Business relationship development strategies and practices

Business

The development of business relationships is vitally important to the growth of an organizations. According to Zineldin (2007) a great deal of attention has been paid to the shifting business environment throughout the world. This shift has led to an increase in the emphasis that is placed on business relationships. The development of relationships enhances the ability of businesses to operate more efficiently. For instance relationships with suppliers are extremely important and maintaining such relationships ensures the supplies will arrive on time and that the quality of the products will be of high quality.

The building of business relationships is also essential for transnational corporations. These corporations depend heavily upon the ability to expand globally and as such the presence of certain relationships becomes vitally important. These relationships must be developed with vendors, suppliers and even governments. The development of each of these relationships assists in the ability of the company to operate in a manner that is efficient and profitable.

Although the development of such relationships is essential, it can also be quite difficult. The purpose of this discussion is to focus on the various ways in which business relationships can be developed. The discussion will begin with a brief history of relationship development within the business environment. The research will also focus on the variable model, stages of development and objectives associated with business relationship development.

2.2 History

There are various types of approaches to business relationship development. Through the years these approaches have proven to be effective but are often dependent upon the situation of the business. This section of the discussion will discuss these approaches.

Buyer-Seller Approach

The buyer sell approach focuses on the relationship between the company that purchases supplies or services and the business selling the supplies or services. According to Shurr (2007) within the context of business marketing buyers and sellers are involved in both social and economic exchanges which encourage working relationships. In addition the social aspect of the relationship is important because it can compensate for flawed legal contracts. The author explains if the commercial relationship between the buyer and the seller is to last adjustments may have to occur so that commercial exchange can occur in the midst of changing situations. The author explains that in this respect legal contracts can be problematic because changing circumstances cannot always be anticipated. Therefore having business relationships becomes vitally important because companies can then negotiate with one another to ensure that the needs of all parties are met (Shurr, 2007).According to Parsons (2002)

In today's environment, businesses are increasingly dependent on the relationships they have with their suppliers and are demanding that they adhere to high standards. It is increasingly important that buyers have strong relationships with their suppliers to stay ahead of competition. The establishment, development, and maintenance of relationships between exchange partners is crucial to achieving success (Morgan and Hunt 1994). There are many advantages for firms that enter into productive relationships with their suppliers such as lower risk, access to technology, more cooperation, increased knowledge, and information sharing (Ellram 1995). Research has begun to investigate what determines the success or failure of relationships between exchange partners by looking at both seller characteristics and the nature of interactions between buyers and sellers (Crosby, Evans, and Cowles 1990; Morgan and Hunt 1994).

Interaction Approach

The interaction approach to relationship development in business has also been a popular approach for organizations. According to Turnbull et al. (1996) the interaction amongst businesses is a repository for the experience of those engaged in the relationship. This relationship is composed of the learned norms and rules of the behaviors of those that interact with one another. In addition the relationship "provides the atmosphere within which individual episodes take place. These episodes include negotiations, payments, deliveries and social contacts etc. Each episode in turn is affected by and affects the overall relationship. Furthermore, relationships evolve over time and can be considered to traverse a series of stages characterized by increasing mutual adaptation, reduced "distance" and increasing commitment (Turnbull et al., 1996) )."

Furthermore the interaction approach examines the totality of the relationships as opposed to simply examining individual transactions that occur amongst those in a relationship. As such the interaction approach concerns itself with the examination of the behaviors of all participants in the relationship. In addition the approach places a great deal of emphasis on the parallels that exist between the marketing and purchasing tasks.

Additionally relationships are believed to be essential and also predictors of transaction behaviors.

Overall it appears that the interaction approach takes into consideration business relationships as a who as opposed to only focusing on individual transaction. The approach asserts that the interactions of businesses over time determines the type of relationship that these businesses will have.

Relationship Marketing

Relationship marketing is defined as " attracting, maintaining and-in multi-service organizations- enhancing customer relationships (Margan & Hunt, 1994)." In addition relationship marketing is divided into two spheres discrete transactions and relational exchange. Discrete transactions involves the presence of "distinct beginning, short duration, and sharp ending by performance (Margan & Hunt, 1994)." On the other hand the relational exchange, "traces to previous agreements [and] ... is longer in duration, reflecting an ongoing process (Margan & Hunt, 1994)." Once both of these elements are understood, relationship marketing can proceed.

Barry et al. (2008) asserts that relationship marketing is vitally important as it pertains to the retention of customers. According to the authors businesses gain a greater amount of profitability from the retention of old customers than from gaining new customers. Unlike other types of business relationship development, relationship marketing emphasizes the importance of customer retention as necessary to ensuring the business remains profitable.

