IPMA International Project Management Association
16 November 2020 / 12:00

Return on Relationships (RoR): Proposing a PM focused formula

Networkization of societies has contributed to an exponential increase in the number of relationships, both, face-to-face and virtual. This relationships abundance has made people think of how they can build and maintain value-added relationships? How can they decide the intensity and closeness of relationships? The tendency has led to developments in the concept of Return on Relationships (RoR).

Return on relationships (RoR) is defined as “the value accrued by a person or a brand due to establishment, maintenance and nurturing a relationship” (Gummesson, 2004; https://kalicube.pro/entity/return-on-relationship/). The definition lays the framework for constituent parts of the concept-oriented broadly around value over time and the interactions.

The constituent parts of RoR

While broadly RoR is made up of mainly two components i.e. interaction over time and value, there are a number of elements that embody the spirit of these two components providing a more elaborate structure of RoR. We discuss some of these constituent elements below.

    (1) Mutual value

The mutual value is central to achieving a high RoR. Mutual value underlines the importance of having reciprocal benefits for parties involved in the relationship (Grönroos & Helle, 2012). However, it is not necessary that mutual value will be equal at all times for parties in the relationship and could decrease and increase over a period of time, but there should always be a sense of its existence.

A basic example could be when a customer purchases a product or service, s/he expects product/service does what it is supposed to do and performs at the advertised level of quality. On the other hand, the seller of the product/service expects to get the payment or anything else in return as per terms of the transaction. If this transaction is made in good faith and as per terms of trade, it is likely that the relationship will flourish; customer will do further transactions and in return the seller will continue providing quality products/services, resulting in a high RoR achieved by both parties.

    (2) Meaningful nature of interaction

The achieving of RoR is underpinned by the meaningful nature of interaction among the parties involved in the relationship (Gummesson, 2004). A meaningful relationship is one where both parties have a reason to be part of the relationship. However, the nature of the relationship at times could be quite explicit or intense or could be implicit, passive or unclear. In such circumstances, the outcome of RoR could vary depending on the intensity and effort that goes into the relationship and the level of meaningfulness attached by the parties to the relationship.

    (3) Perception of value and time relevance

The perception of value associated with the relationship will determine the realization of RoR (Grönroos & Helle, 2012). The differences in value perception could destabilize the relationship and affect RoR.

Further, RoR will also be affected by time. For one party, the relationship could be highly meaningful and valuable at a certain point in time and for the other, it may not be so much. Such a scenario will affect the perception of value and realization of RoR. In hindsight, if the RoR remains low for an extended period of time for one of the parties, then it will have an impact on the longevity and continuity of relationship.

    (4) Interpersonal skills

It is argued that relationships are also affected by the interpersonal skills possessed by the parties in the relationships. If the parties do not have interpersonal skills and meaningfully interact, sooner or later the parties will start having lower value perception resulting in lower RoR. Interpersonal skills are not just limited to useful person to person relationships, but also involves relationships among businesses and people. The customer experience journey with the business will have a significant effect on the perceived value of RoR, as it will determine the interaction effects between business and people (Witell et al., 2020).

    5) Marriage of convenience or the context of events

Sometimes relationships are also formed due to events outside the control of parties involved in the relationship. These ‘ marriages of convenience’ type of relationships are also meant to create some level of RoR. If the marriage of convenience provides useful value to parties in the relationships, RoR will be high.

The proposed RoR formula in PM context

Given the conceptual constituents of RoR, the formula for RoR takes into account mutual value that the parties involved in the relationship created. Grönroos and Helle, (2012) provide one such formula in the context of a customer and supplier relationship which reads as:

In the above equation, RoRR = Reciprocal Return on relationships

JPG  = Joint productivity gain, which is defined as JPG = ( ( EEc IEc ) – IEs )

But given the focus of this article is on project management (PM), we propose a refined version of the above formula in PM context as follows: 

In the above equation, RoRPM = Return on Relationship (due to using of PM)

( EEc IEc ) = is the change in customer’s value-in-use.

EEc = (Customer revenue Proposed – Customer revenue Current).

IEc = (Customer costs Proposed – Customer costs Current).

