Building and Maintaining Relationships

An Analysis of FlexLink’s Customer Relationship Management

Fanney Gunnarsdóttir Olof Karlsson Linnea Pettersson Hafez Shurrab

2014-05-15  

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1. Introduction .......................................................................................................................... 3 1.2 Problem Description ............................................................................................................. 3 1.3 Purpose ................................................................................................................................. 4 1.4 Methodology ........................................................................................................................ 4 1.5 Background .......................................................................................................................... 4

2. Empirical Data ...................................................................................................................... 5 2.1 Two Main Sales Channels .................................................................................................... 5 2.2 The Indirect Channel ............................................................................................................ 6

2.2.1. System Builders ............................................................................................................. 6 2.2.2. System Integrators ........................................................................................................ 6 2.2.3. Original Equipment Manufacturers ............................................................................. 7

2.3 Strategic partners .................................................................................................................. 7

3. Literature Review ................................................................................................................. 8 3.1 The Use of Intermediaries and a Multi-Channel Strategy .................................................... 8 3.2 Model for Establishing and Maintaining Customer Relationships ...................................... 9

3.2.1 Six Core Values ........................................................................................................... 10 3.2.2. Four Supporting Factors ............................................................................................ 12

3.3 Strategic Partners ................................................................................................................ 13 3.4. Terminating Relationships ................................................................................................ 14

4. Analysis and Discussion ..................................................................................................... 14 4.1. Multi Channel Approach and Intermediaries ................................................................... 14 4.2 Establishing and Maintaining Relationships ...................................................................... 15 4.3. Strategic Partners ............................................................................................................... 17 4.4 Terminating Relationship ................................................................................................... 18

5. Conclusions ......................................................................................................................... 19

References ............................................................................................................................... 20 Oral Materials ........................................................................................................................... 21

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1. Introduction In a time of increasingly competitive markets and volatile customer needs it is more essential than ever to establish and maintain customer relationships with important partners. That is partly why there has been an increasing trend away from traditional arm’s length relationships where the aim was to diminish the dependence on other parties, towards closer relationships with a strategic set of partners. However, to establish and maintain such relationships requires a lot of time and effort to make them as beneficial for all parties as possible. This is why companies in all sectors are struggling with how to maintain current customer relationships as well as how to improve them to make them even more successful. Another challenge is how to find new customers and how to build new relationships. In this report both maintaining and building customer relationships will be covered. Furthermore, a smaller yet evident focus will be on how to terminate existing relationships.

The focal company in this study is FlexLink, a Swedish company providing automated production flow solutions. Considering that FlexLink is a highly technological company, providing sophisticated machinery and handling equipment, which requires a close collaboration with customers, it will be very interesting to investigate the work with customer relationships. FlexLink has two sales channels to serve its different customers, one direct channel and one indirect or a partner channel. As the indirect channel enables FlexLink to reach more customers by having a close collaboration with three different types of partners, it will be particularly interesting to see the work with customer relationships in this channel. Consequently, the focus of this report will be on how FlexLink establishes, maintains and terminates relationships in the indirect channel.

1.2 Problem Description Since FlexLink delivers a wide range of automated production flow solutions to a broad set of B2B customers, the relationship management, from building to maintaining or terminating, requires a systematic approach to achieve high economies of scale and business development. The variance in customer industry, business size and behavior entails variance in how the relationship with them should be built, maintained and/or terminated. Similarly, FlexLink deals with different customers that ask for different solutions. These customers represent small, medium and large enterprises, which result in different sales behaviors. Additionally, the diversity of industries and the after-sales support makes it difficult to consider all potential customers as strategic partners. In general, customizing solutions so that they fit customers’ preferences and contexts requires extra resources and efforts. For FlexLink, customization is an economically and technically infeasible option to be offered for all potential customers. Therefore, FlexLink follows particular effective CRM strategies to establish, maintain, and/or terminate different modes of relationships based on customers’ profiles and the gained business benefits. If these relationships are not developed in a balanced way, FlexLink may spend excess resources and efforts on a customer that are not contributing that much to the profits, and hence are paying higher attention to this relationship than necessary. The challenge for FlexLink is to create this balance, exploring which strategies and considerations that should be adopted.

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1.3 Purpose The objective of the report is to examine how FlexLink establishes and maintains customer relationships, with a particular focus on the indirect channel. In addition, a sub-objective is to analyze how FlexLink terminates customer relationships.

1.4 Methodology To reach desired results regarding how CRM strategies are made effective between FlexLink and their customers, this study was based on a qualitative method as a strategy of inquiry using both information collection and literature review. The empirical gathering technique that was used to collect the relevant information was a face-to-face interview with Klas Ålander, the Communication Manager at FlexLink. The interview questions were formulated based on relevant theories and conceptual frameworks about building, maintaining and/or terminating customer relationships.

