Industrial Relations

1
Industrial Relations

• Veronica Fellman
• Arcada
• 6 November 2006

2
What is Industrial Relations

• Everything that has got to do with a companys
  performance or working conditions.
• Employees, competitors, suppliers, customers, etc.

3
Relationships with customers

• The Concept of Customer Relationships
• Companies did not use to know about relationships
  with customers and did not have them. But now we
  know that relationships are important and that
  companies should develop them. Then everything
  will be fine!
• 3 fallacies past, golden state, Myth of Action
• The characteristics of customer relationships
• A sale is unlikely to be a one-off, easily
  identifiable event
• Offerings and payments between supplier and
  customer are likely to be complex (Offerings
  product, service, advice, logistics, adaptation,
  Payments initially, after each delivery, before
  or after a particular adaptation has been made,
  at fixed intervals, other measurements, eg. A
  pre-determined improvement in the customers
  operations)
• Pattern of interaction
• The nature and importance of a companys
  customers vary
• Customers are involved in defining the content of
  a relationship
• The content of a customer relationship changes
  over time
• A customer relationship links a complex set of
  resources and activities
• A suppliers market is not defined by its
  products or services

4
How relationships develops

• Interaction
• Two-way communication
• Commitment
• Uncertainties
• Abilities
• gt actor bonds (reliance and trust)
• Co-ordinating activities
• Co-ordinate activities
• Nature of the relationship
• gt activity links
• Adaptations
• Adapt
• The relationship, other relationships, wider
  network
• Mutual dependence, opportunity costs
• gt resource ties (eg. Single software package for
  real-time information)

5
Involvement in a relationship 1

• Actor bonds, activity links and resource ties
  define the involvement of two companies
• Actor bonds support extensive interaction, mutual
  knowledge and develop a high level of mutual
  trust with customers
• Tight activity links closely co-ordinate
  different activities of the two companies
• Strong resource ties dedicate different resource
  elements such as offerings, operations,
  facilities and organisation roles to a
  counterpart.
• Strategic alliance if both parties want it
• A high-involvement relationship with customers
  can have the following benefits
• It can facilitate effective communication and
  flow of information
• It can increase predictability, reduce problems
  of misunderstanding and enable both companies to
  cope with their uncertainties
• It can enhance the efficiency of the two
  companies combined operations and activities and
  facilitate a division of labour between them
  based on their respective abilities and resource
  investment.

6
Involvement in a relationship

• A high-involvement relationship with customers
  can have the following drawbacks
• Investment and time consuming
• Element of risk if the relationship is not
  achieved
• Constrained actions within the relationship
• Reduced ability to change between relationships

7
Economic Value of Customer Relationships

• Past and current business is unlikely to be a
  good predictor of the future of a relationship.
• An assessment of the value of a relationship will
  depend on accurately recording the revenues
  received and the costs incurred within it.
  Activity-based costing.
• Many of the costs and benefits of a relationship
  are intangible or difficult to locate.
• The value of a relationship cannot be considered
  in isolation either from the value of alternative
  investments in other relationships or the aims
  and strategy of the company involved, eg.
  enterings.

8
Managing a Relationship with a Single Customer

• To assess the relationship on a regular basis and
  to use this assessment for carrying out the major
  activities involved in a relationship
• Assessing a relationship
• History and current stage
• Potential and investment
• Atmosphere
• Network
• Current operations
• Major activities in CRM
• Communication Roles of interpersonal
  communication
• Information exchange role
• Negotiation and adaptation role
• Crisis insurance role
• Social role
• Ego-enhancement role
• Defining and redefining the offering
• Fulfilling the offering
• Monitoring performance

9
Monitoring performance

• Lower operational costs because the supplier or
  customer has modified their offering so that it
  fits more easily with that of the counterpart
• Reduced development expenses for both companies
  based on information from each other about the
  capabilities or use of the offering
• Improved material flow for both companies brought
  about by reduced inventories due to changes in
  delivery frequency and lot sizes
• Quicker and cheaper problem-solving through
  familiarity with each others ways of working and
  through trust in each other
• Reduced administration costs through more
  integrated information systems and because of
  experience of each others ways of working
• Both customer and supplier may be able to apply
  what they have learned in any one relationship to
  other relationships
• They may be able to gain access to other parts of
  a network through their relationship with
  particular customers and suppliers gt
• Supplier must not take long-term relationships
  for granted
• Supplier should adjust prices
• Switching costs

10
Portfolio theory

• Portfolio of customers
• long- and short-term relationships
• large/small proportion of its total sales
• high/low proportion of purchases of the customers
• High/low involvement
• New technology/other solutions
• Assets balance investments with levels of risk
  and reward
• CR portfolio includes also eg. Investments of
  sales and management time, offering and
  operations development, physical resources as
  well as money. A relationship portfolio is more
  perishable than a financial portfolio!
• Continuing investments
• Potential returns benefits of joint offering or
  operations development, transfer of technology or
  business methods, access to a customers own
  network or improved credibility with other
  customers
• Investments in a relationship portfolio are
  interconnected and what happens in one can affect
  what happens in others, skills and knowledge
  changes in offerings, operations, contact
  pattern, delivery schedule or terms of trade
  offered.

11
Management of a portfolio

• Structure of the customer base
• Small/big customers
• One/many customers
• Tendency of decay
• The scope of customer relationships
• Suppliers volume and characteristics
• Manufacturer of electrical components many
  relationships
• Relationship involvement
• Uniform treatment of customers? Different
  involvements
• Financial performance and profitability
• A significant proportion of the customers of
  businesses will not produce acceptable profits at
  the level of direct costs and even more will be
  unsatisfactory or even loss-making at the level
  of a more complete analysis. Drop customers?

12
Contribution margin
Contribution margin (net sales to a particular
customer cost of goods sold) (gross margin
direct selling expenses of salesperson) For next
time Why is this equation insufficient for
Customer Value measurement purposes?