Analysis: The Key to Expedia's Success

Empathy—appreciating someone else's point of view—is as crucial to relations with suppliers as with customers and employees

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What we've learned from our research on the "Empathy Engine," a series of articles about how companies organize around empathy to create long-term value, is about the value of empathy in the business setting. We think of empathy as the ability to step into another's shoes and see and act on situations from another's point of view.

Typically, we think about empathy in terms of a company and its customers, or a company and its employees. But Expedia used empathy to think about its relationships with suppliers. It's unusual to have empathetic relationships with suppliers; for most companies, such relationships are built on contracts and service-level agreements. But we think is it's highly important to have long-term relationships with your business-to-business partners, given that they are responsible for so much of your business.

Clearly, Expedia was facing a difficult situation in 2005. It was dealing with a macro travel environment that was difficult for its business model, it was increasing its reach globally, and its relationships with suppliers were strained. What the company did to overcome these problems was to stay sharply focused on building relationships that created long-term value, both for Expedia and, hopefully, for its partners.

One thing Expedia did was think about matters from the supplier's point of view, recognizing that Expedia could deliver to its customers only by forming long-term relationships with suppliers—suppliers that would give it the inventory and the prices it wanted. The company did this, as Paul discusses, by moving from 15 Expedias to one Expedia.

Importance of a Name

Second, the company made an organizational change and formed Partner Services Group. By making such a formal change, which included giving up some profit-and-loss transparency, Expedia really made a statement about its commitment. Further, by naming the combined unit the Partner Services Group instead of the "suppliers" group, the company communicated a philosophy of how it wanted to work with its suppliers. Of course, all companies making a change like this should make sure to follow up such a philosophy with management practices.

In addition to looking at the situation from the supplier's point of view, Expedia looked at it from the employee's point of view. It recognized that some of its employees were nervous about this change and feared that centralization would take some flexibility away from them. So they went out and talked to the business owners, asking them about their concerns and discussing the changes with them. Companies that go outside the organization and talk about change are in a stronger position to drive behavioral change.

It will be interesting to see what Expedia and other companies do with new sources of information. I personally have seen companies work with their partners to create real innovations—innovations in business models that go beyond operational improvements, once they're willing to embrace the fact that they're partners.

If you're a company with a partner that a critical part of your supply chain or your value chain, it's important that you treat these partners empathetically—in a way that you would do with your own employees and as you strive to do with your own customers.

Traci Entel is a principal with Katzenbach Partners, a strategy and management consulting firm in New York. Read more about Entel's Empathy Engine research at www.empathyengine.com.