The literature review was performed using a combination of theories and facts extracted from the course literature, books and articles, which in turn was searched for via Google Scholar and Chalmers Online Library. The course literature was the basic source for the core parts of the theoretical framework of CRM and additional literature was searched for using different keywords including; intermediaries, strategic alliances, strategic partnerships, business to business, customer relationships, and partnership termination. As the main objective of the report is to analyze the way FlexLink builds and maintains customer relationships, searching for a relevant model within this area was an important part of the literature review. With this mission in mind, McQuiston’s conceptual model (2001) for building and maintaining effective relationships was deemed to be highly relevant, as it focuses on relationships between principals and a manufacturers representatives, i.e. similar relationships to the ones between FlexLink and its partners. The model was subsequently used to compare against FlexLink’s proven co-operation steps and criteria for success. Also, other theories were used to analyze the way FlexLink uses intermediaries, work with strategic partners and terminates relationships. Finally, our reflection was discussed and motivated, and the overall conclusions from the analysis were presented to sum up.

1.5 Background FlexLink is originally a Swedish company that provides automated production flow solutions. More precisely, FlexLink works with management of material and information flows in production processes. At the very beginning, FlexLink started as a project for enhancing the production efficiency within SKF. Today, the company is globally present with sales companies in 25 countries and partners in more than 60 countries (Allabolag, 2014). In 2012, FlexLink had 770 employees and a turnover of around 1600 MSEK.

Since January 2012, FlexLink is a part of Coesia Group, which is an Italian conglomerate selling innovation-based industrial solutions. The companies within the Coesia Group operate within the sectors of advanced automated machinery, industrial process solutions and

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precision gears in industries such as consumer goods, tobacco, healthcare, aerospace, racing & automotive and electronics (Coesia Group, 2014).

The products that FlexLink provides include conveyor systems, automation and software, handling solutions and application engineering (FlexLink, 2014). In addition, FlexLink offers different services and support, e.g. after sales service, customer support and spare parts. By offering these products and services, FlexLink claims to be a provider of efficiency by improving the delivery service, ergonomics, sellable throughput, standardized flow and quality assurance of their customers.

2. Empirical Data 2.1 Two Main Sales Channels FlexLink has two types of sales channels when dealing with customers; a direct and an indirect channel. An illustrative figure of those two channels is presented in Figure 1. The reason for having two channels is for instance a matter of resources, i.e. to be able to sell a larger volume without having contact with all customers. Another reason is when FlexLink is not active in an area, it is beneficial to sell via a local intermediary that are closer to customers both geographically and culturally. Furthermore, FlexLink cannot provide the flexibility and regular service that these end-customers require.

Figure 1: FlexLink's sales channels

The direct channel includes sales of specialized and customized solutions for customers, which also implicates large investments for the customers. Normally, one customer makes one investment in three years and FlexLink also provides service as additional value. Approximately, the service part corresponds to 10 % of the total investment value per year.

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Additionally, the service part gives FlexLink better knowledge about their customers, and by having regular contact, it also gives an advantage when the customers wants to make a new investment. In general, the investment pattern for the direct channel has 2-5 years between its peaks for each customer.

2.2 The Indirect Channel The indirect channel is used to reach a larger number of customers than FlexLink can do by itself. Through the indirect channel, FlexLink can reach a global market with fewer customer relations. The indirect channel also contributes to increase the volume of standard products without increasing the number of customer relations. The indirect channel corresponds to approximately one third of the total sales. There are three different categories of partners in the indirect channel; System Builders, System Integrators and Original Equipment Manufacturers (OEMs).

2.2.1. System Builders The System Builders sell FlexLink’s systems and offer after-sales support to the end customers. These actors are usually smaller companies that are geographically close to the customers and can reach markets that FlexLink might not be able to reach. Hence, they can offer higher flexibility in terms of frequency of sales and service. With this kind of arrangement, FlexLink can take a proactive approach, by educating a company that is geographically close to the end customers and holds more knowledge about them.

FlexLink usually sells low complexity components to the System Builders, which are utilized for more complex, engineered solutions to fit the end customer requirements. These engineered solutions, along with the widespread after sales service provided by the System Builders, result in a tight relationship between the System Builders and the end customers. Additionally the investment graph between the System Builders and FlexLink is more even with smaller and more frequent peaks than for the direct channel.

2.2.2. System Integrators The System Integrators merge FlexLink products into an already established system. This could for example be a functional conveyor system, without the machines. The System Integrators install the conveyor systems by connecting them to the existing machines in order to achieve a functioning system for the end customer. For FlexLink, this type of channel is not usually provided by after-sales service. However, the advantage provided to the system integrators is the know-how for serving the end customer. Additionally, System Integrators give FlexLink early access to large projects with considerably large amount of work. This investment patterns peaks more frequently than for the System Builders with 0,5-1 year between peaks.

