We too often now have relationships, he said, that become counter-dependent, where those who should be partners question everything the other is doing, much as teenagers question their parents.

Question: Based on our previous conversation, how would you summarize the paradox that exists in the distribution channel?

It’s really a double paradox. The key paradox is between independence and dependence. We actually need a balance of both. When speaking of ownership, we need people who are self-initiated—people who own the value they’re creating within the organizational context, but people who understand that to optimize value they have to compose with or take into account other people contributing to this value chain.

The other paradox is between a healthy interdependence and counter-dependence. Distribution networks can only develop a healthy interdependence when there is a high-trust climate, as shown on the vertical axis of the diagram (above).

Question: Could you expand on the idea of counter-dependence?

Counter-dependence means that when you have a 16 year old, it doesn’t matter what you say, you’re wrong. From a business perspective, it means that I actively deny the value that you bring and I’m always having to second guess why you’re doing things because you’re likely taking advantage of me.

Question: And that can go either way?

Yes. It goes back and forth. For example, in the petroleum industry, independent dealers may sell gasoline and get a percentage of the margin. When oil companies are constantly squeezing the margins on them, the relationship becomes counter-dependent. A lot of very good dealers are destroyed that way.

Question: So from a manufacturer’s perspective, one way to overcome counter-dependency is to be trustworthy?

Question: What if they already have a distribution network that’s old and established, and they are already into these patterns?

The way to overcome patterns is to focus on the customer. The manufacturer should sit down with the distributors and talk actively about the customer and the value being created for the customer. What I’ve found with many of the things I’ve been involved in is that when the manufacturer sits down with the distributors they’re talking all the time about the arrangements between the two of them.

But if they focus on customer capital and the deeper knowledge of the customer without a defensiveness around who owns the customer, then they discover their place for common interest, common perspective. In a sense, when you get to counter-dependence, it is because the exchange is seen as a zero-sum game. So the idea is how can we work together to create more value to our combined value chain than anyone else can out there can.

Question: What happens when one partner is overly dependent on the other?

If you’re in a high dependence mode, you can’t be truly interdependent—because you won’t bring out issues, you won’t act as a partner, and you can’t truly provide value added to the relationship because you’re in a very compliant mode. In fact, in the long run, high dependence in my view will always evolve toward counter-dependence. It’s a matter of time, while independence also evolves toward counter-dependence because at some point the manufacturer says "Why are you doing your own thing out there? You’re treating me as a nobody. Why would I keep giving you my beautiful stuff if you’re not recognizing the value I bring?"

Question: Where is the balance, and what are the signs of being in balance? We have trust on the vertical axis, but what about the horizontal axis, the signs that independence and dependence are in balance?

I think the sign of imbalance is when there are issues not dealt with between different segments in the value chain over a long period of time—when you hear things such as, "I brought up that issue five years ago and nothing has been done about it." That is a telltale sign that people are not hearing one another and that there is considerable value leakage in the chain.

Question: What is a sign of health?

Question: What happens when there is counter-dependence in the distribution channel?

When distributors are in a counter-dependent phase, they tend to say to customers, "That manufacturer has no idea, and if I wasn’t there to make sure you’re getting the right thing, it sure wouldn’t work." This invalidating the manufacturer so as to put themselves up destroys customer capital. The whole question indicative of this is: Who owns the customer? The fact of the matter is that no one owns the customer. It’s a very destructive question.

Question: Is it a battle they’re both fighting saying "I own the customer"?

Yes.

Question: Who does own the customer?

No one. The fact of the matter is it’s a very misleading term. Each thinks they own the customer. The customer will respond to the perception of superior value—superior customer-perceived value—and that superior value comes from both receiving products and services from manufacturer and having them delivered through the distribution network in an effective, convenient, efficient manner.

I believe when you start segmenting the value chain—saying it’s only the end that owns the customer—that is, in fact, blinding the manufacturer from a clear view of the customer. No one owns the customer. Customers will go where they perceive value on a long-term basis. See, I’m not even a real fan of customer loyalty. I’m not totally against it, but what I mean is that customers will perceive value from the total package they get, both the quality of goods they get and the service they get in the process of delivering those goods. And if those two are in congruence with one another, and it’s perceived they’re working well and there’s a high level of trust between the two, then the customer gets a sense of high level of trust. But if distributors, who are the intermediaries, lower the trust level, I think both distributors and manufacturer lose in that transaction.

Question: How would you define value chain for our readers?

The value chain is the components that actually bring value to the customer—the design phase, product development phase, the manufacturing phase, and the distribution phase. These would be in some cases the different steps of the distribution chain. In other words, what are the steps required to deliver value to the customer. Marketing, understanding the customer is another step in the chain at some point.

Question: And this varies by company.

Question: What are some other ways we become more interdependent within the channel? In other words, how can we overcome the counter-dependencies that are currently in the channel?

We ourselves contribute to making things counter-dependent by keeping people in a more dependent mode in order to control them. In a way as an organization, what we will tend to do is try to increase the dependency so we don’t lose them. We want to keep the attachment. That tends to press people out toward independence if we’re not careful.

If it stays neutral from a trust point of view, then all you get is independence, people who work with you but they don’t optimize value with you because they do their own thing without taking into account your requirements for optimizing value. For example, in a dependent state, the dealers or distributors would say I need to have this from the manufacturer. They need to give me this and if I don’t get this I can’t do anything. The manufacturer never listens to me, and the firm is doing its own thing.

Now, the independent person says, "I don’t care what they do, as long as I get my stuff. I can deal with my own customer. Frankly, I don’t even tell my customer where I get products. I handle the transaction totally independent of who the manufacturer is and it doesn’t matter because I don’t use the clout of the manufacturer."

This is not healthy. What we need is people who have a sense of ownership for the transaction—a certain sense of independence. We need to move to mid-point on the dependence axis. You also need to have people who understand that they need to take into account the manufacturer’s specifications and limitations, in terms of their costs and their ability to manufacture product, their ability customize, and so forth. In other words, each person has to work with the other so that they understand each other.

Question: What are some other techniques for managing counter-dependencies?

One is what I would call communicating without noise. When there is noise, if it is counter-dependence, all the manufacturer gets is, "You guys are no good, it doesn’t matter what you do, they’re not giving me the true goods on the customer, all they’re giving me is self-interested stuff I can’t meet in any event. That leads them to disregard the information they could get.

You need to elevate the trust level to remove the noise from the communication that needs to take place for clean interdependence. How do you elevate the trust level and eliminate the noise? The precursor to working interdependently and collaboratively—is that there is good sharing, listening, and trust. Those are absolute precursors, the ability to sit down and talk in a way that you recognize that the other person is out there to do the right thing. You believe everybody’s out there to do the right thing.

Then you start sharing one another’s dilemmas, difficulties, issues, in such a way that the manufacturer hears the customer’s perspective through the distributors and in such a way that the distributors hear the manufacturer’s perspective and can then translate that with the customer in a way that the customer sees value.

This is where the whole idea of "customer capital" comes in. You can only gather customer capital to extent that the distributors are representing positively the manufacturer, its products and its services.