FRAMEWORKS FOR HUMAN RESOURCEPROFESSIONALS PARTICIPATINGIN BUSINESS RELATIONSHIPS

Dale G. Lake

More and more,gaining competi-tive advantagemeans moving in and out ofcomplex relation-ships with otherentities in the industry supplychain.

Business Relationships:New Face of Competition

The race to be competitive in this decade hasemerged from such trends as globalization, to-tal quality programs, reengineering, learningorganization formation, and repetitive down-sizing; it now turns to competition in the formof massive industry consolidation. This con-solidation in turn shifts the focus of competi-tiveness to all forms of business relationships,internal and external. Where once scholarstried to define and understand the firm as a le-gal entity, today it is best understood as a setof interfaces across a total value chain.

The purpose of developing business rela-tionships has shifted from being mainly a sur-vival tactic to being a new source of competi-tive advantage. The spectrum of businessrelationships has widened to include threegeneric types which can be characterized bydegree of collaboration and added value (SeeTable I). The first generic type, external rela-tionships, are those relationships which aresimply extensions of the degree of collabo-ration between vendor and customer and canbe ordered as follows: (a) vendor (traditional),(b) preferred supplier (usually involves certi-fication and EDI), (c) in-house supplier (inwhich full-time employees work directly inthe site of the customer with full access to in-formation systems and customers), (d) one-way licensing, (e) equity investment, and (f)original-equipment manufacturer (OEM). Inthe second type, extended, the nature of col-laboration is again increased, examples are:cross licensing, strategic business partner,franchise alliances, equity partnerships, and

joint ventures. In the third type, internal, aremergers (e.g., the recent telecommunicationsindustry mega merger of Bell Atlantic andNynex), acquisitions, and subsidiaries.

The essence of business relationships as asource of competitiveness is that traditionalauthority conceived of as the ability to fullycontrol the outcomes of a single entitythrough hierarchical position is being re-placed across the spectrum. Internally it is be-ing replaced by contractual (psychologicaland legal) arrangements and externally, largecompanies have had to develop strategiesbased on networks of relationships that linkthem across the entire supply chain. For ex-ample, Wal-Mart which had built a reputationfor being adversarial with its suppliers nowhas a full time employee of Proctor and Gam-ble (P&G) on its purchasing council. As amember of the council, P&G has access to in-formation systems, distribution, and logistics,and it can replenish its own products contin-uously. As Wal-Mart races to become theworld’s largest retailer, P&G will obviously be-come more than a supplier, it will become astrategic ally.

More and more, gaining competitive ad-vantage means moving in and out of complexrelationships with other entities in the indus-try supply chain. For instance, witness the riseof customer-focused company structures suchas at EDS, which builds unique (virtual) organ-izations for each of its major customers andthen destroys the organization as the cus-tomer’s needs shift.

The Warren Company (Nations Business,May 1996), an alliance consulting firm inProvidence, R.I., has suggested the following

Human Resource Management, Spring 1997, Vol. 36, No. 1, Pp. 129–134Q 1997 by John Wiley & Sons, Inc. CCC 0090-4848/97/010129-06

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as essential to successful business relation-ships:

1. strategic forces pushing the potentialpartners together;

2. synergy of products, processes, mar-keting, etc.;

3. great chemistry;

4. a win–win orientation across struc-tures, operations, risks, etc.;

5. operational integration (e.g., order en-try, production scheduling, etc.);

6. sharp focus (e.g., specific concrete ob-jectives, timetables, etc.);

7. commitment and support (key champi-ons are behind it).

These criteria apply to the full spectrum ofbusiness relationships—external, extended, in-ternal—however, they are of special signifi-cance in the internal type, especially acquisi-tions. Acquisitions by very large companieshave become so routine that many of the ac-quisitor companies have created standardizedprocesses for dealing with them, just as they

have for forecasting, order entry, and quarterlyreports. Even so, success with acquisitions isdifficult and elusive. One such acquisitor com-pany which has a goal of producing 7% of its14% annual growth through acquisition stillfinds as many as 50% of the acquisitions gothrough major restructuring within 24 monthsof purchase. Gene Slowinski (May, 1996), di-rector of strategic-alliances studies at RutgersUniversity, in a 10-year study found that onlyabout 25% of alliances were successful; 50%did not meet their stated objectives; and 25%were disasters. Key reasons for failure were un-equal levels of technical or business compe-tence; clash of cultures was also reported as asignificant factor in a fairly large percentage.In another study done by McKinsey examiningfirms between 1950 and 1985, 53% of all ac-quisitions were unloaded as unprofitable (Pe-ters, 1987).