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2.2.3. Original Equipment Manufacturers Original Equipment Manufacturers or OEMs are the so-called “machine makers”, which often set the industry standards for new types of machines etc. By having an OEM as one customer category, FlexLink can influence these standards. FlexLink sells components, conveyor systems and services to these companies, and the OEM manufactures a product or component that are purchased by another company. The difference between OEMs and System Integrators is not always clear and there are examples of companies that act both as an OEM and a System Integrator, for instance Tetra Pak. Furthermore, OEMs and System Integrators can be competitors.

2.3 Strategic partners Approximately, 80% of the sales in the indirect channel originates from the strategic partners. One requirement FlexLink has on their strategic partners is that they fit in FlexLink’s business portfolio. Furthermore, there need to be a good business potential for both parties in order to create a win-win situation. FlexLink defines a strategic partnership through transparency between the parties and disclosed business. Moreover joint business plans and to support each other is part of the concept.

FlexLink has approximately 80 strategic partners, and the division between the different partners is 40 System Builders, 10 System Integrators and 30 OEMs. Regarding distribution of sales, System Builders accounts for roughly 30%, System Integrators for 20% and OEMs for 50%. The strategic partnership is defined by a standardized partnership contract which is used worldwide and the terms must be equal for both parties. Example of contents for this contract is scope of partnership, definitions, confidentiality, trademarks, duration and how to deal with relationship termination. In order to terminate a contract, it must be breached. However, in some cases, a breach of the contract can be overlooked by the other party. The company has the right to terminate the contract in case of a breach, but it is not obliged to do so. Once a situation occurred where one of FlexLink’s strategic partners copied their product and started to produce it themselves. Consequently, the customer bought fewer products from FlexLink and the breach was later discovered. FlexLink started by breaking the contract and brought the partner to justice, a trial they later won. However this is not a common situation but still it requires a vital breach. Sometimes one can overlook a breach of contract if the partnership is too important to terminate.

The process to start a strategic partnership can take up to a couple of years. When identifying and choosing new potential strategic partners, FlexLink breaks down the problem by mapping it, and illustrate possible opportunities. In the beginning, it is important that the partnership involves people from two companies, making long-term decisions. Typically, the first step for starting a partnership is to set up a plan together with the partner, stating what should be done and how the partner company will benefit from that. When both firms have approved the terms and conditions, there is usually a trial period of half a year to two years. During this period, the feedback is an essential element for the decision making process.

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When building new relationships with strategic partners, FlexLink has seven proven co-operation steps directorial for whether to initiate/keep a relationship or not. These seven steps are: desire to work together, business and technical offer development, business arrangement (including pricing etc), design of standardized modules/interfaces, web service and communication, launching and training (internal/external) and management of joint activities. The majority of the co-operation steps are briefly explained below.

The first step is to determine how the prospective partner fit with FlexLink, which naturally is one of the most crucial steps. Furthermore, desire to work together is about evaluating a relationship after initiation by asking questions like how the relationship is working out, if both companies are benefiting from the relationship, what the end customers think, if it is worth sharing information with this firm etc. Business and technical offer development is about how the integrated offer will be differentiated from the competitors and in what sense it creates more value for the customers. Next step is business arrangements, which covers more formal matters, for instance pricing. The design for standardized modules/interfaces step is about designing solutions to suit the prospective partner. Hence, this step is different depending on if the prospective partner have own engineers or not. If not, FlexLink will sometimes do all the engineering jobs for the company. Web services and communication concerns how FlexLink should communicate with their partners and what IT support is available to facilitate the communication. Launching and training focuses on training and educating the partner in sales to the end customers.

In order to maintain strategic partnerships, FlexLink has regular meetings. Common subjects for discussion during meetings are for instance how the business looks and potential areas of development. In general, the frequency of meetings are once or twice a year. The contract is often updated each year or at least there is an annual review meeting. But to just have an annual review meeting is not enough to maintain the partnership. FlexLink also has a couple of criteria for success, regarding the customer relationship; long term commitment (part of the overall strategy), profitable business arrangements for FlexLink and business partners, dedicated business partner support and clear definitions/segmentations.

3. Literature Review 3.1 The Use of Intermediaries and a Multi-Channel Strategy According to Longenecker (2008), distribution is essential for both tangible and intangible products. A distribution channel can be direct or indirect, where in the direct channel, there are no intermediaries. Thus, the product is delivered directly from the producer to the user. However, an indirect channel of distribution has one or more intermediaries between the producer and the user. A more formal definition has been identified by Alderson (1965: 211), who states that “intermediaries are the firms that intervene between the original source of supply and the ultimate consumers”. Longenecker, J. (2008: 388) also states that “an effective distribution system is just as important as a unique package, a clever name, or a creative promotional campaign.” Although a producer can perform the distribution on its own,

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intermediaries can offer more efficient distribution, e.g. if customers are widely dispersed in terms of geographical location or if special packaging and storage are needed.

