Evolving Workplaces: The Truth of Transactional RelationshipsSep 15, 2022
For a long time, which ever party has more power (money, influence, size), they are positioned to get the greatest value out of any type of engagement or exchange of value. This includes employee/employer relationships, business to customer relationships, and business to business or to vendor relationships. Although in my research much has been discussed in terms of shifting to a relational model versus a transactional model with customers particularly in the services arena, very little has addressed the area of employee and employer. Furthermore, I am not sure of the overall success in making this shift and trying to create more meaningful partnerships between businesses.
What we do know and what we have seen is transactions are inherently based upon self-serving interests which hinders the potential magnitude of the relationships rather than expanding it. Simply put, businesses have grown more complex than a simple exchange of value appropriate to a transactional relationship or business exchange. To respond to this challenge, contracts have become increasingly complex trying to outline the business relationship between two parties. As our interactions have become more complex – so have our agreements. We rarely “transact” one activity with our work then being completed.
Employee relationships with their employer are even more complex – employees have always had less power than the employer in the relationship. As a result, employers can take advantage of employees – and we see this where those at the top are making 10x what those in the workplace are making. When the balance becomes too tipped, employees feel the negative effects of this transaction.
I want to discuss the truth of transactions including how business exchanges work, examples of transactional relationships, what is causing a shift towards more transactional relationships, and what are the issues with transactional relationships. I hope to highlight some of the issues with transactional relationships, especially with employees, and why a shift to a relational or transformational relationship might create greater results for everyone.
How does a business exchange or transaction typically work?
Business models are based upon an exchange in value. One party provides something of value (product or service) to the other party in exchange for value (typically money). The relationship between the two parties is then characterized as a transaction.
A transaction represents an exchange of value and is typically based upon getting as much as one can in exchange for a set amount of work or item.
While there are cases where transactional relationships are not just needed but required, the vast majority of business today is conducted in a way that is hindered by a transactional approach.
What are some examples of transactional relationships?
As we consider transactional relationships, we are really looking at all the various relationships in business – with employees, customers, and vendors. Each is viewed as a separate party that is negotiating or choosing to exchange their products or services in exchange for value returned (money).
Transactional relationships are typically:
- Professional (v. friendly)
- Based on self-interest (v. mutual interest)
- Focused what you get (v. rather than give)
- Communicate by staying in touch (v. keep informed)
- Understand process (v. Understand person)
- Judge the results (v. Evaluate the relationship)
- Win conflict (v. resolve conflict)
- Agreement (vs. acceptance)
- Evaluate results (vs. Evaluate how the other feels about results)
Transactional relationships work well in situations where:
- The sale is targeted at a large group of customers or market
- Where there is a one-time engagement and then the relationship ends
- When you are selling a product that is purchased with no need of additional support
- Situations where there is no need for a defined contract or written relationship
- For example, restaurants, grocery stores, movie theaters, etc.
What is happening that is causing a shift?
People are moving into the biggest gig economy we’ve ever seen. With models like uber, DoorDash, fiverr and more popping up as ways to earn in exchange for services. Let’s take Fiverr in particular – if you go onto Fiverr, you can search for just about any service you want or need performed and buy it for a set price. These prices vary significantly based upon the type of service, where the provider is located (they are all over the world), and the skills needed. This creates an interesting challenge for employers. If a person can sell their skill set on their own, to do the activity an employer would normally pay them for – and they can do it for more money, more flexibility, and more life satisfaction – there is little to entice them back to an employer.
I believe this is where the vast majority of people who have entered the “great resignation” have gone. They are working – they are just not working the way they would have in the past.
Why did this shift happen?
I think people realized they were being treated transactionally by the employer to their employer’s benefit and decided they wanted more for themselves. Why be forced to come to an office, work long hours, etc., if you can do the same work on your own and keep more of the money? If people didn’t feel connected to the purpose and people of their workplace, why would they stay? Furthermore, I believe this shift is going to continue – only those workplaces who see the challenges with the transactional relationship with employees and customers and create a new approach will be able to entice them in the future.
What are some of the issues with a transactional relationship?
In any situation where one party has superiority over or power over another party, it creates challenges in the transactional relationship.
Problem: The more complex the relationship, the more difficult it is to create contracts to manage them.
Contracts exist to clarify terms between transactional parties in order to create clarity between the parties. When there is more complexity than a simple purchase (like buying a meal), agreements are created to clarify important elements of the arrangement. These agreements by creating clarity of what happens in various situations should increase satisfaction. But clarity of expectations in an unpredictable world is incredibly challenging and almost never can be accomplished at once in the beginning of a new relationship.
