To Manage Costs, Manage Relationships

MAXWELL AIR FORCE BASE, AL, UNITED STATES

06.26.2017

Courtesy Story

U.S. Army Career Program 26

**By: Lt. Col. David Ratliff, Chief, DOD Strategic and Financial Management Environment, Defense Financial Management & Comptroller School, Ira C. Eaker Center for Professional Development, Maxwell AFB, Alabama**


** CP26’s are resource managers too. The article below gives an in-depth look at resource management. The article has been republished from Armed Forces Comptroller Spring 2016. Lt. Col. Ratliff served as an Assistant Professor of Economics at the United States Air Force Academy and most recently, completed his PhD in Economics at George Mason University. A native of Logan, Utah, he earned his commission through the Air Force Reserve Officer Training Corps at Utah State University in 2001. **

As a young lieutenant assigned as a deputy comptroller in a Theater Headquarters Special Operations Command (TSOC), I witnessed first-hand what I believe to be two crucial truths.

First, each of our Armed Services is the premier fighting force within its areas of specialty. Observing exercises, participating in planning meetings, sitting in staff reporting forums, and hearing first-hand experiences from some of our elite operators convinced me that the professional expertise, dedication and tactical proficiency of each service's cutting-edge forces are (at risk of understating it) amazing and awesome.

Second, from a cost management perspective, relationship management expertise is as crucial as tactical proficiency in order to achieve our objectives efficiently. Unhealthy relationships within and between organizations can be as costly to individuals and organizations as operational mission failure. Within the TSOC, I observed that individuals who were skilled in maintaining mutually pleasant and mutually beneficial relationships were generally happier, more productive, and usually got what they wanted. Others spent significantly more of their time fighting, manipulating and seeking to force their will on others by affecting channels of formal authority. Working conditions around these individuals were usually highly unpleasant, and accomplishing anything through them required a lot more effort.

We find examples of the astounding costs of unhealthy relationships everywhere around us. Consider the costs to our Services of programs specifically designed to combat unhealthy relationships. These programs include Sexual Assault Prevention and Response, Equal Employment Opportunity (EEO) and others. While these programs make progress toward combating the results of bad relationships, they would be irrelevant if our relationship environment organically prevented such misconduct. Aside from obvious misconduct, consider the cost of replacing irrepressibly disgruntled employees, or sometimes worse, dealing with them on a day-to-day basis. The annual cost of processing and resolving EEO cases (many of which are caused by poor communication between management and employees) across the federal government is high, in terms of both time and money. Consider the cost of deadlock in Congress or stalemates in support agreements with host countries. At all levels, and across all agencies, we suffer additional costs due to unhealthy relationships.

In economics, we sometimes relate relationship costs with transactions costs, such as search and negotiation costs, or contracting, property transfer and enforcement. In general, the healthier a relationship is, the lower its associated transactions costs. Thus, suppliers seek repeat buyers, businesses conduct customer satisfaction surveys, and international trading partners receive Most Favored Nation status. Interestingly, each of us naturally pursues relationships that are less costly and more beneficial. We all have our own personal rolodex of go-to guys and favorite points of contact for getting things done across our various scopes of responsibility.

Just as appropriate investments in physical capital can decrease the marginal costs of production, investments in relationship improvement can increase the balance of organizational capital and promote more efficient transactions.

Conversely, unhealthy relationships increase the cost of every transaction. When we don't trust a contractor to deliver quality goods on time, we monitor them more closely. As an auditor on one of our significant overseas contracts, one of my friends discovered a contractor had been "changing" the oil in base generators by updating the maintenance logs, but not the oil. This deceit created a lack of trust between the contractor and the government and meant every future audit had to be conducted in significantly greater detail. These additional enforcement costs increased the overall cost of the transaction and diverted resources which would otherwise have been available to positively impact one or more other activities.

