Relationship Management

The tricky question that most if not all companies face on a constant basis is how to get their suppliers fully engaged and committed to – and even be instrumental in driving – innovation.

While the importance of innovation is a given that dates back more than 50 years to the teachings of Peter Drucker in The Practice of Management (1954), it has only been fairly recently that academics and organizations have been studying how to make innovation go from idea to reality.

John W. Henke Jr. and Chun Zhang are two such academics.

Jean Tirole, the French professor of economics who recently received the Nobel Prize, is one of the most influential modern economists for his extensive theories and rigorous mathematic analysis of strategic behaviour and information economics in what is known as “Industrial Organisation” (IO).

As part of his research, he studied firms and markets where a firm had “power” to dominate the market and perhaps abuse that power.

It is likely that no other subject gets as much attention when two companies are entering, or extending, their outsourcing business relationship as the effort to come up with a fair pricing structure. Money is money after all, and money talks. You know the drill by now: the conventional procurement process pits buyers and sellers on opposite sides of the table – and there’s no way around it, right? Wrong!

What can a professor who teaches democratic theory tell us about collaborative, non-coercive business and outsourcing relationships?

If you follow this column you know I am a fan of some of the behavioral and transaction cost economists, including John Nash and Oliver Williamson. This month I am adding Dan Ariely to my list of big thinkers.