{"id":19,"date":"2009-04-06T14:06:13","date_gmt":"2009-04-06T13:06:13","guid":{"rendered":"http:\/\/www.telekta.com\/blog\/?p=19"},"modified":"2012-07-25T13:17:57","modified_gmt":"2012-07-25T12:17:57","slug":"business-relationship-by-design","status":"publish","type":"post","link":"https:\/\/www.telekta.com\/blog\/2009\/04\/business-relationship-by-design\/","title":{"rendered":"Business Relationship by Design"},"content":{"rendered":"

\"balance\"The balance of alternatives<\/em><\/strong><\/p>\n

Almost every external facing business relationship requires activation in the form of a negotiation and a contract..\u00a0 When I see good deals stall on small details it is usually because the discussions were initiated on a poor foundation.\u00a0 Getting the ‘big picture’ correct before getting involved in the negotiation and contract details\u00a0 is critical:\u00a0 Is this a win-win for both sides?\u00a0 How will healthy, normal communications take place during the execution period of the contract?\u00a0 What will happen when dissatisfaction, mistrust, or irrationality steps into the relationship?<\/p>\n

This last question is rarely considered at the ‘design stage’ but it should be.\u00a0 Far too many contracts amplify the smallest conflicts by giving enforcement powers and ultimatums to one side or another.\u00a0 Look at the default terms and conditions from a big company like BMW and imagine that one or both sides are dissatisfied.\u00a0 The lawyers usually have ensured that there are lots of ‘sharp sticks’ and other weapons because they want to have a good foundation for a lawsuit.\u00a0 Courtrooms are\u00a0 “the nuclear option” where there are no winners or losers; there are only losers and bigger losers at the end of any court case.\u00a0\u00a0 For this reason it is important that business people include a soft conflict resolution processes that will reduce tensions and that all ‘nuclear options’ in the contract have safety devices lest they be used too quickly.<\/p>\n

In the first paragraph we described “win-win”.\u00a0 As a governing principle, we c could also describe it as ‘the balance of win’.\u00a0 I would suggest that there is a second, almost equally important, principle that I would call “‘the balance of alternatives’.\u00a0 Years ago,\u00a0 a sales trainer, Aiden McGraw, described that the essence of\u00a0 negotiations as ” what is the best alternative to further negotiations for each side?”.\u00a0 So long as both sides do not have a better alternative, they will continue negotiating indefinitely and will ultimately\u00a0 reach a conclusion.\u00a0 If one side has an alternative and the other has no alternative, then you no longer have a negotiation– you have a one sided declaration.\u00a0 Of course we all know what happens when the weaker party of a one-sided relationship suddenly gets power….\u00a0 The important point here is that both sides must have an alternative or neither side must have an alternative.\u00a0 This happens when they are mutually dependent on each other or when they are mutually independent from each other.<\/p>\n

If there is any question in your mind about this validity, just think of male-female relationships.\u00a0 The social rules are set up so that each is independent (flirting, casual dating) or mutually dependent (going steady, engaged, married).\u00a0 If one side is dependent while the other is not (this is called ‘cheating’), breakup is inevitable.<\/p>\n

Now,\u00a0 to a more business oriented example.\u00a0 Imagine a software development company(named\u00a0 ‘Develop’\u00a0 Inc) wants to invest into a product that another company (named ‘Sell inc)’ will sell.\u00a0 Such cases are common (and problematic) in the real world.\u00a0 The deal starts smoothly as Sell has access to the market and Develop has access to the people who can make the product.\u00a0 Develop will invest in the product and Sell will use its sales channel to keep a share of the revenue and return most of the money to Develop.\u00a0 They create a win-win business relationship and plan to conquer the world.<\/p>\n

In this case, Develop releases the product\u00a0 and Sell’s salesmen find that the product is just not sufficiently good enough to displace the existing products and too hard to sell– they prefer to continue selling other products in order to meet their quarterly sales targets.\u00a0 As you might image, Develop thinks that Sell is simply not investing enough effort into marketing and selling the product. In fact, I can guarantee that this old sales vs delivery conflict will always show itself at some point–\u00a0 the only uncertainty is in how the conflict will resolve itself.<\/p>\n

Unless special provisions are enacted, Sell is relatively independent of Develop’s product and can simply sell their other products or even possibly re-sell a competitive product.\u00a0 Develop has already made a sunk cost and has a product with no track record.\u00a0 With no existing track record, it is not likely that Develop’s product will be attractive to other sales channels.\u00a0 In effect, even though the initial business relationship\/contract was balanced and win-win, the nature of the investment timing created an imbalance of alternatives and ultimately disaster.<\/p>\n

What special provisions could avoid such a breakup?\u00a0 We need to re-balance the alternatives that each company faces throughout the deal.\u00a0 Some ideas:<\/p>\n