Help firms work with suppliers

Corporate success will hinge on the ability of companies to develop deeper relationships with their customers. This will also be true of their relationships with suppliers.

The most effective managers will be adept at marshaling not only the skills and energies of their own employees, but also the resources of other companies.

The concept of "relationship capital" is fast gaining credence because of the impact the Internet has on corporate architecture. In the industrial economy, the basic building block of economic activity was the vertically integrated corporation. This type of company performed virtually every function in-house because the cost, risk and hassle of contracting or partnering with outside firms outweighed the benefits.

When these companies talked about relationships, they almost always meant within the firm. There were reporting relationships and dotted-line relationships. Project teams had "members" who collaborated closely. These relationships were often carefully defined; you were part of the "human resource" with roles, responsibilities, reward systems and the like.

Sometimes the companies would talk about their relationships with customers or suppliers, but the expression was virtually meaningless. There was a supply chain, but more often than not, it was an adversarial relationship.

But in the era of the Internet, relationships take on much greater importance and are becoming key assets, much like buildings and factories. Because the Net slashes the cost of sharing knowledge, collaborating and meshing business processes among corporations, companies can now focus on their core competencies and partner or outsource to do the rest. Together, in industry after industry, teams of specialized companies working together are proving more supple, innovative, cost-efficient and profitable than their traditionally vertically integrated competitors.

I've recently worked with Tom Siebel, chairman and CEO of Siebel Systems Inc. One of the fastest-growing U.S. companies, Siebel's revenue soared more than 1,400 percent in just three years, from US$118 million in 1997 to $1.8 billion last year. The relatively small core company creates software products and orchestrates a team of more than 750 consulting companies, technology providers, implementers, suppliers and vendors to take its products to the global marketplace. "We only have 8,000 people on our payroll, but more than 30,000 people work for us," says Siebel.

The company is often referred to as the market leader in customer relationship management software, but Siebel says the company's scope is now much broader. "We are privileged to be the New Economy's prime enabler of 'relationship capital management,' " he says. "The models for business success today are not hermetically sealed firms but dynamically evolving networks of cooperating actors."

Such arrangements are a new and formidable challenge for managers. The business press constantly chronicles partnerships that begin optimistically and with great fanfare but subsequently collapse because the companies involved both often very good at what they do are simply unable to function together.

In the new business environment, the ability to accumulate and gain leveraged returns on relationship capital plays a key role in driving business performance and shareholder value.

Don Tapscott is president of New Paradigm Learning Corp. and co-author of Digital Capital: Harnessing the Power of Business Webs (Harvard Business School Press, 2000). Contact him at

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