Communication and relationship management

1 Introduction

Individuals rarely create value on their own: performance depends on relationships – with colleagues, managers, customers, suppliers and other stakeholders. This chapter covers:

• The communication process, and the many places where it can break down

• The direction and types of communication used in organisations

• Digital tools for communication and collaboration, and how to choose the right channel

• Barriers to communication

• The negotiation process, and strategies for negotiating (including distributive versus integrative approaches and BATNA)

• Sources and types of conflict, and strategies for managing it (the Thomas-Kilmann model)

• Ethics in communication and relationship management

• The relationships and communications of Chartered Management Accountants.

Building and leading teams – including the characteristics of high-performing teams and motivating team members – is covered in Chapter 6; leadership styles, including the leadership of virtual teams, are covered in Chapter 2.

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2 The communication process

Communication, both within an organisation and with outside parties such as suppliers, customers, government and investors, is obviously important: in particular it is required for planning, co-ordination and control. The communication pathway is more complex than you might think and you need to know what the steps are.

• First, the person who wants to do the communicating forms the thought.

• Then they encode it: they find a way of expressing it, for example in words, figures or a diagram.

• The message is transmitted through a channel: it could be face-to-face, a phone or video call, an email or a report.

• It has to be received by the recipient.

• The recipient has to decode it – to make sense of it.

• Often after it is decoded there will be some sort of feedback. Feedback could be an action, a nod of the head, or a question because the message has not been understood.

The important thing to realise is that communication can break down at any of these stages, and anything that interferes with successful communication is known as noise. If the thought was garbled to start with, you are lost. If it is not encoded properly – for example if it is written down in a confusing way – that will interfere with successful communication. Transmission can fail: emails go astray, calls drop out. Reception can be disturbed – literally by noise or by other distractions. Decoding fails when the recipient lacks the knowledge to interpret the message, or misunderstands it. Good communicators anticipate these failure points and design their message, channel and timing to minimise them.

Feedback matters because it is how the sender learns whether the message got through. A lecturer in a live class watches for nods and puzzled looks; a manager who emails an instruction should look for confirmation that it has been understood and acted upon.

3 Direction and types of communication

Communication within the organisation can be:

• Vertical – between subordinate and superior, in either direction.

• Horizontal – between people at the same level, often in different departments.

• Diagonal – when a subordinate in one department communicates with a superior in another department.

Communication can be formal or informal:

Sometimes informal communication is more suitable than formal (for example, a gentle reminder about inadequate performance); sometimes escalation is needed (a formal written warning). Often the two are used together: a presentation (informal in delivery) supported by a written pack containing the detail.

Communication can also be classified by its form:

• Written – vital where a large amount of information has to be provided (pension scheme rules, product specifications, budgets). Written communication provides a record and becomes a reference document that can be consulted later.

• Oral – expected where interactions are more personal and subjective, such as a staff appraisal. Oral communication can evolve into a discussion in which clarification can be requested immediately, objections aired and suggestions made.

• Graphical – graphs, diagrams, dashboards and charts provide data visualisation, which can make information easier to assimilate, reveal movements and relationships, and make the information more memorable.

• Non-verbal – body language, facial expression and tone of voice. Non-verbal signals are extremely important in any face-to-face communication: when appraising a staff member, a huge amount of information can be gathered by watching that person's reaction – surprise, anger, disappointment, tears.

Note that social media platforms have become important channels of communication between an organisation and its customers, and internal social tools play a similar role inside organisations – see the next section.

4 Digital tools for communication

Most organisational communication now travels through digital tools, and remote and hybrid working has made choosing and using them well a management skill in its own right. The main categories are:

These tools change the communication process in important ways:

• Speed and reach – a message can reach everyone, everywhere, instantly, and asynchronous tools (email, messaging, shared documents) let people in different time zones collaborate without being available at the same moment.

• A permanent record – conversations that would once have been oral and unrecorded are now written and searchable. That aids consistency and accountability, but means casual remarks persist.

• Loss of richness – face-to-face conversation is the richest channel: it carries words, tone, expression and body language, with instant feedback. Each step away from it – video call, phone call, message, email – strips out cues, so short written messages are easily misread as curt or hostile. The richer the channel, the better it handles sensitive, ambiguous or emotional matters; leaner written channels suit routine, factual traffic.

