Certainty2

Achieving certainty: How to create a culture for collaboration by Andy Akrouche

The sole purpose for creating a contract is to establish a path of certainty that will guarantee a successful outcome.  In short, if I do “A” and you do “B” we should achieve “C”.

Unfortunately, there is no such thing as absolute certainty in the real world.  As a result, even a well crafted contract with clearly defined terms and conditions will fail if it does not accommodate the need to adapt to the inevitable changes that occur over the life of the agreement.

When I talk about changes and adaptability, I am not referring to compliance relating to the terms of the contract itself.  What I am talking about is the practicality of recognizing and responding to external factors that were not identified in the original contract, and therefore fall outside of the framework of the existing agreement.

Once again, and using my long journey analogy, you may have chosen a particular route to get from one place to another based upon known factors such as distance and time.  In this regard, you anticipate the length of time you will be on the road, and at what points you will have to stop along the way to refuel.

But what happens if during the actual journey you encounter bad weather or discover that the route you had originally planned to take has an unexpected detour or, you experience car trouble.  What do you do?

You adapt.

For example, with bad weather, you will likely delay your journey and spend time at a rest stop along the way until it blows over.  This may mean that you will take longer than expected to arrive at your destination but, you will ultimately arrive safe and sound.

Seems simple enough.  Even though you did not expect to encounter bad weather when it hit, rather than pushing through with potentially dire consequences in an effort to adhere to the “original” plan, you adapted to a new reality or set of circumstances.

This demonstrates both experience and maturity.

Within the context of a contract, there is usually little if any room for such flexibility.  This is because we are locked into its terms, even if said terms do not reflect the unexpected events of the real world.  In those instances where one party is late on a deliverable due to unforeseen circumstances, they are more likely to be penalized, even if said delay benefits the entire project in the long run.

As a result, using contracts to manage relationships does not reflect relational maturity.

What Is Relational Maturity?

Relational maturity in its most basic form is present when there is a desire on the part of all stakeholders to participate as productive and useful partners in a long term arrangement.  However, this desire needs to be accompanied by the establishment of a solid management structure created within a truly collaborative organizational culture.

In other words, and rather than employing a top down command and control model of management in which there are thick layers of oversight centered around compliance management in relation to contract enforcement, the relationally mature organization takes a different approach.  This includes recognizing and responding to change from the standpoint of achieving the best outcome, even if said change means expanding upon the original engagement parameters.

With the relationally mature organization, such expansions or adjustments are not undertaken through an onerous change management process.  Nor are there risks of a partner being penalized for acknowledging unanticipated issues.

Instead, a relationally mature organization having established the necessary systems and processes to facilitate the collaborative approach to problem solving, are able to proactively manage change while keeping the desired outcome clearly in site.  Similar to Jim Collins’ autopsies with blame approach, which he identified as being one of the key differentiators with the companies who have made the transition from good to great, the relationally mature organization seeks solutions as opposed to either assigning blame or enforcing adherence to terms and conditions that are no longer relevant.

To get to this point of productive partnering or relational maturity, a new model of engagement is needed.

Maturity

The New Model For Achieving Certainty

The relational model to which I have referred throughout this series is centered around a core concept of establishing a charter that becomes the strategic and operational framework for the relationship.

It represents a departure from how we have traditionally viewed relationship sourcing and management, which in the past has been based primarily upon a contract compliance or enforcement mechanism .

While changing a company’s culture is not an easy task, it is nonetheless essential for success.  This means that the internal organization (Program Owner), as well as the partner or partners service capabilities need to be properly aligned and enabled for the joint relationship structure to work.  By this I mean that on one hand, a mechanism is needed to translate business objectives and priorities into performance goals for the relationship.  On the other hand, there is the need to support and process relationship requirements and take the necessary measures to enable them.

The basic internal organizational framework needed for effective relationship delivery management involves establishing and operationalizing the following management structures:

  • Relationship Approval and Review Board – (RARB) – An executive committee representing lines of business, procurement, delivery, finance and legal responsible for achieving corporate objectives through strategic relationships.
  • Relationship and Delivery Management function (RDM)– an organization reporting to the RARB responsible for the administration of the relational approach including, but not limited to, standards, coaching, joint governance secretariat, change management, relationships budgeting process, operational reviews and relationships portfolio management.

 

Even though complex business arrangements are by definition intricate and diverse, beyond this basic management structure, success is ultimately based on people.  More to the point, people working together to achieve a mutually beneficial goal within an operational framework of shared values and open dialogue.  As such, becoming relationally mature is a journey that requires the presence of the following key elements:

Leadership – recognition at the executive table that delivery models of today rely on partner capabilities, which include a high degree of agility and responsiveness that can only be achieved through adaptive relationships as opposed to transactions or deals.