When individuals don't trust their organization or co-workers to protect them or their interests, processes become laborious, cumbersome and unproductive. Some years ago, when working to implement the Defense Travel System (DTS) at one of my duty locations, the project became very difficult when two of the agencies within the command were not willing to relinquish any element of control over their existing paper orders approval process. This conflict eventually became so heated and explosive that our supporting headquarters withdrew DTS support from us until our command resolved our differences. Our inability to manage our relationships had become costly to our headquarters as well, and it was unwilling to bear that cost.

These few experiences provide specific examples of increased costs due to unhealthy relationships. Generally, individuals with unhealthy relationships seek to protect themselves by implementing protective controls, influencing through coercion and eliminating potentially beneficial associations. It is easy to see how these efforts increase transactions costs. For example:

* Protective controls--consider the additional costs to all employees of stricter base access procedures whenever the threat of terrorist activity increases.

* Coercive influence--employees who are motivated solely via contractual obligation require more direction than those who act independently because of a personal intersection of interest with the organizational mission.

* Isolation--when one country imposes a trade embargo on another, both countries suffer from the loss in gains from trade.

Once you start to look for them, these costs pop up all over the place. Recognizing the status of relationships as an important cost driver provides the motivation to improve relationships. Not only are healthy relationships more pleasant, improving relationships decreases all associated transactions and operating costs.

The quality revolution, led by Edwards Deming, Joseph Juran, Philip Crosby, and Armand Feigenbaum, taught us that high quality and low cost come from good processes. Leading thinkers in economics, such as Douglas North, Oliver Williamson, Daron Acemoglu and Edward Glaeser, taught us that institutions that govern our relationships largely determine our level of productivity. As members of the resource management community, we must recognize the asset value of high quality and low cost relationships. Additionally, we should consider how our institutions and processes affect those relationships.

Just as we seek to increase efficiency through implementation of technology solutions, investment in physical capital or overall personnel development, we can also seek ways to invest in relationship capital. Regardless of our position and level of authority, each of us can examine the quality and cost of our key individual and agency relationships and consider ways to improve them. In cases of very high cost and low quality (such as active conflict or toxic relationships), external intervention or consulting may be important to resolve underlying issues. In some cases isolation may be the best remedy. We frequently require training to learn how to use our assets. Perhaps we need to consider relationship training, too.

Many of our leaders actively work to improve the relationships among personnel and our agencies. Some encourage us to read articles and books about leadership and management. As one example, our current Air Force Air Education and Training Command Comptroller, Col. Richard Fogg (USAF), recommended his staff to read The Speed of Trust--a Covey publication that discusses how to develop trust and its implications on organizational costs. As another example, the professional functional managers for the Defense Financial Management and Comptroller School (DFM&CS) agreed DFM&CS should include instructional blocks about resolving conflict, effective communication and familiarization with personality literature. Steps like these encourage individuals to foster more healthy relationships, acknowledge and capitalize on complementary differences in skill sets and preferences, and decrease organizational costs from distrust and conflict.

While we must recognize these steps require effort and planning, and their accomplishment requires resources, these costs may represent investment in improved relationships which can pay significant dividends. One comptroller I worked with organized an office retreat for a few days where we all cooperatively developed an organizational strategic plan. It was challenging. It required each of us to stretch and compromise, to listen to each other's desires and ideas. The result was very positive. This exercise improved our intra-office relationships, helped us focus our efforts on our highest priorities, and ensured a strong intersection of interest between each individual and our office goals. We had suffered from toxic relationships, but this effort significantly improved our office morale and performance and improved our ability to efficiently meet the needs of our customers.

Learning to engineer and conduct healthier relationships among individuals and organizations may have as much impact on our operating costs as increasing our technical proficiency. Each of us can improve the performance of our offices and agencies by considering how to eliminate or mitigate the effects of unhealthy relationships while seeking to enrich healthy ones. If we truly seek to manage our costs, we must effectively manage all of our assets, and that includes learning to manage relationships.

• Date Taken: 06.26.2017
• Date Posted: 06.26.2017 11:55
• Story ID: 239176
• Location: MAXWELL AIR FORCE BASE, AL, US
• Hometown: MAXWELL AIR FORCE BASE, AL, US