Today’s distribution networks are characterized by the specialization of intermediaries, which has led them to be dominant players in many distribution networks (Gadde, 2013). What is common with the different types of intermediaries is the generation of value through collaboration with business partners.

Nevertheless, in some situations a direct channel could be preferred because it provides more control for the producer (Longenecker, J., 2008). For example, intermediaries might not market a product as desired. If the intermediaries carries competitive products, the producer must be sure that its product gets appropriate marketing from the intermediary. Longenecker, J. (2008: 389) also states that “sloppy marketing efforts and insufficient product knowledge by intermediaries can undermine the success of even the best product”.

Authors, such as Rumelt (1974) and Teece, (1980) touch upon the term “related diversification”, which is diversification that uses existing capabilities as a platform to build upon or extend further. According to Teece et al (1997: 529), related diversification is “about the only form of diversification that a resource/capabilities framework is likely to view as meritorious”. This form of diversification can be justified when traditional markets are not responding (Teece et al., 1997).

Teece et al (1997) elaborate on the capability approach and the utilization of processes within a company. Their explanation of the approach is that competitive advantage is “not just a function of how one plays the game; it is also a function of the 'assets' one has to play with, and how these assets can be deployed and redeployed in a changing market.” (Teece et al., 1997: 529). Wilson (2007) also elaborates on the demands of the shifting market and states that companies must reconfigure, gain and dispose their resources in order to meet these demands. In both papers, the term dynamic capabilities is used, and defined as an organisation's processes that “integrate, reconfigure, gain and release resources to match and even create market change” (Eisenhardt & Martin, 2000: 1107).

According to Wilson (2007) the dynamic capabilities are necessary for a multi-channel strategy. If the objective is to provide an integrated customer experience and utilize synergies between channels, organizations must both find a way to make use of new channels and integrate those new channels in their standard operation processes. This creates a conflict as the companies need to develop innovative channels and at the same time as operating as a single, coherent whole.

3.2 Model for Establishing and Maintaining Customer Relationships In a time when more and more firms are starting to outsource their sales function it has become increasingly important to build strong relationships with different kinds of resellers (McQuiston, 2001). Especially there have been an increasing tendency to turn to so called manufacturers representatives (rep), which are contracted sales forces that handles the sales function of the manufacturers. The reps usually sell products to distributors, OEMs and end

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customers. As a consequence of this development McQuiston (2001) have performed a qualitative study and subsequently proposed a conceptual model for establishing and maintaining effective relationships between reps and the companies that they present (principals), see Figure 2. The model constitutes of six core values: Shared goals and objectives, Mutual dependence, Open lines of communication, Mutual commitment to customer satisfaction, concern for the other’s profitability, and trust. Furthermore, the model includes four supporting factors: Investment of effort by top management, Continuous improvement over time, Having a professional respect, and Developing a personal relationship. Both the core values and the supporting factors are henceforth described in this section.

Figure 2: A conceptual model for building and maintainging effective relationships between

principals and manufacturer representitives (McQuiston, 2001)

3.2.1 Six Core Values One of the most important core values, considering that it was mentioned by basically all principals and reps in McQuistons study, is Shared goal and objectives. More precisely, the view was that it is critical for the relationship that the two parties have a meeting in the beginning to communicate each others’ goals and objectives. By diminishing the differences between the partners’ goals and objectives and to create a better understanding of the common goals they can work together more efficiently to achieve those goals. Also in other empirical studies it has been shown that exchanging more than products and items, i.e. goals and objectives, have been vital for the success of the relationship. Conversely, by not sharing the

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same beliefs, values etc, partners are less prone to achieve the synergy effects of the relationship. To ensure a good alignment between the own goals and objectives and prospective partners, many firms in McQuiston’s study did a prescreening. By setting up a couple of criteria important to them and then evaluating the prospective partners on these criteria they were able to determine the compatibility of the two firms.

In McQuistion’s study, Mutual dependence was mentioned as a key factor as the studied firms proclaimed that realizing the need for the partner’s expertise is vital in order to fulfill the desired goals. Hence, mutual dependence is present in a channel relationship when one firm cannot achieve their formulated goals without the help and collaboration of another firm. The mutual dependency builds upon the assumption of a symmetrical relationship as the partners’ possessed power is tightly connected to the interdependency between them. In the case of the relationship between the rep and the principal the mutual dependency is based on the fact that the principal is dependent on the rep to perform the sales and service function. The rep is instead dependent on the principal to develop, produce and distribute their products.