HR’s Role in the Building andMaintenance of Successful Relationships

Into this caldron of ferment called the newface of competitiveness, the HR function—in

130 • HUMAN RESOURCE MANAGEMENT, Spring 1997

Spectrum of Business Relationships.

Relationship Examples Collaboration Value Added

External Vendor (Traditional) Low Low

Preferred supplier

In-house supplier

Licensing

Equity investment

Original equipmentmanufacturer

Extended Cross licensing

Strategic businesspartner

Franchise alliances

Equity partnerships

Joint Ventures

Internal Subsidiaries

Acquisitions

Mergers High High

TABLE I

In another studydone by McKinseyexamining firmsbetween 1950and 1985, 53% of all acquisitionswere unloaded as unprofitable(Peters, 1987).

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its efforts to become a strategic partner—hasplunged. In doing so a double task of learninghas been created: (1) to become strategic(while maintaining and improving its tradi-tional role), and (2) to determine what HR’sunique contribution is to the new face of com-petitiveness. Ulrich (1996) in his new book,Human Resource Champions, has developed aset of propositions about what it means to be-come strategic in HR. Similarly, companiesthroughout the world have been trying to de-fine this strategic role by developing compe-tencies required for alliance formation.

This article examines some basic concep-tual requirements for the HR function in build-ing competitive relationships. For purposes ofillustration, acquisitions are highlighted.

Developing Relationships

Research developed and reported by Ulrich,Brockbank, Yeung, and Lake (1995) foundthat one variable which most differentiatedhigh-performing HR professionals from poor-er performers was their ability to form rela-tionships in the context of a rapidly changingorganization. Given the growth in size andcomplexity described above one can argue thatnew competencies are now needed to extendtraditional relationship building to relation-ships between (1) organizational units (2) or-ganizational functions, (3) product lines—allon the inside and (4) suppliers and customers,(5) merging companies, (6) acquired compa-nies, (7) joint ventures and sometimes evencompetitors—on the outside. A relationshipbecomes central to competitiveness becausepositive relationships are characterized by mu-tual trust which means that both parties willcommit to action faster than in relationshipscharacterized by distrust. Those who actfastest to bring products to market, to developnew products, to react to a customer are thosewho win the competitive advantage.

Defining the Rules of Engagement for HR

As has been true of other developments forHR, the first task is to determine what uniquevalue HR might bring to the context of com-petitive relationships. Other functions in busi-ness organizations have expectations, which

must be recognized and met, that a valuablecontribution can be made by HR. A good placeto begin is to provide a heuristic, a model ormap that sets the conceptual foundation forcontribution; many exist. Examples include:Nadler et al. (1992) who develop a basic sys-tems model to map organizations completewith inputs, processes, and outputs. Galbraith(1995) has proposed the star model whichmaps the variables of people, strategy, struc-ture, rewards, and processes onto the fivepoints of a star. Waterman, Peters, andPhillips (1988) map McKinsey’s key variablesonto what is called the Seven “S” model. Itcontains the variables of structure, systems,strategy, skills, style, staff, and superordinategoals (in most other models called values). Al-most all such models include the followingvariables: focus (variously called goals, stra-tegy, direction, etc.), structure (governance),systems (information, rewards, processes), cul-ture (values, superordinate goals), and people(style, interpersonal competence, staffing, de-velopment). Less frequently environmentalvariables of Nadler et al. (1992) are included.The point is, understanding and knowing howto use at least one such model is an excellentstarting point for HR to influence the businessrelationship building process. It maps theplaying field; it identifies key success vari-ables; it provides a framework for diagnosis ofproblems and opportunities; and finally, it pro-vides some expert leverage. Once the rules ofengagement are established for the HR pro-fessional, the task becomes one of adding use-ful insight into each of the variables and ulti-mately of providing facilitation between thetwo parties to the relationship. The followingdiscussion highlights these variables in light ofHR’s potential role in building competitive re-lationships.

