Opening Books To External Stakeholders
– Extending trust beyond the company
This is why the culture that arises from daily acts takes the place of corporate policies. Instead of writing ourselves down in a set of rules, we evolve slowly based on what we do.
In a Nutshell
Companies everywhere would like to reduce costs, step up the quality of their products and come up with the next best idea to improve their processes and products before their competitors do. But that’s not a journey they can take alone. Instead, it’s one that makes them increasingly reliant on their external stakeholders, particularly their suppliers.
In order to survive today’s fast-paced market, businesses need to cultivate long-term and close partnerships with their suppliers, clients and the society at large. Only then can they continuously learn, improve and prosper along with their partners. But traditionally, companies have always maintained an arms-length distance with their external stakeholders, because of a lack of trust. Vulnerable situations that make companies rely on an external stakeholder are the stuff of corporate nightmares and most companies would like to steer clear of such situations.
However, the world of business is full of turbulent situations like mergers, outsourcing, new business models and globalization, that make it necessary for people to take a leap of faith. When companies focus on building a climate of trust with their external stakeholders, it can lead to some extraordinary results that create a win-win situation for all parties involved. But how can you build trust, especially in a relationship that’s often prone to distrust? The ingredients are pretty simple: A long-term relationship, some transparency, a bit of negotiation and lots of empathy.
Open your books and financial numbers to trusted external stakeholders to negotiate in a transparent and healthy way that helps you achieve common ground and greater wins.
Trust always begets more trust and that’s fundamental to any transparency initiative that extends beyond the four walls of a company. But such transparency needs to be preceded by thoughtful actions that keep the long-term in mind. Instead of focussing on short-term financial performance, companies need to focus on building a long-term relationship with their external stakeholders that ensures the well-being of their clients, the feasibility of their suppliers and the sustainability of the resources and communities they work with. When they do that, they create a system of shared value that helps them thrive along with their partners – both in times of crisis and prosperity.
Make sure you have a trustful internal environment: Before companies can embark on building trust and transparency with their external stakeholders, they need to make sure they have enough trust internally. Only when there’s absolute trust and transparency within the organization, and continuous effort to sustain it, can a company attain the level of maturity needed to open its books to external stakeholders.
Focus on building long-term relationships: Very often companies sabotage their own future by assuming a very narrow-minded, short-term approach to building business relationships. The sustainability of a company depends heavily on its capacity to prioritize relationships over monetary gains. So, build trust with all stakeholders – both internal and external – keeping your sights trained on the long-term.
Open up your books to only those you completely trust: Although it’s important to foster trust within every relationship, in the world of business trust can’t be a blanket statement. It needs to be earned over long periods of time, through multiple encounters. So, when a company considers opening up its books and financial numbers to an external stakeholder, like a supplier or a client, it needs to be done with a sense of caution. However, when done correctly, such transparency can really transform the negotiation process; help companies collaborate better with suppliers and clients; and arrive at a common ground with empathy.
Promote healthy negotiation with openness: Usually, both parties involved in a business negotiation tend to approach the process with some level of distrust. That’s because neither party has any real understanding of the other’s situation. And, in their ignorance they assume that the opposite party stands to make a great deal and that they’re stepping up the pressure just to increase their margins. When you share your numbers with the other side and show them that the margin isn’t 30 percent but a mere three percent, it changes the nature of the negotiation. It promotes a much easier and healthier mediation process as there is no room left for hidden agendas. Sharing such information with trusted external stakeholders helps you both engage in a very transparent discussion and arrive at a sustainable partnership.
Explore ways in which you can help each other win: Here’s a common scenario in business – a client who’s very concerned about keeping the price low will give their contract to the company that quotes the lowest price. But the price cannot be quoted without consulting the concerned supplier. Very often, due to a lack of trust, companies and their suppliers fail to arrive at a common ground and wind up losing the contract which could have benefitted them both. If there’s a supplier you’ve worked with for a long-time and enjoy a certain level of trust with them, try being entirely transparent with them. Banking on the number of years you’ve worked together, share your numbers (specific to that deal) with them and jointly explore the various possibilities. For instance, you could ask the supplier to reduce the price of a specific raw material or to offer you a modified payment option that allows you delay payment for a few months and so on. Put your heads together and arrive at a strategy that will help you bag the contract. After all, if you get the contract, your supplier stands to gain as well. So it’s a win-win situation for everybody.
Remember that trust is a two-way street: Once you open your books and show some of your external stakeholders the margins you make, they could reciprocate your trust. They could come forward with their own books and help you understand limitations on their end and all that information can help you achieve common ground faster. That said, it could go the other way too – especially, if there’s someone new on the other end of the negotiation table. Sharing numbers and margins with external stakeholders is quite an uncommon practice in business and it’s natural to be met with some distrust – especially, in times of prosperity. For, it’s easier to be open and transparent in a moment of crisis, but it takes integrity and consistency to keep up the transparency even when business is good.
Level to implement
Focus first on creating a trustful atmosphere within the company
Invest in long-term relationships with external stakeholders like clients, suppliers and society
Bring transparency and trust to the negotiation process
Be empathetic and arrive at common ground with external stakeholders
Find different ways in which to help each other out
Expect some level of distrust initially and when someone new enters the equation
Implement this practice when you don’t have a trustful relationship in place with your external stakeholders.
Share your numbers with people who you’ve just started engaging with
Do it without the proper context and rationale – you need to be able to explain why you need to share your margins with an external stakeholder
Look out for your interests alone without keeping in mind the long-term relationships
Prioritize only short-term financial results or advantages
Improves relationship and trust with external stakeholders
Creates long-term, fruitful partnerships
Boosts sense of ownership and belonging in external stakeholders, particularly suppliers
Improves business profitability overtime
Suppliers could take advantage of your trust and transparency and quote higher prices in times of prosperity
Might lead to a drop in short-term profitability and results because you prefer to do business with a long-term partner rather than one who can deliver the lower price you need
There may be some skepticism and resistance – both internally and externally – to sharing numbers with people outside the business