Lost Relationship Capital: The real impact of making large scale redundancies.
Corporate restructuring has been a long-standing business practice. Simply, it drives short term cost reduction to meet quarterly or annual financial goals that are dictated by shareholders or other market requirements. However, by viewing people as a bloated cost centre, it almost always fails to assess the lost value of the relationships they hold and maintain. As PwC said in a recent report, this value – Relationship Capital – is simultaneously a business’ most valuable asset, but the least valued, visible and managed.
So what is the long term effect on revenue of losing your people and the relationships they hold? How can companies mitigate or manage the risk of losing that revenue? And how do you maximise the growth of your business with reduced resources?
Everyone is acutely aware of the current economic situation and we have only seen the tip of the iceberg with regards to large scale redundancies across multiple industries. BP recently announced plans to cut its workforce by 10,000. Rolls Royce, and Virgin Atlantic have made similar decisions. The cost-benefit trade-off is clear in the short term, but what is the long term risk of losing the human relationships between a company and its customers?
The Business Context
Businesses are built on relationships. The human interactions, engagements, and knowledge sharing, that happen day in and day out, comprise the intricate relationships that exist between companies in the B2B space. They lay the foundations for establishing and growing revenue streams.
When these relationships are weakened or wiped out completely, there is a huge risk that the associated sales will meet a similar fate.
Furthermore, competition is high: many products and services have been commoditised. One of the last differentiators that businesses have is the ability to build exceptional customer relationships and provide excellent service. While this is widely accepted, the idea of Relationship Capital as a measurable and manageable asset is less developed.
If you buy into any of these points, you implicitly recognise that mass redundancies impair a huge portion of a company’s assets. However, this challenge may be an opportunity: to ensure you have a much greater knowledge of where your Relationship Capital sits – and use this information to make your remaining workforce more productive, transforming their behaviors to focus on relationships and build stronger revenue flows.
In a commoditized world, your Relationship Capital underpins your entire value chain.
But how do you measure it, maximise it and what is the return from doing so?
Technology and unfulfilled potential
Most organisations use CRM to manage their relationships. Usually, most *cough* very little *cough* relevant information and intelligence is manually logged and stored inside a CRM. But there is a huge problem here and that is down to us… the humans…We get in the way.
Businesses typically see CRM as a tool for sales, rather than the whole organisation. The promise of CRM is unrealised because end users fail to see value in the system, and don’t have strong enough incentives to input the data needed to provide the business with a complete view of their customers, prospects and partners.
65% of CRM data is inaccurate or incomplete. Data decays at a rate of 70% per year. 65% of reps admit to logging incomplete data. You can read more about this problem in a recent white paper – bridging the human and digital gap.
To mitigate the damage to relationship capital caused by redundancies, or to figure out where resources can be allocated most efficiently, businesses need to understand their relationships. In complex B2B environments, this is not always a straightforward task, despite the existence of CRM and other tools. Who is connected to whom? What is going on in Marketing vs Operations vs Sales? How are we joining the dots across diverse operations, multiple markets, and disparate geographies?
The end result of incomplete data is not merely a CRM that is failing to deliver the expected ROI: it is organisational information silos, which structurally cap a business’ ability to understand its customers and achieve its growth potential.
In some ways, redundancies solve these problems: by removing the institutional knowledge of relationships held by those made redundant, silos are eliminated. With them, the ability to leverage relationships as a competitive advantage also disappears.
Automation as an instrument of siege warfare: breaking down silo walls
Relationships are characterised by the fact that they are dynamic. They ebb and flow as projects, services, or solutions evolve, so you need to track them over time. Do you know how this relationship is trending? Do you understand what behaviours have contributed to this trend – either growth or reduction? And where should I focus my time and what should I do to generate more value from that relationship?
To understand these relationships, you need to capture data. And there is a lot of it.
Every interaction your organization has with its customers, suppliers, and partners leaves a digital footprint. It’s this digital footprint that holds the key. Think about emails, calendar appointments, and phone logs. All the data that you need to understand, measure, and map your relationships is being created every day as people go about their work. Even if employees are leaving the organisation, this critical asset, the key to understanding Relationship Capital, is retained by the business.
Capturing that data at source is the only effective way to understand the ‘who knows who’, to determine the strength of these relationships and to provide 360-degree visibility into the organisation-wide network of relationships. Most importantly, the data you need to do this does not walk out of the door when your employees do!
A relationship-centric vision for growth
So… you have automated the capture of your asset, the Relationship Capital, and you are measuring it. But what should you do about it and where is the value?
The key is to consciously identify the behaviours and approach that will build stronger Relationship Capital with target accounts. This involves a change in mindset, potentially a new skillset for your people and a strategic focus on relationship building as opposed to the transaction. Then you can put this into practice.
First, you can decide which horses to back. Redundancies bring a shortage of resources, but when you are measuring Relationship Capital it’s clear that opportunities with stronger relationships move faster and more reliably through the sales funnel. Once measured, data can be analysed to decipher which opportunities are more likely to succeed – not to mention the additional benefits of improved forecast accuracy and pipeline management.
Second, too many large B2B businesses focus excessively on new wins or new logos because they don’t understand the potential value of existing relationships. Knowing how much of your Relationship Capital is being wasted by chasing new wins, without relationships and where the win rate is typically very low, is a guide to where you can invest in growing existing relationships, or new logos where you already have established relationships. Moreover, new logos are hard to come by (for now, at least!) and companies need, now more than ever, to make sure existing revenue streams are rock solid and growing.
Third, in almost all cases we have studied, strong relationships create more open dialogue, more honesty and more predictable, higher margins. But this is only true when you have a conscious strategy of building Relationship Capital with that client.
And, finally, when you do measure Relationship Capital, you can not only determine what makes star performers successful, but also train the rest of the sales force to mirror those practices – reducing performance variance across the salesforce, and enabling significant growth.
An operational cherry on top
The last takeaway is simple… Automate the mundane and give your teams the freedom to focus on revenue-generating activities.
Automation is key to understanding relationships in modern business, but relationship intelligence is not the only benefit… automation itself brings huge value to an organization, the foundations of which lie in the data that is collected.
One of the single biggest problems B2B organizations face is customer data quality. This is because of the way we are currently asked to capture it. We are busy paying for third-party data sources (which are 60% accurate, at best); we are reliant upon end users logging and inputting contact records and activity; we are digging ourselves further into a tunnel that takes us back to where we started.
This is an inefficient use of (highly paid) man/woman hours and usually results in a bad job being done. More pertinently, it comes with a huge opportunity cost – a business’ front office resources should be spent doing as many revenue-generating activities as possible.
To summarise:
- Relationships underpin your entire value chain – do not underestimate the loss of your workforce or treat them purely as a cost centre.
- Automate the data capture and actively measure the Relationship Capital – it is easy and simple to do and will give you the insight you need to dramatically decrease your risk.
- Consciously develop a strategy for building Relationship Capital with target accounts through the clarity of your ambition and the behaviours of your team.
- Use the data to drive organisational performance – mitigate the loss of existing revenue and use relationship intelligence to focus on low hanging new revenue.
- Automation will create massive operational efficiencies in your organisations allowing your smaller teams to achieve more.
If you want to learn more about leveraging relationship intelligence to help in these troubling times, then please do not hesitate to get in touch:
Kevin Vaughan-Smith | Joint MD | Mutual Value | KevinS@mutual-value.com | linkedin.com/in/kevin-vaughan-smith/ | +44 (0) 7809 398 327 |