Goals (Strategy, Direction Setting)

Potentially this is one of the more difficult ar-eas in which to achieve congruence. A com-pany that has just been acquired may believethat the acquiring company is indifferent to its(the acquired’s) mission. For example, one ac-quired organization had always taken pride inits mission to produce the most flavorful jam(albeit a little more expensively) on the market(substitute the best of any product such as fi-

HR Professionals in Business Relationships • 131

Research devel-oped and reportedby Ulrich, Brockbank, Yeung, and Lake(1995) foundthat one variablewhich most differentiatedhigh-performingHR professionalsfrom poorer per-formers was theirability to form relationships inthe context of arapidly changingorganization.

A company thathas just been acquired may believe that theacquiring com-pany is indiffer-ent to its (the acquired’s) mission.

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nancial software, ready-to-eat chicken, mod-ems, etc.). The acquiring company soon madeit clear that it would not be an advocate of thisfine jam; rather as with its other products, itwas an advocate of return on investment, in-creased earnings, market position, net cashproduced, etc. Further, the acquiring compa-ny made the acquisition, in part, by convinc-ing an internal audit group that the companyto be acquired would meet the acquisitor’s fi-nancial goals. Can such divergence of goals bemanaged? The power is clearly in the hands ofthe acquirer, but, if that power is used to in-tervene in the newly acquired company with-out regard for what it has achieved or withoutregard to special nuances in its business sec-tor, the value that has allowed it to gain a com-petitive advantage may be lost. In short, thereis a relationship problem of goal clarity be-tween the two companies.

HR can serve as a third party to this con-flict. A simple fact-finding activity involvinginterviews of each party listing detailed expec-tations the two parties have for each other, fol-lowed by a feedback and problem-solving ses-sion, could lead to a productive reconciliation.

Structure (Governance)

Most organizations have experienced majorerosion of the traditional concept of structureas outlined by Weber (1947), however, a con-tinuum clearly exists as to how far organiza-tions have moved from the early models. Evenwith the wide variations that exist today, orga-nizations must find ways to specify how ac-countability, responsibility, and interdepen-dence will work. The problem that arises in analliance of any sort is that the joining partieswill typically be at widely different pointsalong this structure continuum. For example,one company may well treat the organization-al chart as a rough map of how relationshipsare arranged, but members have learned thattaking action in order to produce value for cus-tomers more often than not cuts acrossboundaries. The second company, however,may believe that the chart defines boundariesthat are not to be taken lightly. Again, thesetwo organizations will experience difficultywhen trying to act concertedly.

The HR professional serving as a facilita-

tor to this kind of disagreement will need towork with both parties to obtain agreementthat the form of the organization must dependon what is to be accomplished and then helpboth organizations to reach resolution. Often,what is needed is to develop a temporary or interim organization which exists for the solepurpose of managing conflict between the two parties to the alliance; it in turn can bedissolved after the two companies have sixmonths or so of experience and have learned,hopefully, some trust in one another. These alternatives to boundary management in orga-nizations have been described by Ashkenas,Ulrich, Jick, and Kerr (1995).

Systems (Information,Rewards, Processes)

Each company to a new alliance (be it via ac-quisition, merger, joint venture, etc.), willhave devoted much time and other resourcesto its systems of reward, information, develop-ment, succession, new product development,etc. Each may believe its systems to be supe-rior. The temptation of the more powerful firm(i.e., the acquisitor or the one with greater eq-uity) may be to insist that the other party ac-cede to its systems. This approach will, almostalways, miss opportunities for learning andwill probably increase resistance.

An alternative approach is to view the newalliance as a complex change and engage thetwo organizations in a systematic changeprocess. This will involve the organizations,mutually, in determining what needs to bechanged, why these changes must be imple-mented, who the key stakeholders are to thechanges, what it will take to gain their com-mitment, and then in designing a furtherprocess for change which will have key events,deliverables, and reflexive accomplishmentcycles.

The HR facilitator must be a change agentequipped with the tools necessary for imple-menting change. Such tools should include at least the following: a vehicle for creating a new vision, analytic processes for identify-ing change targets, conflict managementskills, and commitment planning and proj-ect planning capabilities. It is also extremelyimportant in these areas to document what

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The temptationof the more pow-erful firm (i.e.,the acquisitor orthe one with thegreater equity)may be to insistthat the otherparty accede toits systems.

