“Ah, relationships,” moaned a dejected Alvy Singer (Woody Allen) at the end of the film, Annie Hall, “Who needs them.” The fact is that any business today, whether a sole proprietorship or a multi-national, needs to build relationships. Which is why knowing how to leverage the value that social networks can contribute to establishing and sustaining relationships is crucial. This author offers several key suggestions for doing so effectively.
The importance of relationship-building in business has been discussed extensively in the academic literature. But its importance in the business world is often under-acknowledged, especially in contrast to the more specialized skills and expertise involved in running a business. However, effective relationship building is a crucial ingredient in business success, perhaps even the critical success factor.
Academic researchers have studied this issue using concepts and techniques such as social capital and social networks analysis. They have provided empirical as well as theoretical evidence of the value generated by different types of business relationships. At the same time, the business world is being dramatically modified by the growing use of the Internet and social media, raising questions about the evolving nature of business relationships and the skills and attributes needed to develop and maintain them.
Such questions are the focus of this article, which examines the traditional role of relationships in business, highlights some key changes resulting from the increasing use of social media, and discusses what firms need to do to adapt to this new business reality.
Relationships in the Traditional Business World
Researchers have traditionally used the concept of “social capital” to explain how and why relationships between individuals or organisations generate value for the parties involved (Bourdieu, 1977; Coleman, 1988). Participation in business networks in particular has been shown to provide firms with valuable assets in the form of industry knowledge, new ideas, sources of funding and complementary skills and expertise. All of these assets can improve business performance and help firms achieve competitive advantage. The importance of external contacts and networking was illustrated in a study by Cross & Katzenbach (2012), which found that around 90 percent of the information used for decision-making by senior company executives came from their informal networks rather than formal reports or databases.
Granovetter’s (1973) conceptualization of “strong and weak ties” provides further insights into the role of relationships in business by distinguishing between the types of value generated by different types of contacts in a network. Granovetter defined the strength of a “tie” in terms of factors such as the time invested in the relationship, the extent to which reciprocal services are exchanged and the level of intimacy or familiarity between the respective parties. Strong ties exist between individuals or organizations that interact frequently and know one another well; maintaining these ties requires a significant investment of time and effort, though the ties generate benefits including the transfer of high-quality information and complex, or tacit industry knowledge. The value of strong ties has also been demonstrated in empirical research showing that the greatest proportion of business value is generated from relationships from a relatively small number of other organizations (Håkansson & Snehota, 1995).
Over time, however, there is often a declining return on the investment of time and effort in a network based on strong ties between similar organizations, especially since relatively little new information is introduced into the network, and rates of innovation often suffer. Granovetter argued that “weak ties,” or looser networks between individuals or organisations that have infrequent contact and know relatively little about one another, frequently offer greater benefits. These benefits come in the form of increased opportunities to build further relationships with a wider range of additional contacts outside the immediate social or business circle, and access to more diverse information and resources. As a result, weak ties have been shown to be associated with higher rates of radical innovation and to be particularly useful when a specific organizational problem needs to be addressed.
Maintaining meaningful contact with large numbers of individuals can be challenging, however. Anthropologist Dunbar (1992) argued that our cognitive abilities generally restrict the number of a person’s stable social relationships to around one hundred and fifty. Ultimately, it is these individual-level relationships that are most important. Palmatier (2008) found evidence that relationships between individual firm representatives have a greater impact on business performance than inter-organizational relationships.
Despite a fairly strong focus on networks and relationships in the academic business literature, relatively little attention has been paid to exploring the specific skills and attributes involved in forming and maintaining relationships. At least to some extent, this may be because responsibility for exploring these skills has traditionally fallen into the domain of specific groups such as senior executives and sales or customer relations staff, and has been addressed mainly in the context of professional competencies in these areas.
One exception, however, is the focus in the literature on the construct of trust. Researchers have found that successful business relationships which are associated with improved business performance tend to be based on reciprocal trust between the parties. Trust is necessary to allow the transfer of information, knowledge and expertise between organizations and to promote cooperation and collaboration between them. However, statistical work by Palmatier et al. (2006) revealed that the overall “quality” of a relationship, involving many different dimensions, has a stronger impact on business performance than any individual dimension such as trust or level of commitment. This suggests that a wide range of skills is likely to be involved in relationship building and maintenance.
Not all business associations have traditionally been relationship-based. These types have generally been confined to associations between firms who regularly collaborate or work together in some way. At least until recently, the types of associations that a firm typically had with its customers, suppliers and other stakeholders were primarily transactional in nature, or based on contractual agreements. As will be discussed later, the importance of relationship-based associations in business is now being extended to these different stakeholder contexts, and is having a further impact on the types of skills needed for relationship building in business.
One of the main impacts of these developments has been the requirement for firms to develop new relationship-based associations with their customers and other social media participants, especially to build and maintain brand loyalty and to manage or at least influence what is being said about them online (Sexsmith & Angel, 2009). Instead of just disseminating information about the organization and its products, firms need to actively participate in the discussions on social media sites and develop other methods to engage Internet users. These methods contrast starkly to traditional, hard-sell forms of marketing. Moreover, most people must now contend with information overload when surfing the Web or visiting social media sites. Thus the need to design and implement content and initiatives that are interesting, entertaining or thought-provoking, to capture and hold their attention.
Relationship Building through Social Media
Reprint from Ivey Business Journal
[© Reprinted and used by permission of the Ivey Business School]
I loved this article, for me business IS personal and while social media plays an important part in connecting people (much like this comment on your post) it is purely transactional, to build a winning relationship (one focused on mutual success) requires moving from this quid pro quo approach to one that includes the interpersonal. In my book Cultivate, The Power of Winning Relationships (www.cultivatethebook.com) I talk about four questions that we ask consciously and unconsciously when working with others - you talk about #4 in your article 1. Can I count on you? (to do what you promise - reactive) 2. Can I depend on you? (to be proactive and volunteer your support) 3. Do I care about you? (do we connect as people) 4. Do I trust you? If you can\'t answer \'yes\' to all four, and especially #4 you can\'t build an Ally relationship. Relationships do matter, business is personal, and the quality of our professional relationships is what makes or breaks corporate, team and individual success. Thank you for your post!
on Jan 27, 2014As we are living in the ere of Globalization Consumer suggestion their need ,views ,demand cant be ignored and all this can be possible only with the help of Social media.
on Jan 25, 2014Excellent article. Today Social media is very much used by Business Concerns,Government and Individuals. Dr.A.Jagadeesh Nellore(AP),India
on Jan 24, 2014