• Information overload and the 'always-on' culture – copy-everyone emails and constant notifications fragment attention, and the expectation of instant replies at all hours damages wellbeing. Good practice includes agreeing communication norms: which channel for what, expected response times, and respect for non-working hours.

Digital tools are what make virtual and hybrid teams possible, but they do not run themselves: leading a team through a screen requires deliberate effort to build trust and inclusion. The working mechanics of virtual and hybrid teams are covered in Chapter 6, and the leadership of virtual teams in Chapter 2.

5 Barriers to communication

It is important to understand what can act as a barrier to communication:

• Inappropriate language. Obviously this could mean speaking a foreign language to people who do not understand it, but in practice it is more likely to be using terminology which not everyone understands – accountants writing to clients about tax computations, doctors giving a condition its technical name and leaving the patient none the wiser.

• Status. Differences in status can interfere in two ways. The person at the top may not want to hear what people at the bottom are saying, perhaps not believing they have anything of value to say; and junior staff may be reluctant or frightened to communicate with senior people.

• Emotion. If you go into an appraisal review angry, worked up or frightened, the chances are that communication will not be successful: emotional people form their thoughts badly and take little in.

• Wrong medium. Giving employees a long lecture about the technicalities of their pension scheme will not work – there is too much detail to absorb orally. Presenting the information in written form, which can be studied and referred back to, is far better. (The reverse failure – handling a sensitive personal matter by email – is just as damaging.)

• Not wanting to transmit, and not wanting to receive. A manager may not want to point out shortcomings in a staff member's performance; the staff member may be unwilling to believe there is anything wrong with it.

• Information overload. A curse of the digital age – the 'copy everyone' email, the always-on group chat. Bombarded with information, we cannot see the wood for the trees, and there is a real danger of overlooking the few messages that really matter.

6 Negotiation

Negotiation is a particular form of communication. It can be defined as:

“A bargaining process between two or more parties, each with their own objectives, trying to find common ground that will be the basis of an agreement.”

For example:

• A supplier and customer negotiating prices

• A supplier and a customer negotiating compensation for poor or late products

• An employer and employee negotiating salary

• A company negotiating the takeover price of another business.

For negotiation to succeed, both parties must actually want an agreement to be reached and must be prepared to give some ground. The parties should aim for a 'win-win' outcome where each comes away with something they want.

6.1 Strategies for negotiation

Two broad strategies can be distinguished:

Preparation should also establish your BATNA – your Best Alternative To a Negotiated Agreement: what you will do if no deal is reached. A buyer with a credible alternative supplier has a strong BATNA and can walk away; a buyer with no alternative has a weak one and little bargaining power. Your BATNA sets the minimum you should accept – never agree to less than your best alternative – and estimating the other side's BATNA tells you how far they can be pushed.

6.2 The negotiation process

The following summarises how negotiations can proceed:

1. Prepare: work out the minimum you are prepared to accept (informed by your BATNA), and try to anticipate what the other party most wants.

2. Identify concessions that are cheap for you to give but valuable to the other party – these move the parties together quickly.

3. Make an opening statement setting out your ideal position; listen carefully as the other party states theirs.

4. Look for areas in common and emphasise those; park what is already agreed.

5. Ask questions to discover the other party's underlying interests and to see where compromise might be reached.

6. Counter blocking moves: if a sales representative says they have no authority to give a larger discount, ask them to contact someone who has.

7. Take a break from time to time to assess where you have got to and to reconsider where the win-win position might be.

8. If agreement is reached, summarise and confirm the positions – in writing, quickly, before recollections of the concessions given start to differ.

7 Conflicts in teams and organisations

Unfortunately, conflict often arises in groups, teams and committees. There can be many causes, such as:

• Different objectives – one manager wants to maximise revenue, another wants to maximise profit.

• Competition for resources – money, machine time, people's time.

• Personal animosity – sometimes people simply rub each other up the wrong way: a personality clash.

• Poorly designed rewards – reward systems which encourage one faction to win at the expense of another.

• Turf wars – disagreement about who is responsible for an area, a customer or a decision.