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works and what does not so that each suc-cessive and successful alliance can be acceler-ated.

Culture (Values, Superordinate Goals)

It is safe to assume that the new companies toan alliance will experience wide differences ofculture which may be underestimated and,typically, not well articulated. I recently servedas a consultant to two merging, global compa-nies which participated as numbers one andtwo in three similar lines of business. Whileoperations were quite similar, most other as-pects were dramatically different. Each ap-proached the customer (even defined who thecustomer was) differently; each developed dif-ferent marketing approaches; one did its owndistribution, the other outsourced; one fo-cused on being low cost, the other on provid-ing customer value; and so forth. A merger be-tween these two organizations requiredconflict management of the magnitude usual-ly reserved for achieving agreements betweenforeign countries.

Facilitating such divergence requires theuse of a framework which will serve as a use-ful diagnostic and planning tool. One suchtool (Cooper and Quinn, 1993) visualizes cul-ture as the result of competing values betweenflexibility and order on one dimension and in-ternal and external on the orthogonal dimen-sion. This framework gives rise to four distinctcultures:

1. The human relations culture charac-terized by cohesion, commitment, andparticipation

2. The open systems culture characterizedby survival, insight, innovation, adap-tation

3. The bureaucratic culture characterizedby stability, measurement, documenta-tion

4. The rational culture characterized byproductivity, profits, goal setting.

Cultures one and four and cultures twoand three are opposites, and an acquisition ormerger bringing such cultures together wouldvery likely fail.

The HR professional who would serve as

facilitator for concomitant cultures can usesuch a model to diagnose potential areas ofconflict and to assist participants in discover-ing why they are experiencing these difficul-ties. Blending such cultures is difficult, butthe likelihood of success is greatly increasedby identifying these underlying dimensionsand forcing the parties to the alliance to ac-knowledge differences and to decide which as-pects of culture will have to be changed, howthey will be changed, and with what time lines.

People (Style, Competence,Staffing, Development)

Finally, the way human resources itself is man-aged is a potentially volatile area for compa-nies engaged in alliances. The management ofstaffing, training, benefits, performance, re-wards, etc. will, typically, differ dramatically. Itwill be more difficult for the HR professionalto serve as a facilitator in this area because ofthe substantive stakes s/he will have in the var-ious people systems.

Ulrich (1996) has described a heuristic re-ferred to as the “Pillars” model which can behelpful in this situation. It can serve as archi-tecture for joint planning, discussion, and de-cision making between the HR departments.It will force the departments to decide whatpolicies will be enforced regarding the HRstrategy, mindset, competencies, performancemanagement, governance, change, and lead-ership.

Once again, the process of alliance for-mation is that of assessment: What are thecurrent similarities and differences for each ofthe HR systems? What problems and oppor-tunities are presented? What decisions needto be made, by when?

Summary

This paper argues that HR can play an ex-panded role in competitive advantage by help-ing organizations to form alliances morequickly and, of course, more successfully. Theimportance of various frameworks to facilitatealliances is underscored.

The HR professional is challenged to en-gage in alliance formation by utilizing general

HR Professionals in Business Relationships • 133

Finally, the wayhuman resourcesitself is managedis a potentiallyvolatile area for companiesengaged in alliances.

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frameworks that help to understand the coredimensions upon which organizations maydiffer and then to use such differences as thebasis for planning, conflict management, anddecisions. Such interventions will clearly in-crease the likelihood of success after the newalliance is formed.

Since major alliances (mergers, acquisi-tions, etc.), represent extreme magnitudes ofrisk and profit and because it is estimated thatso many will fail, the opportunity for increasedsuccess represents a potential major contribu-tion that HR can make to company successand competitive advantage.

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Dale G. Lake has served as consultant and workshop leader to more than one hundredorganizations including General Electric, HUD, MasterCard International, NASA, Uni-versity of Michigan, Amoco, Harley-Davidson, Sony, Northern Telecom, and British Air-ways. He has written numerous books and articles in the areas of leadership and man-agement, strategic implementation, accelerating change, competitive advantage, globalteam development, sourcing, human resource development. Dr. Lake is currently a mem-ber of the Management Executive Committee at ConAgra where he serves as lead con-sultant on competitive advantage. He received his doctorate in Social Psychology fromColumbia University.

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