Earned Intangible Value (EIV) = [ Change in Intangibles influenced by actions of project organization (I) – Planned Intangibles (PI) ]

or in a mathematical equation format:  EIV = ( I – PI )

We proposed that Earned Intangible Value (EIV) will occur from a number of areas with a positive or negative value due to actions of project organization (PO). Some of such areas are:

  1. Product / Service Design (Improved design compared to originally required, due to actions of PO will be expected to generate positive EIV)
  2. Management of resources and working within baselines of scope, time, and cost (Efficient/optimized management of resources and keeping things within baseline due to actions of PO will be expected to generate positive EIV)
  3. Efficient change management (Efficient change management that results in lessening change requests due to actions of PO will be expected to generate positive EIV)
  4. Efficient risk identification and management (Reduction in occurrence of risks and efficient handling of risks that have happened due to actions of PO will be expected to generate positive EIV)
  5. Optimum quality (Quality improvements made by proactive actions of PO will be expected to generate positive EIV)
  6. Customer responsiveness and stakeholder management (Positive customer experience and improved stakeholders’ management due to actions of PO will be expected to generate positive EIV)
  7. Effective Knowledge management (Effective knowledge management due to actions of PO will be expected to generate positive EIV).

Cc = Cost of customer’s relational investment

CPo = Cost of Project Organization’s relational investment

Simply put the RoR formula looks into how value is changed from current to a proposed state once parties come into the relationship. It also takes into account relational investment by both customers and project organization/ suppliers (Grönroos & Helle, 2012). The above RoR formula seems to provide a basic framework to extrapolate it to other contexts such as PM context.  It must, however, be noted that RoRPM formula is a proposed version that needs to be tested in a real-life project context to confirm and refine it further.

And beyond: The conceptual diagram of RoR progression

Having reviewed the foundation and measure of RoR concept, it is imperative to examine the correspondence between relationship intensity (triggered by interactions) and time to see how these two dimensions contribute towards RoR and what other things emerge from this correspondence. As such, we have proposed a two-dimensional conceptual diagram that encapsulates the progress of RoR overtime. The conceptual diagram draws upon the explanation of elements and triggers of RoR as explained in some of the earlier studies (e.g. Grönroos & Helle, 2012; Gummesson, 2004; Witell et al., 2020).

We argue that the relationship intensity progresses in four stages over time as shown in the diagram below. It is important to note that the Time dimension signifies accrued time, which means leap from one stage to the next stage is based on accrued interactions at the past stages.

Conclusion:
The expanded use of social media and other digital technologies have necessitated re-conceptualization and redefining the concept of value of relationship. In this regard, RoR is a useful concept that captures the joint gains realized by parties in a relationship. Just like a return on investment concept, RoR is also measurable by formula (Grönroos & Helle, 2012). While providing an overview of the concept and its measure, we have extended the concept by proposing a formula of RoR in PM context as well as a new conceptual model of RoR. The model encapsulates the increase in RoR due to interaction or relationship intensity overtime. Needless to mention that the proposed conceptual diagram can be further extended and tested by collecting some empirical data.

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References
Grönroos, C., & Helle, P. (2012). Return on relationships: conceptual understanding and measurement of mutual gains from relational business engagements. Journal of Business & Industrial Marketing.

Gummesson, E. (2004). Return on relationships (ROR): the value of relationship marketing and CRM in business-to-business contexts. Journal of business & industrial marketing.

Witell, L., Kowalkowski, C., Perks, H., Raddats, C., Schwabe, M., Benedettini, O., & Burton, J. (2020). Characterizing customer experience management in business markets. Journal of Business Research, 116, 420-430.

© 2020 Jiwat Ram, All Rights Reserved.

 

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Jiwat

Author of this post

Jiwat is a Professor in Project Management. He has considerable experience of working internationally in diverse cultures and business environments.

Jiwat is currently serving on the Editorial Board of International Journal of Project Management.

Jiwat actively contributes to project management community. His work has been published in top scientific journals and Four of his published papers have remained in Top25 most downloaded papers. Additionally, two of his papers have been ranked as the Most Cited article published since 2012. More recently, he has published a number of articles on some of the issues confronting project management in various industry based outlets.

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