Client Relationships: can you put them on the balance sheet?

Relationships are complex things. How often do we analyse them and – ultimately- put a tangible value on them: a concept known as ‘relational capital’?

‘Relational capital??’ This might sound like a rather ethereal or groundless buzzphrase, until you consider quite how much of your business is founded on relationships. Relationships with your colleagues, relationships with your shareholders or lenders, relationships with your customers, regulators, etc etc. Yes, we talk blithely of ‘stakeholders’ as a collective, but they are all different and need to be treated differently.

At the Business Consultancy Network http://www.bcn.org.uk, I attended yesterday in leafy Cheshire, we yesterday had Tim Young of Renuma Consulting  www.renuma.com talking to us about ‘Client Relationships’ where the concept of relational capital emerged from a series of questions on the nature of the relationships we have.

Just to focus on two relationships and the ‘capital’ that lies therein, let’s take customers and employees.

With a bit of luck, you will have a number of customers. Mistake number one would be to have a customer relationship. Simply because relationships are all the same, but also all different. Their size, your points of contact, why they buy from you, how they buy from you, may all vary from case to case. Therefore, the relationship will be different. So what? Well think of your investment of time, and possibly money, in fostering them. What ‘return’ do you get on them? How valuable are they to you, your company, your strategy? I was able to quickly identify transactional and rather more ‘loyal’ customers from my own past, and also reflect that some relationships were invested in disproportionately. Hindsight’s a wonderful thing!

As for employees, there is again a strong transactional streak already present in the way we work: zero-hours contracts, freelancing, gig contracts, fixed term, and so on. Is this an inexorable journey towards pick and mix or purely transactional human resources? Possibly. And at least some large organisations have congratulated themselves on achieving it. But then, as Tim corroborated as we talked over lunch, there was a realisation. Who REALLY held the power in these relationships? Workers were acquiring knowledge, expertise and their own personal relationship networks. In other words, a form of intellectual capital (IP). And yet, the nature of an unbalanced contract of employment meant they could walk off with it all. If you look at sectors like IT, Creative, or other heavily knowledge-based economies, your ‘employee’ is also your IP. Corporates jealously guard patents and IP per se. But not always the people who generate them. And what exactly then is the asset sitting on your balance sheet? The actual IP itself, or the being that generated it?

 

So what are the take-outs?

  1. Relationships are all different. And the word ‘we’ can have many meanings. Whenever ‘we’ is mentioned, exactly who or what is ‘we’?
  2. It pays to map your relationships. Tim has a pentagon-shaped model that helps to scope the aspects and scale of several relationship characteristics based around areas such as Power, Information, Purpose, Communication, and Story (development over time).
  3. Identifying the touch points in your relationships will perhaps allow more tangible measurement of which relationships are of value to you – and why.
  4. You can use this to decide on the scale of investment you should make in each one – and ultimately arrive at modelling the return on that investment, making us more focussed and maybe less ‘promiscuous’ in how we spend our valuable time on our many relationships.