June 25, 2009

Business Friendships

Properly managed and nurtured, friendships with colleagues and competitors can be good business.


The inescapable fact of the modern workplace: the more connected professionals are through off-hours events, e-mail and business travel, the more they must learn to manage the spillover into their work lives and their personal lives. But can friendships that start on the job become meaningful offsite friendships? And what does that mean for business?

“Sometimes people try very hard to draw a firm line between the people for whom they have genuine affection and those with whom they’re involved professionally,” Professor Paul Ingram says. “The economic aspect of the friendship undermines security in the social relationship,” he explains. “People wonder, would they be going to the ball game with me if we weren’t doing business? Do they care about me or is it reflecting some economic interest?” Others might worry — as might their employers — about a close friendship with a competitor engendering collusion or a conflict of interest.

But Ingram cautions against rejecting business friendships — relationships that have both economic and social implications — out of hand. Not only are such friendships likely to be rewarding for their own sake, they are likely to be good for business in all kinds of ways.

Ingram and PhD candidate Xi Zou examined the dynamics of business friendships to learn about how professionals successfully balance the dynamics of trust, loyalty, emotional connection and professionalism within the bounds of such relationships. The team looked at a large body of research (including some of their own studies) to assess the benefits and consequences of business friendships.

Perhaps not surprisingly, views on business friendships vary by culture. In China, professionals rely on their friendships to run firms, acknowledging that personal ties can help build trust and accountability into professional relationships. For example, finding that a colleague comes from the same village is viewed as evidence of reliability and trustworthiness.

Yet in some Western-style business settings, personal connections and friendships with colleagues and clients are downplayed or even shunned. In a study of friendship between competing hotel managers in Australia, conducted by Ingram, the manager of one hotel strongly denied being friends with the manager of a competing hotel. But the manager’s insistence was belied by a phone call he received during his conversation with Ingram. Once off the call, the manager happily shared the news that his competitor’s wife had given birth; to help celebrate, the men and some colleagues were meeting for drinks and cigars after work.

“The enthusiastic celebration of the birth of someone’s child is clearly an act of friendship,” Ingram says. “Yet this manager wouldn’t admit that he had any sort of personal relationship with the other manager.”

In the Australian study, the researchers found that certain friendships between managers at competing hotels were worth approximately $268,000 in 1998 U.S. dollars to each hotel. Ingram estimated that the industry-wide revenue attributable to business friendships would have been 15 percent, or $90 million. Importantly, he and his co-author found no evidence of price fixing or that there were any violations of antitrust law.

One manager told Ingram of a negotiation between himself, a tour operator and a manager from a different hotel that illustrates how the absence of business friendships can impact revenue. The operator conducted the negotiation for a large block of rooms with each hotel manager, simultaneously, with a telephone in each hand. He would take an offer from one manager, ask the other to beat it, and then repeat the process. The tour operator was effectively running an auction, playing the two managers off each other. “They realized what was happening of course,” says Ingram, “but had they been friends, one of them would have thought, we’re going to get driven down to our marginal cost, so I’ll stop participating in this negotiation and I’ll let my friend get the business with some profit and trust that he’ll return the favor to me in the future.”

The researchers also found that business friendships go through various phases as a person’s career advances. Early on, people usually have a larger social network with more connections to people both inside and outside their firm. Even when such relationships are not particularly strong, exposure to a variety of people can be invaluable in generating ideas and gaining perspective. “People engaged in these networks are often viewed as more creative and resourceful by their colleagues,” Ingram says. “Sometimes a big idea or an innovation that can change the trajectory of a company comes from combining evidence and ideas picked up from social relationships.” As one advances to more senior and executive roles, trust becomes a top priority and the size of the network decreases, but its cohesion and closeness increase.

Although business friendships can be stressful and difficult to manage, when acknowledged as a normal aspect of professional life, they can bring substantial career benefits. “Most people find jobs through colleagues and other professional connections,” Ingram says. Further, colleagues in the same organization who develop friendships with their structural peers — those who hold roughly equivalent positions in the hierarchy and who are often assumed to be competitors for promotion — were overwhelmingly more likely to identify each other mainly as sources of support rather than as potential rivals.

Ingram cautions that the benefits of business friendships be can only reaped when the friendship is genuine. “Without some element of trust and some element of liking you can’t be confident that someone would return a favor,” he says. “Just being in someone’s Rolodex isn’t enough.”

Nor should business friendships be taken for granted. “We live in a world where a social exchange can solve problems that can’t be solved in the arms-length world of formal contractual agreements,” Ingram says. “We have to systematically recognize and nurture these relationships.”

 

Paul Ingram is the Kravis Professor of Business in the Management Division at Columbia Business School.

Read the Research

Paul Ingram, Xi Zou

"Business friendships"

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