complex. Instead of fighting them, it’s better to accept them and use them to advantage. Rather than trying to eliminate (or ignore) the inherent complexity of business relationships, embrace the complexity and learn to master it. Another approach is clearly needed: a way to embrace the complexity in business relationships, to master it, and to use it to drive value across your organization. The philosophy does not advocate actively seeking more risk. You need not lower your standards, defy policies, or abandon normal review and approval processes. You needn’t try to change the nature of business relationships or how contracts are written. Two Approaches to Dealing with Relationship Complexity Resisting complexity means … Embracing complexity means … ... having an inward focus … having a customer centered focus … being rigid … being flexible and responsive ... discouraging change … being innovative … preventing things getting done … enabling new things getting done The unavoidable truth is that most businesses already operate in the danger zone. Risk naturally exists because contracts are complex. And complex contracts exist because your company must respond to changing technology, competitors, new customer needs and market conditions. You need to reconcile to this. What we’re advocating is to accept this reality and leverage it. Turn complexity into profitability.
  6. 6. 6 Mastering complexity Mastering complexity is not technically simple. It can’t be done just with a list, a spreadsheet or a document repository with text search. The inherent complexity doesn’t reduce to a fixed number of columns or to a small set of searchable key words. 8 There’s a complex world contained in your contracts. No automation solution will make that go away. Think of Google for a moment: Google doesn’t try to eliminate the richness and complexity of the Web; instead it searches and analyzes the contents of the Web, structures and stores certain key data, scores this data, and presents an easy to use summary of what you’re looking for. Just as Google gives you a simple way to navigate the complexity of web, Pramata gives you an easy way to navigate the complexity of your contracts by adhering to four Key Principles. Four Key Principles for Mastering Complexity Complete information Complex relationships are manifested in agreements, exhibits, amendments, schedules, work order and notices. The entire scope must be consolidated and centralized. All key contract provisions (such as products, prices, delivery commitments, restrictions, dates and term) must be available from a single, trusted source. Current information Mastering complexity requires always having the most upto- date intelligence of all aspects of your critical business relationships. Relationships change over time: contracts are renewed and amended; ownership changes hands; key dates move. Information in multiple documents must be interpreted in their historical context; key contract provisions may renew or expire, and be renegotiated or reinterpreted Actionable information Key contract provisions must be translated into the business-related meaning that your organization needs, so people can do their jobs. Alerts are set for deadlines and other critical dates. Contracts intelligence is used to enable, rather than to prevent, innovation and responsiveness. Accessible information Contracts intelligence is provided to authorized users across your entire organization. At the same time, critical information is secured against unauthorized access. Preconfigured reports and ad hoc queries are supported. Contracts intelligence is available in your CRM system and integrated into sales, account management, and customer support processes.
  7. 7. 7 Your ability to drive business value from your mastery of contract complexity comes from having all contract information in one centralized place, having it well organized especially for this purpose, ensuring it’s 9 accurate and up to date, and making it available to users who need it. Most importantly, it must be in a form that supports action—that enables rather than prevents innovation and responsiveness. It’s this combination of all these attributes that we call Customer Relationship Intelligence (CRI). Gaining competitive advantage Mastering the complexity of your business relationships with CRI leads to clear competitive advantage in multiple ways. Your organization’s people have immediate, digital customer insight in meaningful context for their specific customer role. Competitive Advantage through Mastering Complexity Sources of complexity Opportunities for competitive advantage Product line changes Offer greater variety and choice to new customers Up-sell and cross-sell to existing customers Retain existing customers through innovation Price changes Compete more aggressively Gain market share Price appropriately for customer type, geography, channel Implement changes quickly or phase them in Customer requirements Increase customer satisfaction, loyalty, and renewal Use your flexibility to capture more new business Corporate M&A Quickly integrate acquired lines of business Easily consolidate information about relationships that are common to both existing and acquired businesses Painlessly transition through changes to your customers’ and partners’ corporate changes Reorganization Quickly centralize and consolidate information once held in different departments Easily change relationship owners, to prevent service gaps
  8. 8. 8 Regulatory change React quickly to mandated change Manage change through phased transition periods Help customers & partners meet their regulatory needs Reliability report on compliance efforts & status Negotiation Be able to “give” without creating unmanageable contract administration issues Meet the competition Capture more business by being “easy to do business with” With instant insight into your complex customer relationships, your company can capture revenue opportunities, improve customer satisfaction and retention, improve efficiency, accelerate corporate integration and manage risk. CRI offers a level of flexibility and competitive advantage. You can accept complexity and still manage it—even thrive in it—successfully. Learn more about harnessing the value of complex contract data through digitization at www.pramata.com.

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