This is the season when folks think about their friends and family, We also have our work relationships, and we’ve had occasion to assess and adjust ours recently. Here’s an approach to assessing the value of your work relationships, and ideas on how to deal with them accordingly.
As a small business owner, the exercise is much simpler than for large organizations. Let’s limit our consideration to the basic units of client, business, and supplier. From our perspective, as a provider of internet-related solutions, a client is an organization that needs our services, and includes creative agencies who use us to supply their own clients. Our suppliers have the technical and design expertise to build our solutions.
Fig 1: Supply chain forces
I like to look at the client-business-supplier chain from the perspective of a dynamic framework, much simplified from supply chain theory. Each of the units has bargaining power based on the relative value of each to the other. In general, a supplier may have more bargaining power than the business, or vice versa, and likewise between client and business. This is contrary to some businesses, who see the client-business-supplier chain from a Chain of Being perspective, where the client is naturally superior to the supplier, as shown in the illustration below, from 1579.
Fig 2: Chain of Being illustration
Looking at our roster of suppliers, some are naturally more valuable to our business than others. Supplier value is roughly the net revenue that we can project to earn from our relationship. It includes what we can earn by using them, minus their cost to us. Their cost includes their direct fee plus the costs associated with maintaining the relationship. Over the long term, trust is established, which decreases the cost of using them: there is significantly less administration effort, and working with them is more enjoyable. There is a definite value in having enjoyable working relationships. I feel privileged to have a roster of highly skilled and trusted suppliers. Recently, I engaged in negotiations with a particularly appreciated supplier, and made an effort to reach an arrangement they’d like, in hopes it would contribute to an enduring relationship.
On the client end of the chain, the value is also determined by both the revenue to be earned, as well as the enjoyment of working with them. From the client’s perspective, we are suppliers to them, and the remarks above apply in reverse. We value long term relationships for the same reasons, and seek to establish trust with our clients, and feel fortunate to have several long-term and trusting clients. Somewhat contrary to strictly economic business analysis, in many cases we earn less money from our trusted clients, but reap the value of enjoyable working relationships, yielding an overall net benefit.
When businesses see the client-business-supplier chain from a Chain of Being perspective, they consider the client to have inherently superior bargaining power to the supplier. Of course, all clients deserves respectful service, and all business is appreciated, but in some circumstances, a client does have less bargaining power than the supplier. For example, consider the client London Drugs and their supplier Apple Inc.: London Drugs has less bargaining power, and thus accepts terms from that supplier. When this is the case, and the client doesn’t recognize its limited leverage, the relationship can be challenging. We recently had to terminate a client relationship. We projected their net negative value, in large part due to efforts in negotiating terms. It is not pleasant to have to end a work relationship, and I suppose we can consider ourselves fortunate that this was only the second time we’ve had to do so. And, it does help us to appreciate our remaining clients all the more!