Conflict can also arise with parties outside the organisation, such as customers, suppliers, regulators and competitors.

Conflicts can be of two types:

• Constructive: the participants might argue and tussle, but the outcome is beneficial. Poor ideas get dropped, responsibilities are crystallised and a better allocation of resources is achieved.

• Destructive: the conflict causes harm to individuals and to the organisation. If destructive conflicts are not resolved, the work of the group is imperilled.

7.1 Strategies for managing conflict: the Thomas-Kilmann model

In 1974 Thomas and Kilmann introduced the Thomas-Kilmann Conflict Mode Instrument (TKI). The model uses two variables – assertiveness (how strongly you pursue your own concerns) and co-operativeness (how far you try to satisfy the other party's concerns) – to map five strategies for handling conflict:

• Avoiding (low assertiveness, low co-operativeness). Participants neither co-operate nor state what they want. The conflict festers and simmers and everyone hopes the problem will go away. This might be fine if the problem is trivial, but larger issues can burst out later with greater force.

• Competing (high assertiveness, low co-operativeness). Each participant is determined to win; whichever wins, the other loses. Sometimes necessary – in an emergency, or on a matter of principle – but usually damaging in the long term.

• Accommodating (low assertiveness, high co-operativeness). One party gives way relatively easily. The conflict ends, but the solution might not be a good one: if there are two legitimate points of view, the chosen course has not been properly challenged. For trivial issues, accommodation can be the cheapest way out.

• Compromising (moderate assertiveness, moderate co-operativeness). Each party gives way on some elements of what they want and a middle ground is found. Neither party is fully satisfied, and care is needed to ensure the middle-ground solution is internally consistent and viable.

• Collaborating (high assertiveness, high co-operativeness). The participants look for a win-win outcome: both sides of the conflict are examined and creative solutions are sought. Usually the best outcome, but it takes the most time and goodwill.

No single mode is always right: the skill is matching the strategy to the importance of the issue, the time available and the value of the relationship.

8 Ethics in communication and relationships

How leaders and finance professionals communicate, negotiate and handle conflict is an ethical matter, not just a technical one. Chartered Management Accountants are bound by the CIMA Code of Ethics, and its fundamental principles – integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour – apply directly to relationship management:

• Honest communication (integrity). Reports, forecasts and performance information must be complete and not misleading. Selective presentation – burying bad news, cherry-picking figures – is a communication failure and an ethical failure. Leaders set the 'tone from the top': if senior people shade the truth, everyone learns to.

• Ethical negotiation. Bargaining hard is legitimate; misrepresenting facts, bluffing about non-existent offers, or exploiting a counterparty's ignorance is not. Deals won by deception rarely survive, and the reputational damage outlasts any one agreement.

• Fair conflict handling (objectivity). Conflicts should be resolved on the merits of the issue, not by status, favouritism or intimidation. A leader who always 'competes' against subordinates teaches them to stop raising problems.

• Confidentiality on digital channels. Information acquired through work must not be disclosed without authority – and digital tools make accidental disclosure easy: the mis-addressed email, the over-shared document link, the sensitive matter discussed in a group chat. Channel choice is partly an ethical choice.

Ethical leadership more broadly – the leader's duties to staff and stakeholders, and the ethics of targets, rewards and monitoring – is covered with leadership styles in Chapter 2.

9 Communication and business relationships for Chartered Management Accountants

Good communication is essential for Chartered Management Accountants. Here are some of the areas where communication will be used:

• Negotiation: customers, suppliers, employees, bank managers, shareholders, collaborators.

• Reporting information: budgets, results, objectives, explanations – both internally and externally.

• Communication with employees: interviews, appraisals, disciplinary matters, training, conflict resolution.

• Communicating strategic plans: to managers, employees and suppliers of capital.

9.1 Relationships within the organisation

The finance function can be thought of as sitting at the middle of the organisation: not much goes on without some aspect of finance being involved. Typical interactions include:

Every one of these interactions is a relationship to be managed: the quality of the information finance provides, and the way it communicates it, determines how much influence finance has.

10 Test your knowledge

Two quick checks before you move on: run the flashcards to fix this chapter’s definitions and frameworks in mind, then attempt the ten objective questions to see whether you can apply them.