Open lines of communication between partners are important to develop and maintain a relationship. Effective communication relies on three requirements, namely a definitive objective (1), realization of the needs of the respondents one is communicating to (2) and ability to keep the attention of the audience for enough time to supply the message (3). By aiming towards more communication with partners in a channel trust and involvement between the two parties increases and hence the relationship is further developed. For instance, partners with the ambition of developing relationships of a strategic nature often dedicate themselves to thorough meeting planning, a high frequency of meetings and a lot of information exchange. Furthermore, open lines of communication are a key to solve conflicts that usually arise in any relationship. However, a common problem regarding communication in a business-to-business relationship is that the communication between firms is limited to a small amount of people whereby an information gap about the partner firm can become evident.

McQuiston stresses that Mutual commitment to customer satisfaction is another critical factor in the rep/principal relationship to keep the customer focus in the centre of attention in order to meet the customer needs at all times. If this requirement is not fulfilled it is unlikely that the relationship will be successful. Conversely, the understanding of the customer needs have the potential to enhance the productivity of the personnel, result in faster turnaround as well as lower the inventory and transportation costs. As a result, it is important for the partners to share any information about the customers in order to better fulfill the customer needs. In addition, the reps and principals participating in McQuiston’s study stated that one way of reaching alignment and better serve the customers is to develop a common business strategy that is beneficial for both reps, principals, distributors and end customers, which all parties are committed to.

Another key factor in the relationship between the rep and the principal is Concern for the partner’s profitability. Hence, each channel member has to consider whether entering into the

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relationship will provide profitability for each member over time and not only the own potential increase in profitability. Otherwise it is likely that the channel members are unable to achieve adequate return on investments, will become less committed to the relationship and start to look for alternatives. McQuiston reports that the concern for the partner’s profitability was somewhat of a problem in the principal/rep relationship as the principals did not acknowledge the amount of investments that was required from the reps for them to even achieve small profits. Another perceived problem by the reps was that cost cutting must be shared equally between the principal and the rep. Principals on the other hand complained that the reps tended to favor customers over the principal in negotiations and that they needed to communicate very clearly to the reps what profitability each segment needed to achieve.

The sixth and final core value of the conceptual model for building and maintaining effective relationships is Trust. However, in a channel relationship trust is based on a high degree of interdependence why trusting partners is a vulnerable endeavor. In addition, trust is dependent on many characteristics, such as reliability, dependability, open and honest communication, fulfillment of commitments etc. McQuistion, summarizes this by stating that trust is: “doing what you say you will do consistently over time” (p. 175, 2001). Reps and principals were not late by underlining the importance of trust in the relationship.

3.2.2. Four Supporting Factors The first of the four supporting factors is Investment of effort by top management. Previous research has shown that to create effective partnerships it is important to ensure supervision by persons that are committed to making the partnership successful. In particular the partnerships succeeds if these individuals are working in top management. Since partnerships often result in changes in the way that a firm operates it is important that potential changes in organizational structure, culture and systems are supported by top management. Support by top management is also important as this may result in employees of the respective firms to be more disposed to make the relationship successful as well.

Another important supporting factor is Continuous improvement over time. According to McQuiston the focus should always be on taking the initiative to move the relationships forward and never become too satisfied. To facilitate the ambition of constantly improving the relationship it is recommended to make small gradual changes as it is more probable that the changes become part of the standard operating procedure then. In contrast, lack of commitment to improvements is often a reason why partnerships fail.

Having a professional respect means going beyond agreeing with the business side of a relationship by also showing respect for people’s abilities and competencies. By feeling valued and respected for their contribution to the relationship people will be more willing to understand and work by any differences that might exist in the partnership. Consequently, showing a certain level of understanding and respect for the other party’s interests is a requirement in order to achieve a successful partnership. McQuiston’s study showed that the opposite is true as well, i.e. acting unprofessional and not reaching a mutual understanding and respect can destroy a relationship very quickly.

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In the end partnerships and other business-to-business relationships is about Developing personal relationships between individuals. In fact other research has shown that well working business relationships almost always is dependent upon good relationships between senior executives. The same research showed that formally developed strategies are not realized in practice until people from both parties know each other personally. McQuiston’s study confirm this picture by showing that the most successful relationships were those that had developed from a strictly business relationship into one with personal features. To fulfill this ambition often required both carrying out social activities together as well as putting in effort to get to know each other on an individual basis.

3.3 Strategic Partners Many companies strive for creating efficient partnerships since they are associated with complex commitment (Wallace, 2004). In order to implement a successful strategic alliance it is important to work in smaller steps and break down the issues. Usually there are three critical factors mentioned when establishing a successful partnership. It is the ability to leverage assets, the ability to learn from and utilize the knowledge collected from a partnership and most important, the skills and competence in managing the partnerships and associated resources (Gibbs, 2009). However, one factor that is normally missing in many partnerships is measurement. In many successful partnerships partnering measurements is one attribute. Hence, to maintain effective partnerships the buyer should monitor supplier performance of multiple scopes and give feedback (Cousins, 2008). The different scopes can be both tangible, for instance operational performance, and intangible for example a relationship. The feedback should contain timely information to suppliers, which both consider buyer expectations and in case it is necessary make corrective actions possible.

