Large, complex contract relationships are notoriously difficult to predict successful outcomes on. Many will make it through to a successful conclusion, some will fail spectacularly, and others will quietly underachieve. In this article we examine the smart way to use Input, output and Outcome specifications to get the most from your suppliers.
A common influencer across all of these relationships is the strength of communication between the parties throughout the procurement process – where even small misunderstandings have the capacity to subsequently escalate into huge challenges during project delivery.
Clarity is traditionally considered to be the primary defensive weapon in any client’s armoury. However, it is how this clarity is applied that can mean the difference between constricting your suppliers and therefore causing issues that you’ll ultimately be responsible for, or freeing them up to be the professionals, giving you the fit-for-purpose advice you selected them for in the first place.
It is also worth noting that clarity is relative – what may be clear as a bell to you (your having a detailed understanding of your operating environment) may be an ambiguous mess of confusion for your supplier. Establishing a common language and checking that the supplier doesn’t just ‘hear’ but fully understands what you’re conveying, are vital steps along the less-trodden path to success.
Project Specifications – their purpose and potential
The requirements (or ‘specifications’) you create for and with your suppliers will guide your relationship with them. If you are looking to build truly collaborative and/or long-term partnerships, then the level of clarity you offer in your requirements and specifications is important, as it will also form the foundation of their view of your expectations of them.
While it’s true, in most cases, that clarity works for you, it’s also true that too much detail at the project specification stage can work against you. It is important to allow your supplier the room to apply their own professional expertise to the relationship, without the restriction of too many instructions on how they should deliver for you.
The purpose of a good specification for a complex project and/or strategic supplier relationship is twofold:
- To quantify your business outcomes, why those outcomes are critical to you, what improvements in your current operating state are required, how much improvement is expected and over what time scale. In this way, a good specification (a) allows the supplier to really understand the needs you have and why, thus helping them to provide you with best advice as to how any proposed solution will help you achieve your business outcomes in the shortest appropriate time, and (b) expressly defines the supplier’s role for strategic and ‘expert’ input, holding them contractually to account for the fitness for purpose of their proposed solution to you. Separately, it provides a clearer articulation of your expectations in order to measure milestones, the achievement of quality standards and ultimately whether the relationship has been a success or failure.
- To accurately and effectively communicate what you want your supplier to do, to achieve and to provide in order to achieve those outcomes.
Traditionally, some clients have inadvertently taken on the role of the ‘expert’, developing detailed specifications for suppliers to follow to the letter. Where the relationship is more ‘transactional’ and you are effectively buying ‘tools’ that you already know how to use and how you will benefit from them, this is fine.
However, where you are uncertain of the different services/tools available and how they might apply to improving your operating effectiveness, the evolution of suppliers into niche specialists means that, on many complex projects, it is now far more beneficial to allow them a well-deserved seat at the strategic table. This allows them to give you strategic advice as to how the use of their proposed solutions will support you in meeting your business outcomes, at the earliest opportunity.
The difference between Input, Output and Outcome Specifications
A simple way to think of the fundamental difference between these three specification types is that they answer the questions ‘how’, ‘what’ and ‘why’ respectively.
How: Traditional specifications fall under this category as they explain in great detail how a client expects their supplier to achieve their goals – identifying clear technical standards to be met, accompanied by detailed plans, drawings, blueprints, projections, bills of quantities and so forth.
- Pros – Clarity in the extreme. Suppliers or contractors provided with such detailed specifications will undoubtedly do their best to meet the standards and milestones required of them where physically possible, i.e., you’ll probably get what you’ve asked for, depending on the ability of your supplier.
- Cons – However, is what you’ve asked for what you really need? The problem with being too dictatorial in your specifications is that it stifles your supplier’s (if they have specialist) expertise as well as their creativity and innovation.
Your suppliers were selected for their specific knowledge, and while you may have a great deal of in-house knowhow, they may have greater practical experience in particular areas of your project and should therefore be allowed to contribute to the development of the specification.
In essence, freeing your supplier to offer their opinion on how they should go about delivering on your expectations could mean them identifying better, simpler ways of achieving the outcomes you are after.
