What ARE “Strategic” Relationships?

Strategic relationships are rightly in focus as a key source of value in today’s complex world. But what exactly do we mean by describing a relationship as “strategic”? And what do those relationships look like in practice?

However you define and measure value – revenue, reputation, brand, intellectual property, risk management, etc – your strategic relationships are typically those 20% of relationships that contribute directly towards delivering 80% of that value.

An organisation’s relationships are often represented on a Kraljic matrix (where the quadrants are the same size, but where the number of relationships in each quadrant will not be the same):

Strategic relationships are not just those in the Strategic quadrant, but also some of those in:

• Leverage, where you may not be investing significant resources, but which are critical to realising value and were likely once in the Strategic quadrant – mature alliances, long-standing customer or supplier relationships, etc.
• Bottleneck, which may not (yet) be realising huge value, but where you are investing significant time and effort to develop or restore them into Leverage or Strategic ones – M&As, perhaps, or customer or supplier relationships that have hit difficulties.

Reflecting their importance, strategic relationships almost always have associated contracts – attempting to set out the value involved, and placing conditions around how the relationship is conducted – and usually have dedicated account managers.

Because strategic relationships are inherently complex, issues can rapidly snowball exponentially – both within the relationship, and in response to external factors – so it is no wonder we see so much attention being put on them.

However, unless this is the right attention, your strategic relationships won’t just be sub-optimal; they will get worse.