Another problem with partnerships is that firms that do not invest enough, send a signal that the company is not committed to the partnership (Gibbs, 2009). This signal is also sent further to the market. The consequence of this is that the profits from the partnership will not be as expected and the development will be slower and eventual market benefits will be lost. This problem is more unusual when the two partners already have build up some trust, which decrease the anxiety of uncertainty. Furthermore, some causes leading to poor relationship performance are poor relationship management, lack of commitment, adversarial practice, inadequate joint performance measurement and fear of dependency (Gibbs, 2009).

Partnerships are associated with a contract or agreement between the partners, however the best contracts are sometimes the ones who doesn’t influence or control the relationship to a great extent (Gibbs, 2009). By handling the contract this way the companies have time to focus on maintaining the partnership instead of wasting time on discussing the contract. Furthermore, the dynamics of the market affect almost all partnerships, and hence it is inconvenient to try to anticipate all credible problems in a contract. For that reason it is important to have a flexible contract which focuses on the customers. The contract should encourage high performance, quality thinking, support continuous improvement, fair sharing of profits and other benefits.

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3.4. Terminating Relationships According to Geersbro and Ritter (2013), relationship termination is a multi-phase process connected with feedback-loops and parallel developments in which the two actors distinguish their business interactions. There are different reasons for why a customer relationship is terminated. One example could be when a current product or service provided by a supplier is no longer needed or competitive from the customer point of view, which is commonly known as customer churn or attrition. Another example could be when a firm decides to abandon a customer relationship for internal reasons, e.g. profitability. Customer lifetime value (CLV) is a technique used to predict the long-term net revenue of a customer relationship. However, the future potential of the customer should also be considered since its sales behaviour is strongly connected to that (Samimi et al., 2012).

4. Analysis and Discussion 4.1. Multi Channel Approach and Intermediaries FlexLink’s reasoning for having a multi-channel approach is a matter of utilization of their resources. Their objective is to offer specialized and customized solutions for their customers as well as reaching a bigger market, and by that, increase their sales volume. Their reason for using intermediaries is to provide flexibility and regular service that the end-customers require, in addition to reaching a bigger market. It is not clear how efficient this layout is for FlexLink in terms of physical distribution of the product, compared to if there were no intermediaries. On the other hand, it is expected to be effective as FlexLink’s end customers are located all over the world.

Another factor worth looking at is the specialization of FlexLink intermediaries. For example, System Builders are offering specialized, engineered solutions to the end customer, on a smaller scale than FlexLink provides in the direct channel, while the OEMs are setting industry standards. When looked upon as a whole, the intermediaries become vital players in FlexLink’s distribution network, especially because of their large share of total sales. It is therefore crucial for FlexLink to have a broad scope of their intermediaries and make sure that they generate value for FlexLink, e.g. with appropriate attention to FlexLink’s products. As stated by Longenecker (2008), if this is not done, it could undermine the success of even the best product.

It is clear that FlexLink sees diversification as a competitive advantage to distribute their products. However, the suggestion of Teece et al. (1997) is to diversify, by building on existing capabilities, in this context an existing relationship. Consequently, FlexLink should not form a strategic partnership with a new intermediary, but rather develop it from an existing relationship or intermediary.

Since the demand of the market is shifting fast today, the literature state that companies must readjust, enhance and possess their resources in order to meet this demand. Although FlexLink’s multi-channel layout is diverse, its dynamic capabilities are vague. According to

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the literature, dynamic capabilities are necessary for a multi-channel strategy. Therefore, FlexLink should consider the changing conditions of the market when using their intermediaries. This will most likely be a challenge for FlexLink as the objective will be to synchronize long-term commitment with their strategic partners and flexibility to adjust to the changing market.

To be able to use synergies between channels, FlexLink needs to find a way to make use of new channels and integrate those channels in their standard operation processes. Hence, in order to get synergy from existing and potential new channels the company needs to integrate them in the standard processes. An example is the standardized contract used for all FlexLink’s strategic partners, which can be stated to be such a standardized process. However, to develop new innovative channels can also create conflicts since the company simultaneously needs to operate as a consequent whole.

Occasionally, two of FlexLink’s customers from different partner categories are competitors. The most probable scenario is that an OEM starts to compete with a System Builder. Additionally there is a possibility that FlexLink’s intermediary provides solutions/products of competitors. As a result, it is of great importance to support the intermediaries in their marketing so it is appropriate for the product. This is something that FlexLink already does and it is of great importance to stay competitive.

