When Tom Muccio, the father of the legendary P&G / Walmart relationship, spoke at our last GAM Summit at St.Gallen University, everyone in the audience agreed that even after 30 years, this case is still the benchmark in global B2B practice. Responding to the many requests from our Valuecreator Community, we reached out to Tom and asked him to share some of the secrets which helped to build this role-model relationship. In the following article, we summarize his key insights and draw conclusions for companies who want to achieve Level 5 relationships too.
Q: What was the turning point which made P&G realize that the relationship with Walmart needed to change?
A: Admittedly, this insight did not come overnight. In 1986, our business with Walmart was already in the range of $350 million per year. So, all seemed to be on the right track. But our market analysis revealed that we were tough to do business with. Furthermore, we learned that although our sales were growing with Walmart because of Walmart’s growth, our market share with them too low in comparison to our national market share. We also had little knowledge of what’s going on within Walmart and the retail environment in general. Another eye-opening moment was when we compared the Walmart relationship to large markets like Japan. Both businesses had about the same size. But while we covered Japan with 200+ employees, Walmart had only 13 employees assigned to them. This insight was quite a shocking surprise, which sparked much internal discussion, as it reflected our strong brand focus and a lack of the same type of customer focus. To grow our business with Walmart further, we concluded that we needed to invest in a new coverage model significantly.
Q: What exactly did you do differently? And what were the results over time?
A: Well, it all started with placing a team of 20+ people with different backgrounds full-time at the customer headquarters. At first, our management was concerned that these employees would become Walmart employees. But this did not happen at all. We also involved our Product Managers closer in the dialogue with the customer and agreed on additional, fully dedicated Walmart analysts. Over time, the P& team for Walmart grew to 400+ people globally, with a substantial increase in number on the customer’s side. And our business progressed too, from initially $350 million to approximately $13 billion in peak times. In fiscal year 2017, the relationship is still roughly $10 billion, as also disclosed in P&G’s annual report.
Q: Analyzing the journey from a Triple Fit Canvas perspective, which were the hurdles you were facing, and how did you overcome them?
A: In the early years of our new coverage model, we started at a shallow position. In the context of the Triple Fit Canvas, we were at an overall Level 1 to Level 2. While our activities in the solutions, people, and relationships fields were a bit more developed, we did not know much each other’s strategies, processes, or systems, nor were they aligned. Also, our structures were not matching the customer’s needs well. Furthermore, communication was adversarial and limited to a transactional buyer-seller level. In sum, most of the hurdles were internal and home-made. We didn’t handle customer requirements flexible and fast enough or coordinate our efforts across multiple divisions well enough.
The journey of the P&G/WM relationship
But over time, we could change our approach from an only product-centric to both a product and a customer-centric one. Three key measures helped us here: First, we agreed that both sides would focus more on a joint learning and understanding process. Of course, endorsement by senior management helped. But the proof came only via hands-on projects like, for example, assisting Walmart to launch its first Superstores or set up operations in China. Second, we started running the new coverage approach on an 18-months rolling zero-budget basis. This action helped us to break the ice and create the internal acceptance, as everyone wanted to join the growing success movement. And third, we aligned the initially separate rewards and incentives systems to joint KPI’s and even produced an annual report of the overall relationship. Some customer executives were regularly using this report as an essential part of their performance reviews.
Q: Building a high-value relationship takes a lot of effort over a long time. How did you ensure that everyone stayed the course? And where does the relationship stand today?
At peak times, we enjoyed a very close and trustful collaboration with Walmart, which corresponds to the Triple Fit Level 5. During my time as leader of P&G global customer teams, we always tried to ensure that both sides were living up to the principle of “co-determination”. In other words, no party would take a decision that could harm the other’s position without prior consultation of the partner. A case in point were the notorious “Dear vendor…” letters, which we quickly eliminated, as they did not make sense in a Level 5 relationship anymore. Another principle was to advise the customer on the best product portfolio neutrally and not just to hard-sell our products. As a result, we often ended up advising Walmart on how to deal with other suppliers in the best possible way. Sometimes, this was not beneficial to us but created a massive basis of trust. And lastly, we paid great attention to the principle of equality in our team culture. Irrespective of the hierarchy, all members of the team had the same small offices, and the corner offices were turned into meeting rooms. Such symbolic measures reinforced the teamwork culture and were also in line with the way Walmart’s culture worked. Today, the relationship is somewhat at a Level 3 to Level 4 but with a positive outlook. The reason for this was simply the increasing pressure from each side that, if not addressed, will weaken the relationship and have it slide back from the peak. Also, there have been changes in the levels of the people leading the relationship on both sides. Combined with increasing business pressure, this has led to more independent decisions in each company rather than the joint focus on issues that was the hallmark of the original team.
Q: What would be your advice to other companies, who would also like to build Level 5 relationships?
A: First, create a total business view by analyzing the situation with practical tools like the Triple Fit Canvas. Although this may not feel like an exact science, ensure first of all that both sides understand each other’s perceived reality and agree to a consensus view. Then, focus on the most critical issues and define a realistic, broader joint vision, and clear goals and objectives. Second, understand the internal politics. Find on both sides those stakeholders who will support your case as it will also advance their career. Then, identify and realize low hanging fruits to achieve quick wins and prove your case. Don’t expect miracles, but plan for the long game by helping each other like, for example, training key people regularly or sharing helpful information on compensation systems. And third, foster a mindset of strategic alignment at both parties. Start by asking the question: “If we were one company, how would we go to market differently?” and listen carefully to the responses. Implement these insights for your strategic relationship, and then replicate the approach for others too. At P&G, we eventually ended up with a dozen Level 5 relationships and a much-improved working process with the rest of our customers.
Thank you very much for your insights, Tom!