Strategic Relationship Building
by Paul Catiang
Based on a presentation by Jovi Zalamea

According to Jovi Zalamea of Goldman Sachs, the 80-20 rule applies to the most successful franchises of financial services businesses. That is, 80% of the business comes from 20% of the clients covered. Furthermore, these clients tend to be consistent, year in, year out. Because they comprise the bulk of revenues, they’re the ones a financial services company spends the most time on.

By way of definition, he says that strategic relationships are long-term relationships built with clients with whom a company has an influence over their business decisions and vice-versa. They are also client relationships which have significant and distinct importance to a company’s overall business and vice-versa. As a sub-category, revenue relationships generate an important part of revenue for both company and its client. Association relationships, on the other hand, are instrumental in building other partnerships and alliances. Such collaborations are high-profile, standard-setting relationships which are accretive to both parties’ overall business.

He then went on to discuss the practical aspects of relationship building. Firstly, a strategic relationship allows a company to show its client the difference between them and their competition, specifically through the quality of advice, service, and deployment of resources. Secondly, such a relationship bars the entry of competitors, as a client would be spending less time with them and more with the company that gives it more personalized advice. This is also a result of working closely with clients: time spent with a client yields a wealth of information that could not have been gathered in a more arms-length working relationship. Thirdly, it gives a company the first crack at a client’s business; by working together on planning a project, for example, it becomes incidental that first refusal goes to the company when it comes to executing the project.

The benefits of strategic relationships don’t end there. It also allows a higher probability for negotiated deals, rather than competitive deals involving other companies. Well-executed projects open the door to repeat business, and attract new clients interested in collaborating. And lastly comes the fulfillment of being an agent of change through one’s partnerships.

Mr. Zalamea advised investing in the relationships with the right companies, stating that companies with high growth potential and have transformational effects on their industries are the best kinds of businesses to invest time in. Moreover, it is also advisable to invest in a relationship wherein a company can provide an essential ingredient to a client’s business.

The process of selecting the right business to partner with is a lot like looking for the right financial investment: there’s a lot of risk involved. Establishing a strategic relationship may involve losing money in the form of lost business opportunities and time spent pursuing other clients. This risk, however, can be minimized by taking a few considerations in mind. First, the core competencies must match and complement each other; a company has to parlay its fields of expertise into a profitable relationship rather than start from scratch and learn a new field while servicing a client. Second, potential conflicts and business impacts such a relationship might have should be recognized before they occur. Certain partnerships might bar other potential partnerships, and since strategic relationships take time to establish, companies must plan for the long term. Lastly, being on the same page as management is a given when it comes to these investments.

Start-up companies were given special mention here. They are ideal for strategic alliances because there is very little competition for their business, and there is potential for a service provider to aid in their initial success and eventual growth.

The presentation concluded with how to maintain strategic relationships with clients. This requires quality control in terms of services provided, as well as a quick follow-through for repeat business and referrals to other clients. Feedback and evaluation from clients is also crucial, and is better enabled by constant communication. A company must set its clients at ease and let them know their clients can come to them with anything. Communication with clients also helps a company establish their clients’ perceptions of them, and lets them know if their company image coincides with reality or what they aspire to be. Lastly, strategic partnerships require a cultural match with clients, the precedence of long-term thinking over short-term planning, an appreciation for the importance of investing in time and effort, and the need for integrity of quality, especially in post-transaction servicing.

For a copy of Jovi Zalamea's presentation, click here.