4.2 Establishing and Maintaining Relationships Even if McQuiston’s model for building and maintaining relationships might be very conceptual it evidently has clear ideas about factors that should be fulfilled in order to achieve a successful relationship. While the prioritization between the different factors in the model are not that clear, more than that the core values are of higher importance than the supporting factors, McQuiston clearly claim that these factors should be inherent in an effective relationship, at least to a certain extent. Hence, with the conceptual model for building and maintaining relationships as a basis it is highly interesting to examine which factors that FlexLink fulfil and what ought to be improved according to the view of McQuiston.

First FlexLink’s seven proven co-operation steps governing whether to initiate/keep a relationship or not, are analyzed. When comparing these steps to the factors of the conceptual model for building and maintaining relationships, a general finding is that FlexLink’s co-operation steps put more emphasis on formal aspects of relationships whereas almost all of the factors in McQuiston’s model are focusing on soft values like trust, mutual dependence, mutual commitment etc. In that sense FlexLink’s co-operation steps are definitely more practical in nature by thoroughly describing how to perform business in certain contexts rather than putting emphasis on how to build a personal relationship with their partners and what will be required then. In addition, FlexLink’s seven co-operation steps are influenced by the technical nature of the company and how the technical solutions might be integrated and suited to the partner in question. Naturally, these characteristics are not included in McQuistons model as it is a generic model that should be able to apply to all kinds of industries.

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However, even if FlexLink not put as high emphasis on the soft values compared to McQuiston’s model they take into account some of the soft values mentioned in the model. For instance, FlexLink’s desire to work together step could be said to include some of the core values. More precisely, when determining the desire to work together, FlexLink examines whether both companies benefit from the relationships and what the end customers think, which have clear connections to the ambition of realizing mutual dependence and mutual commitment to customer satisfaction. Also as McQuiston explains, mutual dependence between a principal and a rep exists as the principal is dependent on the rep to perform the sales function and the rep is dependent on the principal to develop, produce and distribute products, which naturally is the case between FlexLink and many of their partners. Another way that FlexLink works with mutual commitment to customer satisfaction is with their business and technical offer development as it aims to provide an integrated offer between FlexLink and their partner that creates more value for the customer.

Next proven co-operation step, which also is one of the four criteria for success, is profitable business arrangements for FlexLink and business partners. This step clearly correspond to concern for other’s profitability, which is one of the core values in McQuiston’s model. Hence, by establishing a generation of profitability for both parties FlexLink ensure that the relationship results in mutual benefits and thereby fulfils the concern for other’s profitability. Design for standardized modules/interfaces, which is the fourth step does not have a clear link to any of the core values or supporting factors. Web services and communication on the other hand, has a clear connection to open lines of communication. Launching and training both fulfils the core values open lines of communication, mutual commitment to customer satisfaction, as well as the supporting factor continuous improvement over time. This also ties to one of the criteria for success, namely dedicated business partner support, which also illustrates FlexLink’s ambition to achieve open lines of communication and mutual commitment to customer satisfaction. The last proven co-operation step management of joint activities also connects to several of the core values, i.e shared goals and objectives, mutual commitment to customer satisfaction and investment of effort by top management.

The two remaining criteria for success that FlexLink have can also be coupled to the conceptual model for building and maintaining relationships. Firstly, long term commitment can be connected to many of the core values and supporting factors as this requires huge efforts from both partners. More precisely, long term commitment requires both mutual dependence, concern for the other’s profitability, trust and investment of effort by top management. Secondly, clear definitions/segmentations can relate to shared goals and objectives, trust and having a professional respect.

All the interdependencies and relations between FlexLink’s seven proven co-operation steps and criteria for success and the core values and supporting factors are summarized in Figure 3. When visualizing the relations in this way it becomes evident that FlexLink almost covers all the core values and supporting factors with their seven co-operation steps and four criteria for success, even if some factors are more emphasized. According to this analysis FlexLink’s main focus is on achieving, shared goals and objectives, open lines of communication, mutual

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commitment to customer satisfaction and concern for other’s profitability considering that three or more interdependencies were found for all these core values. However, personal relationship seem to be down prioritized as no interdependencies was found between this supporting factor and the co-operations steps or criteria for success. Also it becomes evident that design of standardized modules/interfaces does not contribute to fulfilling any of the core values or supporting factors.

Figure 3: Interdependencies and relations between FlexLink’s seven proven co-operation steps and criteria for success and the core values and supporting factors.

