The complexity of strategic partnerships can be such that when one side finds itself unable to deliver on expected milestones, even the most minor concerns have the capacity to snowball into project-threatening issues if left unchecked.
Don’t remain in the dark; while these may be just empty worries, they could be signs of a developing misalignment in expectations and results between partners. Ultimately, when you become aware of a provider’s performance shortcomings, it’s often the case that it too is already aware of these issues. And the provider is usually equally unhappy.
Whether it is the shortcomings themselves, or the discovery that the provider is delivering services outside the scope of the original agreement (to try to help its client overcome some key delivery barriers), it is often at the expense of the provider being under-remunerated for over-delivering in some areas, and their client being unsettled at what it sees as paying for underperformance in others.
Identifying the appropriate insights
You will have heard us talk often of the Intelligent Client function (ICF) team and the direct cash benefits a skilled and appropriately resourced team can quickly bring to the relationship. It is (or should be) one of the duties of your ICF team to keep their ear to the ground, using both formal and informal mechanisms. This means they will not only be on top of performance issues, but can identify their real underlying causes and work with the provider to help mobilise (a) remedying the issues and (b) put processes in place to help prevent similar issues from occurring in the future.
Negotiation skills are another key attribute that your ICF team must have as one of its staple capabilities. The right process for negotiations is a mechanism that is open to both sides in the relationship so the best results and outcomes can be achieved for all concerned. There can often be concerns, because it is sometimes the case that a mid-contract renegotiation may strike fear into both sides as its underlying cause could be due to a failure on someone’s part.
However, the reason for renegotiation should really be understood by both parties as being that “now both parties have better experience of working together, it’s time to reassess expectations, outcomes and how the services along with the KPIs can be better aligned to further improve the benefits both parties can achieve from this relationship”.
As part of this process, you should be clear on redefining roles and responsibilities. Your ICF team is one that should maintain a clear appreciation for the strengths and weaknesses of all parties within the relationship and to what degree the relationship and its projects are up against the milestone schedule. If your governance process is aligned correctly, then the longer you work with a strategic partner, the better you understand both them and the nuances of the relationship, and the easier it can be to efficiently reallocate resources and time where it is needed and stimulate innovation to increase the value you both receive.
Clarity of purpose, quantification of objectives and unambiguous communication is, therefore, paramount if both partners are to benefit, and to ensure that the distractions of any short-term misalignment have little impact while the pitfalls of longer term discord are avoided. Equally important is having the proper personnel to not only identify if and why underperformance is occurring, but whether better outcomes are possible and how to go about achieving them.
Communication should be continuous and ongoing – not only between both parties, but within them as well, so that each organisation can understand its role in the strategic relationship by knowing its partner’s objectives in conjunction with their own.
Do you know what you want from your existing relationship?
It is essential to know from the very beginning exactly what outcomes you hope to achieve from the outsourcing process, and the quantified objectives that will direct your journey. Establishing an ICF team that, in addition to defining your short-term objectives, is capable of reassessing goals and responsibilities on a regular basis – preferably at least once every six months – is an important part of ensuring that your contract evolves with your relationship. As an outsourced supplier relationship ages, projections established at the outset will always need to be adapted to reflect the reality and opportunities available. To ensure that shortcomings are recognised and rectified, or to achieve best value, organisational and/or financial goals may need redefining.
The goals, or the playing field, will have changed over time. Therefore, your expectations probably have too, and you need to repeat the same steps you took at the outset of your relationship: appraise and prioritise, knowing in certain and quantifiable terms what you want to gain from your outsourced relationship, now. Doing this will make it all the easier to clearly explain the benefits of reprioritising goals and expectations with your service partner. Applying the right governance and process will help to ensure these negotiations go well. They should build on and strengthen your relationship as you focus on jointly achieving your goals. Conversely, tactless implementation of lagging or misaligned outcomes will certainly be met with defensiveness.
Negotiating an appropriate path with your vendor
Whether consciously or unconsciously, parties in a negotiation tend to be influenced by their alternatives to an agreement. Better alternatives (e.g. for a client: there are other suppliers, lower costs and so forth) allow them to push for a more favourable agreement, whereas worse alternatives (e.g. other suppliers are known to be unreliable) force them to be more accommodating to a less favourable one.
An analysis of these alternatives, known as BATNA (Best Alternative to a Negotiated Agreement) and WATNA (Worst Alternative to a Negotiated Agreement), enables one or both parties to improve their negotiation strategy and make significant gains, both during the negotiation and during the ensuing agreement’s lifetime. In the short term, they avoid negotiating on the basis of unrealistic or poorly conceived ideas, and in the long term, they avoid scope creep, miscommunication, and uncertain outcomes.
