Enterprise relationship management
ERM - Enterprise Relationship Management is basically a business strategy for value creation that is not based on cost containment, but rather on the leveraging of network-enabled processes and activities to transform the relationships between the organization and all its internal and external constituencies in order to maximize current and future opportunities.—Galbreath, 2002
Relationship management is not an entirely new concept. In fact, it has taken on many forms that address specific organizational constituencies (customers, channel partners, specialized service providers, employees, suppliers, etc.). The most obvious form is CRM (customer relationship management), which focuses on improving top-line growth by maximizing an organization's ability to identify sales and business opportunities with its customers. CRM's little brother PRM (partner relationship management), focuses on optimizing opportunity and downstream order management for an organization's channel partners (e.g. CISCO and its partner lead and referral management process) On the back end, we have ERP (enterprise resource planning) to manage internal operations including manufacturing, finance, HR, sales and distribution, etc. Specialized HRM (human resource management) solutions exist to manage employee benefits, collective agreements, performance reviews and so forth. And lastly, SCM (supply chain management, either as an ERP module or as a stand-alone application) to manage the product flow, up and down a firm's value chain, with external partners/suppliers.
However, according to Galbreath (2002), "for the most part CRM, human resources management (HRM), enterprise resource planning (ERP), supply chain management (SCM), partner relationship management (PRM) and similar programs have paid very little attention to the relationships that underpin those processes, or to the intangible – relationship – assets embedded in them."
Norman and Ramirez (1993) state, "One of the chief strategic challenges of the new economy is to integrate knowledge and relationships – devise a good fit between competencies (Competencies are the technologies, specialized expertise, business processes and techniques that a company has accumulated over time and packages in its offering) and customers and keep that fit current." Galbraeth (2002) adds that "success in the relationship age requires a deliberate process of creating intangible, relationship assets, growing them and monetizing them".
Galbreath (2002) suggests that enterprise relationship management is a process that harmonizes and synergiezes different organizational relationships to realize targeted business benefits and goal. Harbison et al. (2000)did some research on the performance of alliances and cited the following statisitics in their study:
- "Strategic alliances have consistently produced a return on investment of nearly 17 percent among the top 2,000 companies in the world for nearly a decade. This return is 50 percent more than the average return on investment that the companies produced overall." Harbison et al. (2000)
- "The 25 companies most active in alliances achieved a 17.2 percent return on equity - 40 percent more than the average return on equity of the Fortune 500." - Harbison et al. (2000)
- "The 25 companies least active in alliances lagged the Fortune 500, with an average return on equity of only 10.1 percent." - Harbison et al. (2000)
- "Successful alliances recognize 20 percent profitability improvements as compared to only 11 percent for the less successful companies." - Harbison et al. (2000)
- "Revenue generation from highly successful alliances equates to 21 percent of overall firm sales as compared to 14 percent for less successful alliances." - Harbison et al. (2000)
In a similar study conducted for the supplier side (results of efficiently run supply chains based on electronic integration and quality processes) by Solomon Smith Barney Analyst Report, Teagarden[this quote needs a citation] (2000) presents the following statistics for suppliers:
- Inventory levels reduced by as much as 50 percent.
- Inventory turns doubled.
- Stock outs reduced ninefold.
- On-time deliveries increased by as much as 40 percent.
- Cycle times decreased by as much as 27 percent overall.
- Supply chain costs reduced by as much as 20 percent.
- Revenues increased by as much as 17 percent.
When looking at these numbers, collaboration with outside firms becomes very attractive. But success in business, as in many other pursuits, is dependent on motivation, investment, trust, discipline and repeatability.
Tools and methodologies
ERM frameworks are needed because relationships are becoming prevalent and more integral to an organization's success. Although establishing inter-enterprise links is far from a new science, Klambach and Roussel[this quote needs a citation] (1999) affirm that nearly 60% of business alliances do not deliver anticipated benefits while Lovallo & Kahneman[this quote needs a citation] (2003) and Selden & Colvin[this quote needs a citation] (2003) estimate M&A ( Mergers & Acquisitions) failures range between 70% and 80%.
