Relationships vs. Deliverables

by Tim Smith, PhD, 17 March 2004

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Which drives revenue success, the ability to forge strong customer relationships or the ability to create a compelling products and services?

Not long ago, a noted speaker at the Chicago Business Marketing Association claimed that in business markets, relationships drive everything. In support of this claim, informal discussions with sales and marketing executives in a variety of business to business industries revealed similar inclinations. When pressed for detail, the discussions indicated that there exists a schism between the convictions of salespeople and those of marketing people. Twice I heard salespeople claim “Marketing thinks it’s the product, Sales knows it’s the relationship.” Then, in a separate conversation with a marketing executive, I heard intonations that the opposite was true, that despite the salespeople’s claims it was the product that leads to success.

With this anecdotal evidence and the indicated schism between the beliefs of marketing people and salespeople, we decided to execute some social science to see how widely and firmly the beliefs are held. Last fall, we polled our readers on these questions and are now prepared to share the results and analysis.

Survey Approach
Based upon prior research, we know that the readers of The Wiglaf Journal come from a wide cross section of large and small technology product and service companies, and we also know that most of our readers participate in revenue issues as CEOs, Marketing Executives, or Sales Executives. Thus, while the interest of Wiglaf Journal readers may be unrepresentatively biased towards strategic behavior, they do provide a convenient sample of serious business executives with insights into what drives success. Although the participation rate was low, only 22 individuals, making the statistical uncertainty high, it did provide the necessary insights for this article.

We asked our readers three simple questions and one screening question. First, we asked the executives to tradeoff forging strong relationships versus creating a compelling product or service as the key attribute to achieving revenue success. Second, we asked if their market grew or declined last year. (It was a bad year for most business markets.) Third, we asked if their role was that of CEO, Sales, or Marketing. As a screening question, we asked what portion of their revenue came from the business or government sector. Those individuals that were not in roles of CEO, sales or marketing, or that sold more than 33% of their output to consumer markets, were excluded from the analysis.

Fundamental Results
Taken as a whole, the survey results only weakly confirm some of the anecdotal suspicions. On average, those participating in revenue creation believe that success is somewhat more attributable to the relationships created with customers than the product or service created. The average belief lies between “Somewhat more the Relationships” and “Equally the Relationships and the Product or Service. The range of beliefs spans from definitely the relationship to definitely the product or service. See Exhibit 1.

In retrospect, the nearly equal weight that managers place on the role of relationships and that of the value offering in driving success, and the wide range of beliefs, reflects the requirement that both of these ingredients exist in order to succeed. Strong relationships with potential customers have little value without a compelling product or service and likewise a compelling product or service cannot reach its market without relationships with prospects.

In most business markets, relationships form the conduit through which a product or service can be transferred for utilization, and in its utilization customers can capture the value of the deliverable. Without the conduit to connect with customers, the value offering will not be purchased, preventing the capture of value from the buyer and the seller. In this sense, personal relationships in business markets perform the equivalent function of location or shelf placement in consumer markets. They often define the sales channel, both its breadth and strength.

From the opposing direction, the product or service offered is the raison d’etre for most business relationships. Without a compelling product or service, the relationship will remain friendly but fall short of producing the desired result of a transaction of deliverables for revenue. The potential to engage the market is limited to the demand level for the deliverable. Compelling and differentiated products or services attract customers as their awareness of the potential solution to their challenges increases.

The survey data reflects this conundrum. The average response is only slightly skewed towards a relationship orientation over an equal importance between these two issues. The breadth of responses reflects the wide variety of complexions of business markets.

Nonexistence of a Noticeable Schism
The second issue explored in the survey was whether salespeople and marketing people hold distinct views on the importance of customer relationships versus the importance product or service. According to our survey, sales and marketing executives believe success is relationship driven versus deliverable driven in equal proportions with no noticeable correlation between their role and their beliefs. Thus, despite anecdotal evidence from casual conversations, sales and marketing executives hold the same beliefs. Thus, the issue of relationships versus deliverables is not an underlying issue that separates salespeople from marketing people.