In the analysis, ‘win’ (BATNA) and ‘lose’ (WATNA) scenarios are given for each material alternative, along with the likelihood of each scenario. Thus, whichever path is subsequently chosen, the decision is made with a more complete understanding of the likelihood of the desired outcome.
While the terms BATNA and WATNA imply that the concept’s usefulness is limited to negotiations, this type of analysis has value in any decision-making situation where there are multiple paths one can take towards a solution or where one wants to know if a certain course of action has better alternatives. The particular strength of BATNA/WATNA analysis is that, when done properly, less popular alternatives have an equal opportunity to be considered, opening the door for innovative alternatives and solutions that may initially seem to be of less value, but prove to be a better move in the long run.
For example, dissatisfaction with an underperforming contract is not reason enough to jump straight in and confront a service partner, even when you feel it would make business sense to do so because you are looking for an improvement in service. BATNA/WATNA analysis could reveal an array of reasons why deferring action is the best alternative:
Your own team could be unintentionally contributing to the problem.
Playing the blame game could permanently damage the relationship, and the trust you have built up with your vendor takes minutes to destroy but years to build.
Interfering now without a clear understanding and evidence of the cause may harm present service levels.
You may weaken your contractual position should the relationship become irreconcilable later on.
In spite of these potential issues, you could still decide that the benefits of confronting your vendor outweigh the risks, but you would be doing so with full awareness of the probable outcomes of each decision you make. At the very least you will have a clear picture of your interests and their values; ideally, you will know when to step in and when to let your service partner do their job.
5 key insights to drive best value
While strong leadership at the top underpins the success of any organisation, putting the right people in place to directly collaborate and negotiate with your supplier is essential to the success of many a project. A strong ICF team should be able to answer and address all of these questions at any point within the relationship:
- Are results falling short of expectations? If so, then why?
- If not, can I still drive better value out of my strategic partnership?
- How does this relate to and affect my long-term organisational objectives?
- What can my organisation do to get better results and help the vendor innovate?
- What can my vendor do to help innovate in the service delivery process?
We’ve said it many times before because it bears repeating: your ICF team is one of the most important keys to a sustainable outsourced supplier partnership. As the closest connection you’ll have to your service provider, they are your eyes and ears on the pulse of the relationship. They should keep you abreast of developments before anyone else knows about them, and when there is a service delivery issue they will be the first to know and first to find and implement a solution – if you have equipped them with the talent and resources to do so.
Your ICF team’s primary outward facing job is to build and maintain trust, and at times where this may be tested, such as mid-term negotiations, they play a vital role:
1. Can you trust your vendor? The first step to protecting trust that has evolved between you or to strengthening trust that has waned, is to believe in the trustworthiness of your strategic partner. Your ICF team will have the knowledge you will need to determine this. What have your suppliers done right, where have they strayed from the mission, what are their aspirations and expectations of you? All should be known by a skilled ICF team.
2. Have you done anything to damage their trust in you? Trust is a two-way street. If you have, through your action or inaction, implied a lack of trust in your supplier this could well influence how they approach a renegotiation with you. As strategic overseers, your ICF team may well have views or perspectives on this and they should be listened to.
3. Clarity is the key to positive action. Declare your outcomes for the renegotiation clearly and concisely. Ambiguity breeds fear and leaves the door open for error. Trust does not come from vague expectations and ill-conceived plans.
4. Monitor to maintain. Commercial trust is important; commercial trust coupled with a comprehensive oversight plan of action is even better. Don’t just explain what you want and walk away. Work with your supplier to make it happen, meet regularly, both formally and informally, ensure that ICF team members meet with other project personnel to assess whether your own teams and those of the vendor are following the new plans, strategies and guidelines. Keep these meetings open and above board or the wrong perception of these discussions could damage the all-important trust you have worked so hard to build.
5. Developing the right environment for innovation. Commercial trust and reward help to create the right environment for encouraging innovation, and the more innovation you are able to draw from your supplier the better value you will achieve from your relationship.
These five insights will assist a well-structured ICF team to drive much better value in the relationship. The ICF team in any event is usually (or should be) your best tool for ironing out any creases in your relationship before they have a chance to leave a mark.
When you want to get the most value out of your external service partnership, the onus should fall on the ICF to achieve it. But in fairness, you need to give them the skills, the funding, and the freedom (to make good decisions as well as not having their heads cut off when they make bad ones when attempting to try new innovations) to do so.
With the right personnel and ongoing training, they can do that and more – they will build commercial trust, drive innovation, and ensure that your outsourced relationship creates the outcomes either visualised at the outset or changed by agreement through the life of the relationship.