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Partnering Relationships—Jekyll and Hyde?

Partnering holds great promise; managers dream of developing partnerships that quickly and flexibly respond to change and opportunities in real time. But partnerships have a lot of hidden costs, too, and inherent tradeoffs that must be strategically managed. The biggest of these? The relationship efforts that you put in place to make your partnership successful are often the very factors that cause it to dissolve.

Let me give you an example that I find particularly fascinating from outside the context of interorganizational partnering. In service industries, there is a widespread trend known as “service sweethearting,” which is most familiar to the millennial generation. It occurs when a front line service employee gives free or discounted goods and services, unauthorized, to customer conspirators. A cashier might slide products around a bar code scanner to create the false impression that her friend is paying for the item. Repair service employees might conduct repairs without recording the billing, or wait staff illicitly provide complimentary drinks and food. Companies like IBM and Stoplift have developed detection algorithms to identify sweethearting behavior in surveillance videos, as this behavior costs firms billions of dollars. In the retail sector, sweethearting can account for as much as 35% of annual profit losses.

These losses are entirely due to the strong customer-employee relationships that the firm rewards and encourages its employees to build.6 Customer satisfaction is often achieved through building interpersonal rapport, attentiveness, and responsiveness, and this is the goal of many customer strategies. Sam Fox, CEO and founder of Fox Restaurant Concepts, is the owner of leading healthy fast casual restaurant formats such as True Food and Flower Child. They instruct their employees that hospitality rules the service encounter. Their mantra on customer management is “Yes is the answer. Now what is the question?”

The stronger the customer-employee relationship, the more likely that a service rep will “give away the store.” This behavior benefits the customer and employee because on another occasion, the customer in one store may become the service provider in another. For example, a bartender gives his friends free drinks and food (they pay for some of it, but not all). One of his friends owns a dry cleaning business, so his firm washes and irons the bartender’s shirts for free. Another friend manages a rental car company, so she provides the bartender with complimentary rentals whenever the bartender travels. Thus, customers and employees win and companies lose out. The one thing the companies get is heightened satisfaction scores—all these friends happily give their service provider top ratings. The dilemma for the firm is that if all its top service performers display exactly the same metric—high sales and satisfaction scores—which one is bleeding the money? Surprisingly, it is usually the best service reps. These individuals have a high need for social approval, are risk-seekers, and are capable of developing relationships that customers value.

Another interesting twist on sweethearting is that when confronted with this behavior, many employees say that they had no idea sweethearting was wrong. They might even tell you that their supervisors authorized the behavior. This suggests that the behavior may be implicitly embedded in the company culture and thus viewed as normal. Firms cannot easily weed out these employees or avoid hiring them, because the best service reps are precisely the individuals most likely to engage in sweethearting.

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