As you may recall, CEOs were also included in the survey. Here, a slight difference was found. On average, CEOs were more likely to claim that success is driven by relationships. It is hard to determine if this difference in belief results from their experienced wisdom or their lack of knowledge due their distance from the specific issues in sales and marketing. Salespeople may find it encouraging that CEO’s somewhat strongly believe that the success of their business is dependent upon the relationships that can be forged with customers.

Growth and Drivers
Finally, we attempted to correlate beliefs of success drivers with market growth rates. Is success in a growing industry dependent upon the creation of a compelling product? Likewise, is success in a mature industry dependent upon forging strong customer relationships?

At question was the suspicion that success in growth markets is more dependent upon the product or service, and success in mature markets is more dependent upon customer relationships. In this line of thinking, new products and services entering growth markets serve a latent demand. Indeed, the growth of the market is spurred by the introduction of a new compelling offer. Customers seek such offers and thus the creation of the new product or service drives success. Likewise, in mature markets, there is little room for product innovation and thus relationships play a more important role. Here, repeat business managed through relationships drives success.

The survey results however do not confirm this suspicion. In fact, they deny that this suspicion has any foundation in truth. The regression analysis showed little correlation between industry growth rates and the importance of forging strong relationships versus creating compelling deliverables. Using cluster analysis, we were able to distinguish that the market has at least three significant segments with respect to this belief. See Exhibit 2.

In Exhibit 2, executives are segmented according to the results of a cluster analysis using industry growth rates and success drivers. The size of the bubbles indicates the number of responses within any one segment. There are five segments plotted, but two small segments represent only one respondent each and thus may be statistical artifacts. The three larger segments however are interesting.

The segment represented in the lower left hand quadrant is in a mature industry with approximately 1% growth last year. The executives believed that their success is more dependent upon relationships than the creation of a compelling deliverables.

Directly above this segment, in the upper left hand quadrant, represents a segment of executives who also operate in a mature industry but believe their success is more dependent upon the creation of a compelling deliverable. The disparity between these two segments between a relationship orientation and a deliverable orientation, both operating in mature industries, highlights the variety of beliefs in the successful path to grow revenues within competitive mature industries.

In the lower right hand quadrant is a segment of executives operating in high growth industries holding the belief that customer relationships drive success. It is interesting to realize that this segment, despite participating in a high growth and thus most probably an innovation driven industry, perceive their success as being more dependent upon relationships than the ability to create new offerings.

In contrast to the lower right hand quadrant segment, the upper left hand quadrant segment appears to be attempting to rekindle growth through product and service innovation.

Further research will be needed to understand the beliefs and motivations of these segments, yet it is worthwhile to note that many executives in mature industries are stressing the need for the creation of new compelling offers while many executives in growth markets are stressing the need for the creation of strong relationships and conduits to market. Perhaps this too reflects the demand for both strong relationships and deliverables to exist in order to succeed.

Conclusion
The survey research provides evidence of three issues:

• Executives in business markets are only slightly more likely to perceive their success as being dependent on the ability to forge strong customer relationships than they are on the ability to create new compelling value offers. For most, it is not one or the other but both working in tandem.
• There is no noticeable difference between the beliefs of salespeople and marketing people with respect to success being relationship driven versus product or service driven. On average, they hold the same beliefs.
• Executive beliefs in success being relationship driven versus product or service driven are only weakly correlated to industry growth rates. In fact, a cluster analysis reveals three large and distinct segments with this respect. Some executives in mature industries believe success is dependent upon forging strong relationships while others believe it is dependent upon creating compelling value offerings. In growth industries, most executives believe their success is dependent upon the creation of strong relationships.

Clearly, this research should be repeated on a larger scale with further questions and analysis prior to its entry into the repository of solidly known ideas. Yet even on this small scale with limited responses and abbreviated survey questionnaire, it is instructive that many assumptions and expectations created from industry gurus and anecdotal evidence turned out to be dubious if not simply wrong. The purpose of much structured research is to inform and realign our intuition.

And back to the question at hand: Which drives revenue success, the ability to forge strong relationships or the ability to create a compelling products and services? Executives say it depends, on one hand relationships form the access to market and on the other hand products and services form the reason to engage the market. Perhaps it isn’t just economists that need two hands.

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Author
Tim Smith, PhD is Editor of the Wiglaf Journal, Principal of Wiglaf LLC, and Adjunct Professor at DePaul's Kellstadt Graduate School of Business.

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