Networking

Networking is probably the most well-known form of relationship development within the context of business. This is also one of the most popular approaches to relationship building. This popularity exist because networking is quite easy to engage in as a result of technology and it is also quite effective. Networking allows people with different skill sets to come together and collaborate. Such collaborations in the context of a business is important because it improve the quality of the products and services being offered.

The concept of a network is derived form the idea that businesses functions within the context of a small amount of organizational entities or actors. These actors are in continual relationship with the business. Because this is the case "each individual party exerts considerable influence on the organization. This situation is encountered most often by industrial companies operating in business markets which include a limited number of suppliers, competitors and customers. However, some more extensive empirical studies…suggest that this type of situation may be the rule rather than the exception for a wider population of business organizations in general. The propositions of the network model refer to situations and cases in which the environment of the organizations is of a concentrated and structured kind, i.e. It is constituted by a set of other active organizations (Hakansson and Snehota, 2006) ." These organizations work together to make the realization of all of their individual goals possible. This is accomplished through the exchange of ideas and even the exchange of workers with specialized skill sets.

Now that we have garnered a greater understanding of the various approaches associated with the development of business relationships, let us discuss the variable model, the stages of relationship development and the objectives associated with relationship development.

2.3 Variable Model

Tumbull et al. (1996) explains that there are several variables that can be utilized to describe business relationships. These variables are as follows

The manner in which these relationships develop over time- as we know relationships don't just evolve over night (Tumbull et al., 1996) . Business relationships often develop over several years, depending on the industry involved. The process of developing business to business relationships is important and should be measure over time as opposed to measuring the relationship through the prism of a single transaction or experience.

Changes in the nature of relationships under different conditions- There are always changes that occur within the context of relationships (Tumbull et al., 1996). These changes take place because conditions or situations change. Understanding how these changes effect business to business relationships can assist in determining how these changes effect the business overall.

The environment in which interaction occurs- business to business interactions can occur in different environments depending upon the nature of the transactions (Tumbull et al., 1996). For instance some transaction may take place over the phone or via the internet. However other transactions may occur face-to-face. An interaction that occurs over a long distance would be quite different than an interaction that take place in person.

The communication patterns between the two parties and the relationships which occur between the companies. Over time bonds develop and communication patterns are established (Tumbull et al., 1996).

All of these variables must be taken into consideration when determining how the development of the business relationship is progressing. For instance, if a business is keenly aware of the manner in which different conditions are effecting business relationships, that businesses to work to make the appropriate changes.

Stages of Development

All relationships are governed by stages. Business relationships are no exception to this rule. There are various characteristics that businesses must be aware of as it pertains to each stage.

According to Brooks (2008) that are four primary stages of business relationship development. These four stages of development are as follows:

Emerging - getting familiar with one another with test transactions. These test transactions are both financial and non-financial (Brooks, 2008). During this stage first impressions are made and businesses can determine the reliability, quality of products/services and whether or not the cost of the product/service is equivalent to the cost of the product. This stage is critical because it establishes the type of relationship that the businesses will have moving forward. The objective of this stage is to establish whether or not the business relationship will work -- whether or not the businesses feel comfortable with one another.

Growth - expanding the size or volume of transactions (Brooks, 2008). Once businesses have familiarized themselves with one another and decided that the relationship is worth developing, the growth stage occurs. During this stage a the business can begin to increase the amount of transactions occurring. This stage solidifies the relationship between the two businesses. If this stage is handled correctly, both businesses benefit from the interaction. The objective of this stage is to solidify the relationship so that both companies experience mutual benefit.

Maturity - consistent transactions as it pertains to both size and volume of (Brooks, 2008). During the maturity stage the companies feel secure with one another and have confidence in the quality of the products/services that are being purchased. This is often the height of the relationship between two businesses. The objective of this stage is simply to continue with the relationship between the businesses and maintain consistency.

Declining - transactions decrease in size and/or volume (Brooks, 2008). As time moves forward there is often a decline in the relationship. This decline is often dependent upon the type of industry associated wit the business. For instance, the supplies needed for technology-based products can change rapidly. In addition, the rate at which people purchase certain technology products such as personal computers often decreases. These conditions can lead to a decline in business to business relationships. The objective of this stage in some cases is to sever ties with the business. However, decline also occurs in some cases based on decreases in demand for certain products or supplies.

Objectives

There are several objectives associated with the development of business relationships. One of the primary objectives is to secure the competitive advantage. Business to business relationships can improve the competitive advantage of a company because such a relationship can provide a company with leverage. This leverage can be use to negotiate lower prices for supplies needed in the manufacturing of products. If a company can get supplies (parts, components) at a lower price than competitors, they will also have the ability to charge the consumer less for the product. This can lead to substantial increases in profitability and the gaining of a competitive advantage.