Archive: June, 2014

Power and punishment

Power. There’s no getting away from it. At work, we try to understand who’s got it and then persuade them to use it for our benefit. At home, and I speak here as a father of 2 young boys, we try to use it sensitively and for the benefit of everyone.

It’s one thing holding power but it’s quite a different thing knowing how to use it. I was therefore interested to read some research by Daniel Corsten, professor at the IE business school, called ‘Mitigating the Deleterious Effects of Punishments in Buyer-Supplier Relationships.’ Despite the evidence that punishment has a detrimental effect on relationships, it is used widely in business, particular in buyer-supplier relationships. Large retailers such as Wal-Mart and Carrefour are widely reported to punish suppliers that fail to perform. Similarly in the automotive industry, General Motors and Ford are notorious for punishing suppliers for non-compliance to cost, time and quality. These buyers infamously curtail or delay payment, breach or cancel long term contracts or even opportunistically terminate the relationship. Japanese automotive manufacturers, however, are known for pursuing long term collaborative relationships. Yet despite this approach, it appears that even Honda and Toyota employ coercive tactics. But their suppliers often say that Honda and Toyota are their toughest – and best – customers. So how do they use their power is a positive way?

The research finds that “a buyer’s punishment of a supplier has a detrimental impact on supplier trust, conflict, and self-reports of supplier operational performance.” The effect, however, can be mitigated if:

  • the buyer has a good reputation, that is, he is consistent, reliable and dependable. This approach gives rise to better business processes, fewer errors or last minute changes. Consequently, the supplier’s trust increases and with it the supplier’s satisfaction. This results in less conflict so the supplier’s operational performance improves
  • there are high levels of information sharing. Better information reduces the ambiguity and uncertainty regarding the buyer’s true intentions which in turn increases perceptions of honesty. Supplier satisfaction increases because information sharing leads to a convergence of goals and objectives. Over the course of a relationship, information sharing helps adjust supplier expectations, which improves overall satisfaction

Like much research into business the conclusions seem common sense. I think the research, however, is helpful because power is often abused so it is sometimes difficult to remember how to use it positively and for the benefit of everyone.