As a result of the findings above, it is clear that FlexLink ought to work with developing more personal relationships with their partners. To really reap the benefits of a relationship it is recommended to take it to a deeper level by getting to know the personnel at the partner on a more personal level. A way of achieving this is to occasionally step out of the business context and have some kind of social activity with the colleagues at the partner firm. However, the analysis also show that FlexLink is doing a lot well in their customer relationships, i.e. putting a lot of emphasis on shared goals and objectives, concern for other’s profitability and mutual commitment to customer satisfaction. The latter is especially important, as it is always vital to maintain the focus on the end customers, considering that they are the ones that provide the profits in the value chain.

4.3. Strategic Partners FlexLink educates strategic partners in how to sell to end customers which is in line with one of the three critical factors of strategic partnerships, concerning that the partners should learn from each other and utilize each others knowledge. Moreover, partnering measurement is something that is continuously repeated as important in the literature and FlexLink does not seem to work with it so extensively. If FlexLink want to stay competitive it is of great importance to evaluate the results of each partnership in order to improve it or terminate it if

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none of the parties benefits from it. According to literature it is of importance to evaluate both tangible and intangible measures, for instance operational performance and relationship status.

The need of a legal agreement or a contract is another essential part of a strategic partnership. FlexLink use a comprehensive standardized partnership contract for all their strategic partners. However, the literature claims that occasionally it is better to not focus too much on the contract, but rather the partnership itself. Further it is important to have a flexible contract since the market conditions are changing quickly. Hence, the contract should encourage high performance, quality thinking, continuous improvements, fair sharing of profits and other benefits. FlexLink’s contract is used worldwide and the terms must be equal for both parties. Generally, the partnership contract is updated annually in connection with a meeting and example of contents for this contract are scope of partnership, definitions, confidentiality, trademarks, duration and how to deal with relationship termination. Hence, an implication is that this contract does not have as an aim to encourage the aspects mentioned in literature.

4.4 Terminating Relationship Geersbro and Ritter (2013) define relationship termination as a multi-phase process connected with feedback-loops and parallel developments in which the two actors distinguish their business interactions. FlexLink, in turn, has this multi-phase process with strategic partners also based on feedback-loops and antecedents that are represented by seven proven co-operation steps including desire to work together, business and technical offer development, business arrangement, design of standardized modules/interfaces, web service and communication, launching and training, and management of joint activities. From a partnership termination perspective, they could be regarded as core conditions since a reason for terminating a strategic partnership could simply be insufficient fulfillment of one of these conditions.

Samimi et al. (2012) discuss other reasons for why a company may end a relationship with customers, e.g. Customer Attrition, which happens when a product or service is no longer competitive/needed due to market changes and end-customer preferences. Samimi et al. (2012) also stress that partnership termination can be due to internal operational issues such as profitability and increase of material costs. Using the same principle, FlexLink puts high stress on the behavior of the end customers. In other words, end-customer orientations play significant role for when it is the time to end the partnership. In the same discourse, Samimi et al. (2012) suggest the customer lifetime value (CLV) technique to predict the long-term net revenue of a customer relationship, which may also reflect a time range for when a partnership may be expected to be terminated. However, it is far from clear if FlexLink uses this certain technique. Still the assumption is that FlexLink’s evaluation of customer relationships includes some technique with similar logic to CLV.

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5. Conclusions Based on the analysis and discussion, a couple of concluding remarks and recommendations are formulated for FlexLink to further improve the management of customer relationships. Firstly, as the market demands are continuously shifting there is a need for a dynamic approach regarding channel set-up. Consequently, the recommendation is that FlexLink always should consider new sales channels. To ensure synergies with the existing channels it is then important to integrate these channels into the standard operation processes. Also it is important to constantly evaluate and support intermediaries in the current channels to ensure that their marketing efforts are fulfilling the needs of FlexLink.

Related to the assessment of the intermediaries, it is preferable to form new strategic partnerships with already existing intermediaries rather than establishing these relationships with new actors. When having established a relationship with a partner, FlexLink ought to put more emphasis on personal relations as the analysis has shown that this is a deficient area for FlexLink. One way of fulfilling this aim is to occasionally step out of the business context and have some kind of social activity with the colleagues at the partner firm. In addition, it has become evident that FlexLink should assess the suitability of the strategic partnership agreement and whether it is flexible enough for changing markets. It is also recommended not to focus too much on the contract itself but rather work on the relationship. An area where FlexLink are well performing is when it comes to formulating shared goals and objectives with the partner and developing mutual commitment to customer satisfaction.

Another area for potential improvement identified in the analysis, is the evaluation of partnerships. Hence, FlexLink should aim at tangible and intangible measures to ensure high performance of the partners and sustain competitiveness. Furthermore, this is one manner to identify relationships that should be terminated. One method of determining this is customer lifetime value, where the long-term net revenue of a customer relationship is predicted.

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Oral Materials Ålander. K. (2014). Personal interview, at FlexLink, Gothenburg, 2014-04-01.