The more complex the value exchange – particularly in terms of professional services being provided, the more difficult the contract to is to draft. (It’s why historically professional services are billed at hourly rates rather than a defined scope). But people want to know what they are buying and see the value they are getting. As our businesses become more complex in terms of exchanging of ideas, innovation, and technology – these agreements become increasingly important.
I’ve even seen the pop up of value or results-based contracts – the vendor or provider gets paid based on the results of the customer. We must craft clarity in “how” we will operate more than in “what” will be delivered as the result or outcome often changes. How will the parties work together to define activities and determine value?
Regarding, employee relationships in particular, we’ve seen these become increasing complex in the past couple of years – what employees are expecting of their employers has shifted dramatically. They are now expecting social activism, a focus on the environment, and higher levels of employee support services to enhance their life not just their work experience. To date, most employees are at will (unless they are part of a union contract) as a result they don’t get to dictate the terms of what the culture or environment of their workplace will be – instead they must choose wisely. This is causing people to move jobs far more frequently than ever before – if the culture sucks, they won’t stick it out instead they will just look for somewhere better. Life is short, why waste it in a bad work environment. This gives employers little time to remedy issues before employees take action.
Problem: Transactions create liability, price, and quality issues.
Firstly, liability issues refer to who is responsible when something goes wrong. Probably not a surprise to most, but everyone is always trying to take the least amount of responsibility. When you don’t know how the arrangement will progress it’s hard to determine risk. Then, when there is a dispute, how will it be resolved?
Secondly, transactions cause price issues. Whoever needs the other party more determines the price. Trying to determine value is always a subjective and difficult task. Right now, we see this in even bigger terms with inflation – the prices of everyday items have skyrocketed – gas, groceries, and other necessities in response to market conditions. Look at the housing market, with demand high – houses are selling way above the value they would have held a few years ago. Particularly with employees, they almost always get bigger increases when they switch jobs and have little room to negotiate their value after being hired.
Lastly, there are quality issues with transactions. How is it decided what the quality result is when at the beginning rarely is all the information available? With the speed of change in technology, services, and business in general – everything is changing so fast knowing what is needed at the outset is more difficult than ever. Which means quality can be a challenge when limited to an initial budget, scope, or price. You learn a lot during a relationship that will impact what you will accept later on. For employees, it's hard to know what the culture will really be, what expectations will truly be from just a job description and interview, and ultimately the quality of the job.
Problem: Transactions ignore the value created before the relationship and initial exchange, and struggle to keep up with relationships that are on-going.
When we learn to accept money for something we do, we learn that the doing is the reason for the money. Meaning the action or activity itself. This discounts all that occurred to make it possible to do that activity well or provide that product successfully. The experience, skills, capabilities, and research that went into the creation of that exchange. E.g. Everyone can write but not everyone can write well.
Who we enter into agreements with will dramatically impact the outcome and satisfaction of the result. Same applies to employees – who they are will have a big impact on the value they bring. Which you can’t be sure of until you’ve worked with them. Ideally, we want to establish longer-term relationships, so we don’t have to keep guessing who to hire when we buy services or hire employees. We want employees to stay, recruiting and hiring is costly and difficult. But the problem is that the initial engagement if treated as a transaction often defines the balance of the relationship.
For example, when you hire services from someone or a business you must negotiate the terms of the contract, but the type of services, scope of services, and length of engagement may dramatically change the nature of the relationship down the line. Therefore, you are forced to negotiate a contract that may or may not take into consideration (likely not) all the changes that are likely to occur in the future. We also don’t want to be constantly negotiating contract agreements – I’ve done this, and I know from experience just about everyone hates it!
As another example, take employees. Employees get to negotiate when they are first hired – they can negotiate salary, benefits, job description etc. but after being hired they are essentially at the whim of the workplace. They rarely get a chance to negotiate again and never have that leverage back unless they threaten to leave with an alternative offer… what a terrible method for ensuring mutual satisfaction and mutually beneficial outcomes. Essentially employees are left with the only choice to be to vote (or choose) with their feet by leaving to a new employer. An arguable alternative is to form unions, which bring with them another set of challenges as well.
Both examples create challenges to establishing long-term, long-lasting relationships that generate positive results for both parties.
Wouldn’t it be nice if there was another way? We believe there is! By creating transformational relationships that are based upon shared agreements, we can create outcomes that optimize and advance the goals of all the parties. We acknowledge this model won’t work in all situations but for workplaces that are struggling to keep employees or develop lasting partnerships with customers and vendors – this model might be something to consider.
Check out the Evolving to Exceptional Podcast Episode that talks about this topic more in depth here!
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