In business, responsibility implies accountability and risk, and risk without control is dangerous.
Every time we accept a task or a job, we are taking responsibility for it. Whether with your fellow workers internally, or with customers and suppliers externally, you become the one responsible for the outcome.
While service is important in building your customer base and those relationships, you should be careful about accepting situations in which you accept responsibility, but have little to no control over the outcome. This puts you and the firm in a situation where you may damage your reputation and brand because you have little or no input on the outcome.
Knowing your core competencies
For example, in a business where you utilize deep, trusted supplier relationships to obtain quality parts, cut lead times, and fair pricing; taking on business which removes this component, also removes the power and ability of the business to utilize its resources and deliver what they are known and trusted for - getting it done.
In fact, a good brand that builds trust with its customers naturally starts to attract opportunities that will damage its brand - a damaging deviation that all owners and managers must watch for.
The trust cycle
The cycle can look something like this:
A company takes care of their suppliers and builds deep relationships that offer trust and an ability (and willingness) to solve problems together.
The supplier makes a very healthy margin which enables them to serve the company without constant price pressure. Because of this, they have not only the willingness, but ability and “room” to focus on the business and make concessions where necessary.
The company in turn receives “favors” like cutting a line to shorten a lead time, or some replacements on parts that the ultimate customer can’t use even though they might pass the inspection plan. Prices can be lower most of the time because there is more business and opportunities always down the line.
This “ability” to get things done faster, cheaper, and sometimes seemingly against odds or norms, is grounded in hundreds of relationships like the one above. The customer tends to start to depend on the company for not only normal business, but off shoot problems.
- “We need this, but in 4 weeks, not 8. We had a demand planning error!”
- “We made a revision to the part, can you get these reworked and delivered before our build next week?”
- Being able to consistently “pull a rabbit out of a hat” leads to a further trust and being the go-to.
Breaking the trust cycle
Then the customer needs a part, and has the supplier, but doesn’t want to add them to the system. So they reach out to the company.
“Can you buy this for me? Here is the contact, the price… everything you need. Just add a mark-up and send over. Thanks!”
The request seems harmless, even easy compared to the previous requests.
But this request is fundamentally different… and dangerous.
- It doesn’t depend on one of the core competencies of the company.
- It even goes against their core competencies; it forces them to deal with a supplier which they have no relationship or trust with.
- It removes the control over the outcome while also moving all responsibility for outcome to the company.
With no relationship, and no history, what happens if something goes wrong?
- If the parts are late, it affects the on time delivery of the company; even though the supplier was not vetted, or chosen by then company.
- If the quality of the parts are bad, it reflects on quality ratings of the company, not the supplier.
- If anything goes wrong, the company has no power to work a deal, or obtain a favor to get things moving for the customer.
- Let’s say there is a quality issue. The following happens for the most part.
Company: “We are reviewing the parts before shipping to customer, but we notice that one of the dimensions is outside of tolerance”
Supplier: … No response.
Company: “Just checking in on the quality issue? We need to get it resolved.”
Supplier: “We’ll just talk to the customer directly and let you know what we are going to do.”
Here the power structure becomes reversed. Payment from the company is exchanged for parts from the supplier. Each is used as collateral to ensure performance in the agreement. However, when the supplier knows that the contract is mandated by the customer, the quid-pro-quo is removed; and the company, which has all responsibility for outcome, is powerless and by-passed. In an ideal situation, the company would depend on a relationship, here are all they had was a basic barter, and now that has fallen apart.
If after a few times, the company attempts to add a higher margin because of the additional risk, the customer knowing the original price and thus the margin, deems the company unreasonable in the mark up because they are “only buying and passing on.”. The reputation of the company gets hurt a bit.
Overall, there are a number of pitfalls and problems that can arise. This was one of countless examples where taking responsibility without control is a dangerous risk and not one any company should take.
Building trust and brand with the above principle in mind thus requires:
- Operators who understand that control of outcome is importance when it is tied to you, your company, and your brand. Think Amazon. They make nothing, but control every customer touchpoint.
- Operators willing to say no, and understand the fundamental difference.
- An understanding of the firm’s competencies
- A willingness to only grow revenue predicated on tapping those competencies.
A request seemingly simple and offering “easy” revenue can be dangerous if the the principle of “Responsibility with Control” is violated. Shrewd operators need to consider decisions on the basis of economics and strength rather than ease and simplicity. Not doing so can be dangerous.