They may also be able to identify more clearly whether what you’ve asked for is achievable and suitable for your needs. It’s worth noting that having an Input specification, subject to how it was constructed, may mean you take full responsibility for the fitness for purpose of the solution delivered.
What: An output-orientated specification steps back from the detail of how a client expects a supplier to achieve their goals, and provides them with what the output is expected to be from the solution the supplier is proposing to be delivered. This gives suppliers the freedom to assist their client in developing the best route to the specified end result. Output specifications do not need to be any less informative or detailed, they simply take a different approach.
- Pros – Innovation is encouraged to flourish and niche expertise is released to create more efficient solutions and added value. The responsibility for success of the solution has now shifted to sit squarely on the supplier’s shoulders.
- Cons – Clients will need to relinquish more control than they may be comfortable with, trusting in the ability of their supplier to achieve their end goals by whatever route they consider most appropriate.
Output specifications provided in multi-sourcing supplier relationships do not shift nearly as much responsibility to the suppliers as in single supplier relationships. In these circumstances, because the success of one supplier may be tied up in the achievement of another, it can be difficult to determine who was ‘most’ at fault should things go wrong, meaning the buck ultimately stops with the client trying to disentangle where the responsibility for the problem lies.
Why: Explaining why you are looking to undertake a project – the purpose of the product or service supplied – is never, on its own, going to be enough. However, it adds important context to requirements or a specification and should be included, even if your project best suits an Input or Output specification.
While clients are often adept at communicating the inputs and outputs, we have found that many struggle to quantify expected outcomes and often leave it to chance that whatever they buy will achieve or support the organisation to achieve those outcomes.
When you are reliant on the expertise of a strategic supplier, it is the context of the outcome, and the context of the objectives, that need to be expressly worded so the supplier knows how to put together the right inputs and outputs.
When you are utilising the services of a managed/outsourced service provider you can contract for quantified outcomes. When you are purchasing a project/product, you can contract for the tool that allows you, the client, to achieve those outcomes.
- Pros – Supplier has a better understanding of what you are trying to achieve and takes on a greater proportion of the responsibility.
- Cons – It’s often hard to step away from focusing too much on the inputs and outputs and to properly quantify what the expected outcomes are.
Real world input, output and outcome specifications example for context
So, how do input, output and outcome specifications look in the real world? A simple example would be the instruction of a construction firm to build a bridge.
- An Input specification would talk about the materials that would be used, their depth and consistency, the volume of asphalt required, the British Standards regulations for these materials and the methods of preparing the surfaces along with a detailed bill of quantities, plans and schedule.
- An Output specification would describe what you want – a bridge that has a hard surface, which is 2m wide and has a warranty of workmanship and materials.
- An Outcome specification, on the other hand, would simply explain why you are commissioning this project in the first place. You want to provide the shortest and most convenient means of pedestrian access from the main road to the entrance of an office block which would allow 500 pedestrians to use it simultaneously between the hours of 06:00 to 19:00 on working days.
The importance of responsibility demarcation
Robust contractual obligations and duties will need to be established from the outset to ensure that the expected end results are achieved, no matter which specification type you decide to go with. However, one very important consideration between them, as already mentioned earlier in this article, is where responsibility for the success of a project lies.
Input specifications, those with more explanations as to how a supplier or suppliers should go about their role, will ensure that responsibility gravitates towards a client. Output and outcome orientated specifications, that rely on suppliers’ expert advice more heavily, will swing the weight of responsibility towards them.
Which specification type works best for your relationship?
The fifty million dollar (convert for local currency) question therefore is, what should you do? The answer, rather irritatingly is that there is no simple answer.
The client needs to be clear on where his or her own expertise lie, and be comfortable with contractual responsibilities.
Rolls Royce, for instance, may purchase a spare part for one of their jet engines using an input specification. They have invested huge amounts of money in R&D and they are best suited to know what will, and will not, work for them. If, on the other hand, the client has no expertise in what they are purchasing, such as an outsourced payroll service, but all they know is the outcomes they are trying to achieve – then an outcome specification is for them.
To get the most from your suppliers it’s important to know when to encourage innovation, commitment and engagement, how to maximise your exploitation of their specialist skill set and when to provide a more intricate client-side specification.