Applying Asset Concepts to Relationships

blue connections with application relationships
This article covers several key areas related to managing assets and briefly examines how they can be applied to relationships. Importantly, this review is focussing solely on the relationships that are systemically important to a firm and not the general cloud of relationships associated with every level of a firm.

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Introduction

In my last article Managing Portfolios of Relationships, I introduced the concept of managing relationships by viewing them as a class of intangible assets. This time I would like to expand further on this approach. This article covers several key areas related to managing assets and briefly examines how they can be applied to relationships. Importantly, this review is focussing solely on the relationships that are systemically important to a firm and not the general cloud of relationships associated with every level of a firm.

Applying basic asset measures to relationships

There are many approaches to managing assets but here are some common principles and their application to relationship assets.

Establish an asset register

A fundamental principle of asset management is that assets are counted and logged. This is much simpler for physical assets – a count can be made of, say, computers and their serial numbers entered into a log.  For relationships, things are a bit more complicated. First of all, most businesses above an even modest size should be using some form of a Client Relationship Management (CRM) system. For smaller firms, this may be as simple as a spreadsheet but once an organization grows beyond a certain size a specialist CRM system becomes a must.  There are many on the market, but a discussion of their merits is beyond the scope of this article.

While a CRM is a vital first step it is not in itself sufficient. To properly manage relationships, it is necessary to understand how they coalesce to form a network, especially if the intention is to manage them as a form of an intangible asset.  This goes beyond the scope of a CRM system, particularly if these relationships are highly significant to the prosperity or even survival of the firm.  Indeed, mapping this network is only the first step in properly managing the relationships. They also need to be valued and ranked in order to determine critical paths, gaps, and vulnerabilities.

This brings me to a further point: not all relationships carry equal importance, and so should not be managed to the same degree.  This again parallels the experience with physical assets, where a computer server is more valuable than a coffee pot – both are assets but should not be treated the same.  This series of articles are focussed on business-critical relationships, the types typically found at the top of the organization.  These are also action-oriented contacts, in that they enable decision-making and action at the highest level and so can have a significant impact on the prosperity and even survival of the enterprise.

Make someone responsible for the management of these assets

There are actually three levels to the management of relationship assets. First of all, there are the relationship holders, who are responsible for the actual human contact, its nurture, and development.

Second, there are the individuals responsible for the management of CRM and relationship networking software systems.  This is not a reference to the technical maintenance and updating that are usually the ambit of IT departments. Rather, it denotes the need to keep the systems up to date with all the changes that occur in the internal and external environment.  This is a critical business issue and will be covered in-depth in a future article.

Finally, there are those responsible for managing the portfolio of relationships.  Naturally, this is highly dependent on the sector, size, and focus of the organization.  Nonetheless, given this article’s focus on systemically important relationships, this responsibility is likely to be found at the very top of the organization, in the C-suite or even the Board.

Rank these assets into logical categories and assign importance to these

This follows naturally from the previous two points. Properly managing relationships carries a cost, and this cost should be proportionate to the values of the relationship class. The classes of relationship are very much driven by the unique nature of each business, but some common classes include:

  • Suppliers of capital (including funds for Not-for-Profits), and business-critical goods and services;
  • Key customers;
  • Key market influencers;
  • Regulators;
  • Important sources of market information;
  • Key advisors.

In this, it is important to remember that these individuals are not just important in terms of their formal roles. Each is also an entry point into a web of relationships that coalesce into the overall organization’s relationship network.  Understanding this network is a key part of the exercise.  Experience suggests that effective relationship networks only extend to two degrees of separation. That is, the internal team, their connections (called the 1st-degree connections), and contacts belonging to the 1st degree (called 2nd-degree connections).

Assign a value for these assets and estimate their replacement cost

In this step, it is important to remember to value the relationship in terms of its network value and not just in terms of the individual’s position. As mentioned before, an individual may not be directly involved with a particular task but maybe the key to accessing critical business contacts.  This can only be done if their network is understood in as much detail as possible. This also has to be taken into account when allocating risk to the relationship – the risk is not just of the person leaving their current role but also of potentially losing access to their network. This risk applies not only to internal relationship holders but also to the first-degree relationships.

Understand your asset life cycle(s)

For relationships, this really means understanding how long individuals are likely to stay in their roles or remain within their current organizations. The level of attention needed for this is dependent on the nature of the business itself as well as the nature of the relationship itself. For business-critical relationships, this should be carefully studied. For less important individuals it is more a case of keeping this cycle under review.

Identify gaps in your assets

A well-managed firm will have a clear sense of its business opportunities, its competitive environment, and its key stakeholders. If the important relationship asset review has been carried out and appropriate software used it should be possible to identify network gaps.  Network gaps are individuals or organizations who are important to the company who are either not being reached or are not being sufficiently reached by the current network of relationships. The gaps can be either from missing a path to the target or, alternatively, depending on a fragile, low value path.

Once identified, the organization can take several steps to fill the gaps. It can organize events where staff members can meet target individuals (converting them, hopefully, to 1st-degree connections).  Alternatively, they can identify individuals who have strong relationships with the targets and develop relationships with them to gain their connections.  Finally, they can consider appointing new advisors, employees, or even directors who bring the required portfolio of relationships.

Remember, this is not a static analysis – relationship networks and business needs are in a constant state of flux, and so this gap identification process needs to be a frequent exercise.  For service firms that depend on their relationship network to prosper it may well be a constant activity.

Identify the risks associated with these assets

Finally, it is good practice to identify risks to this portfolio of related assets. These risks are of three main types.

  • Internal team risks

This is the risk that team members holding critical relationships leave the organization.  This has several dimensions. One is that a leaver who exits on good terms can be converted to part of the firm’s “Alumni network”.  The Alumni Network is the collection of all former members of the team who are willing and able to act as 1st-degree connections in the future.  This not only captures their portfolio of 1st-degree connections but also means that the firm can continue to benefit from their network as it grows through the course of their career.  For this reason, it is always advisable not only to part on good terms with senior colleagues (if possible)  but also to maintain contact with alumni.  Indeed, many large professional service firms have teams dedicated to managing these alumni relationships.

Another is the risk of individuals becoming “critical nodes” in the network, that is, people whose unique stock of relationships become critical for business success.  A well-structured relationship asset analysis should have identified these individuals and the resilience of the network.

  • 1st-degree connections risks

Just as team members can leave the firm it is also possible for the network to lose 1st-degree connections. This can be from relationship decay, a personal disagreement, or even illness.  Hence the need to carefully manage the network to ensure that the loss of any 1st-degree connection does not leave the overall network exposed to failure. The red lines in the non-resilient network above shows where it can fail.

  • Target risks

Identifying targets for the network and investing resources to develop direct or indirect connections is necessary but not the end of the process. It is critical to ensure that the information on which the network is built remains up to date. Otherwise, the risk is that the target individual is no longer in their original position or firm when an approach becomes desirable to the business.

Conclusion

This has been a brief review of some steps that can be carried out if a firm wishes to adopt an asset perspective for managing relationships. Much clearly depends on the nature of the firm, its size, and sector.  Nonetheless, for systemically important relationships this asset perspective can help manage this often-overlooked business critical issue. A key element of modern asset management is portfolio diversification.  In my next article, I will look briefly at this and how it can be applied to relationship assets.

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