In this article, I want to introduce you to a new concept called Relationship Risk Management. The notion of Risk Management is a well-established business idea. Managing stakeholder relationship is not traditionally associated with risk management but in our view, it could be the biggest risk you are not managing.

According to Wikipedia “Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities.”

risk

Typically risk management is applied to financial services, complex project management and rational, statistically, measurable events. What it doesn’t take into account is intangible issues such relationships between key stakeholders. This can be disastrous.

A case in point was the launch of Terminal 5 at London’s Heathrow Airport. In March 2008, the opening of this technological marvel, state of the art airport terminal was one of the most eagerly awaited events of the year. As you may recall, it was a total disaster. In the first 10 days after T5’s launch, 42,000 bags failed to travel with their owners and over 500 flights were cancelled. It was a catastrophe that severely hurt the reputation of British Airways and BAA the two key parties behind the terminal.

According to a government inquiry, the failure was due to three problems; Inadequate staff training; insufficient system-testing and poor communication between the two key stakeholders, British Airways and BAA.

Colin Matthews CEO of BAA is quoted in the government:

“However well the airport operator and the airline operator, BA, are working it is vital that the two are absolutely integrated and together… Around about or just prior to the opening of T5 it seems that the togetherness deteriorated. It is that togetherness that allows you to cope with the issues that arise on the day.” He added that, if he had his time again, he “would focus resolutely and determinedly on keeping British Airways and BAA in the same room tightly together”.

Billions of dollars of investments and hundreds of thousands of hours in management went into the design and construction of T5, no doubt underpinned by a sophisticated project management plan to manage every risk. Well that is except one risk it seems: The relationship between the two key stakeholders.

As a marketer or agency executive, you may be asking, what’s that got to do with me? The point is that people are the wild card in business but they are a manageable risk.

For agency executives, the notion of Relationship Risk Management could not be more important. The consequences of getting it wrong are disastrous. What’s the risk of losing one of your key clients? Loss of income, staff insecurity, low morale, staff defection, further client defection, lower new business win rate?

Every year, major agencies go into a tailspin, precipitated by the loss of a major client, followed by additional losses. In the majority of cases, clients defected for unidentified service-related issues, especially, poor communications.

The title of this article summed it up. When a major piece of business goes into review, in the vast majority of cases it should not have been a surprise. The defection could have been prevented by identifying and managing the most important risk, unknowns in the relationships.

For marketing executives, Relationship Risk is an equally big issue. Poor relationships with an agency result in lower effectiveness in output and poorer results. They are dependent on you for their livelihood but you are dependent on them to achieve your goals.

The world’s best marketers manage their agencies with disciplined processes around giving the agency feedback and providing clear actionable direction and crystal clarity on expectations.

Managing the client-agency relationship is a shared and critical risk to mutual success. We call this principle the 3M’s of Relationship Risk Management

• Measure your relationship

• Minimize your risk

• Maximize your opportunity

The health of a business relationship can and should be measured. This can be achieved by a periodic client agency assessment. As specialists in this field, we recommend a 360 process that involves both quantitative and qualitative questions where the client and agency provide feedback on each other in a constructive forum. The goal should be to gain actionable intelligence about the relationship.

Key relationship attributes such as attitude, quality of output, level of expertise are scored by both parties. In addition, actionable feedback is solicited through open-ended questions.

The outcome of this is an accurate picture of the state of the relationship with clear actions. In addition, the quantitative data provides both clients and agencies the ability to benchmark versus other parties and track performance over time.

Whether you do it through a formalized process or not, the key thing is to recognize that your business relationships are measurable and manageable risk. Treating this like any other business risk could be the smartest thing you do for your business this year.