With statistics like these, the need to improve relationship success rates seems quite obvious. Many authors have addressed these issues from varying perspectives, including technology enabling a firm, reviewing or re-designing operational & administrative processes, and transforming the culture to one that is more adapted to collaboration. As Galbreath (2002) and Norman & Ramirez[this quote needs a citation] (1993) state, collaboration or rather the effective leveraging of relationship resources to create new sources of value, is a process of learning and developing new mental models and competencies (Senge[this quote needs a citation], 1991) as well as obtaining resources through new means/sources.
ERM is still a relatively new field and few players stand-out with a complete ERM methodology and tools. Nevertheless a host of best of breed tools and methodologies exist to carry out an ERM implementation, unfortunately they are not integrated and focus on very specialized problem areas. ERM tools can be viewed as enablers of an ERM methodology.
Fundamentally adopting ERM is a cultural and change management issue more than a technology or process one. Therefore regardless of the methodology or tools that one may elect to use when integrating with outside firms, they must maintain a focus on the human side of the equations. The figure below illustrates the benefits of focusing on the human, cultural and change aspect of a project, notably deploying ERM in this case.
Practical methodologies and frameworks
Velox ERM is a product of Technology Partnerz. It integrates ONA - organizational network analysis, process re-design, IS/IT strategy, change management, supplier relationship management, customer relationship management, and risk and business continuity management into a comprehensive and simple framework that supports people and organizations in repeatably/consistently:
- Mapping and understanding collaborative processes and networks within and across organizational boundaries
- Benchmarking collaborative capability
- Identifying and selecting the best partners and collaborators to minimize risk and improve agility of the business network
- Understanding and deploying collaborative best practices
- Aligning and leveraging new and existing business relationships to business objectives
- Accelerating/Facilitating the adoption of business change related to processes, policies, systems and culture changes.
- Accelerating decision making resulting in improved corporate responsiveness to changing market conditions
Also available in a searchable knowledge base tool that supports managers and business professionals to effectively understand and use collaborative best practices and accelerate the adoption of ERM.
VNA - Value network analysis
- Enterprise feedback management (EFM)
- Business relationship management (BRM)
- Extended relationship management (XRM)
- Enterprise planning systems
- Galbreath, Jeremy (2002). "Success in the Relationship Age: building quality relationship assets for market value creation". The TQM Magazine 14(1).
- Inmon, W. H., et al. (2001). Data Warehousing for E-business. John Wiley & Sons, New York, NY
- Kalmbach, Charles, Jr., and Charles Roussel (1999). "Outlook by Issue: 1999, Special Edition: Dispelling the Myths of Alliances". Accenture.com
- Lovallo, Dan, and Daniel Kahneman (2003). "Delusions of Success". Harvard Business Review, Vol. 81, No. 7, p. 56–63.
- Normann, Richard, and Rafael Ramirez (1993). "From Value Chain, to Value Constellation: Designing Interactive Strategy". Harvard Business Review on Managing the Value Chain. Harvard Business School Press, 2000, 185–220.
- Torkia, Eric (2005). "Velox ERM: Building an Enterprise Relationship Management Framework". Montreal: UQAM (Université du Québec à Montréal).
- Harbison, J.R., Pekar, P.jr., Viscio, A. and Moloney, D. (2000) The Allianced Enterprise: Breakout Strategy for the New Millennium, BoozAllen & Hamilton.
- Gretchen Teagarden, Solomon Smith Barney, 2000
|This section needs additional citations for verification. (October 2007)|
ERM and "Relationship Age" white papers
- PDF (173 KB)
- PDF (201 KB)
- PDF (242 KB)
- PDF (336 KB)
- "Managing the Connected Organization" at Orgnet.com
- PDF (212 KB)
- PDF (563 KB)