Business operations – proactive implementation of the model, which includes the institution of the RARB, RDM and the Relational Governance structures referenced in both this as well as previous posts.

Education – continuous education programs for individuals involved both directly and indirectly with the initiative to ensure that the structures and processes to facilitate the creation of high performing relationships are understood.

Incentives – establishing incentive based HR programs to promote collaborative behavior within the organization and across all participating organizations.

Communication – relentless communication program supported by strong and continuous messaging from the top.

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Converting knowledge into sustainable action by Andy Akrouche

I recently came across an interesting article which talked about the fact that businesses spend far more time and money on training programs that do not ultimately “deliver, develop or demonstrate long-term results.”

The article then went on to say that “to make new behaviors sustaining,” you have to “translate knowledge into committed action.”   In short, if there is truly to be an investment payback, training “must endure beyond a moment in time insight,” and “inspire and empower ongoing action through practical application.”

The above sums up perfectly the enduring principles behind the creation and operationalization of the Relationship Charter.

As a key tenet of the Relationship-based Model (Relational Model), the Relationship Charter  provides a collaborative framework that defines the relationship, its method of planning, implementing and operational management activities.  At its core, it is a living document.

The focus of this third post in the Are You Ready To Become Relational series will provide you with the tools to both establish and operationalize your Relationship Charter.

Establishing the Relationship Charter foundation for success

When I talk about establishing the Relationship Charter, I am referring to its development and finalization.

Establishing the charter is reflective of a collaborative process in which this foundation for the post- contract award relationship is co-developed during the procurement or sourcing stage of a complex acquisition.  Specifically, once a short list of vendors has been established they would, as part of the proposal submission and evaluation phase, be provided with a charter straw model template that reflects relational principles, values, joint governance, and open book framework.

The information that is gained from the template’s completion will serve as a means of soliciting initial partner input as well as determining the relational fit between a prospective vendor and the buying organization.

This is a critical element of the complex acquisition process in that it will either confirm the relational compatibility between the buyer and vendor or, identify potential areas of possible disconnect that require further clarification and a corrective course of action.

Once the areas of disconnect are addressed, and a partner is selected, the cooperative charter development process is then transitioned to the negotiation phase.  It is at this next stage, that a joint collaborative engagement is undertaken to complete or finalize the charter’s components and operational management structures, taking into account stakeholder capacities and abilities.

For many, the proactive and forward looking identification of potential issues that can negatively impact the success of the initiative in a truly probative manner, is both new and somewhat revolutionary.  However, and once again calling upon the “long Journey” analogy I had used in a previous post, while it is important to make certain that your car is in tip top shape before you take to the road, thereby reducing the risk of a breakdown, you also need a contingency capability should something unexpected happen.

In this context, the charter template exercise serves two important purposes; 1) to make certain that you select the right partner based on what you know today and, 2) to make sure you have the right partner in terms of their ability to work collaboratively with you to adapt to an unforeseen situation that neither buyer or vendor could have reasonably anticipated.

Operationalizing the Relationship Charter

When I talk about Operationalizing, what I am really referring to is bringing the charter itself to life through a broader engagement of all stakeholders.  This includes everyone who will be involved in the management and operational processes associated with the initiative both from a big picture as well as daily standpoint.  To be clear, “operationalization” is the step that transforms the Relationship Charter from being a paper model to one that orchestrates a series of coordinated human interactions that are channeled towards achieving relationship objectives.

Generally speaking, the operationalization process involves three major steps:

Orientation – introduce stakeholder  teams and all those who are affected by the relationship, to the relationship based model, including: defining the relationship, charter components, and how to work in teams. This usually involves team exercises in charter development, team relationships strengthening and working collaboratively;

Joint Workshops –  understand, internalize and further refine the charter components including mission, vision, values, goals, joint governance primary and tertiary structures, and the financial management framework.  Strategic and operational planning teams and processes are “kicked-off” at this stage.

Validation and Learning –summarize the results of the operationalization process as a means of verifying learning, commitments and collaborative behaviours.  This step also involves lessons learned sessions, as well as improvement plan design for future implementations.

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Notwithstanding the above, and referencing my first “Are You Ready To Become Relational?” post, I had indicated that everyone’s model contains some relational elements.  In other words, we all need to manage a relationship or relationships regardless of the original framework through which the participating stakeholders came together and the corresponding objectives established.

This being said, whether your present model is transactional, performance-based or a derivative of the two, you need to operationalize your relationships using the same steps I have outlined above, especially within the context of your present deal or transaction.

As previously stressed it is obviously more advantageous to establish the Relationship Charter through the planning and procurement or sourcing stage.  However, if you are working with an existing contract, operationalization becomes even more critical.  My experience over the past 20 years has clearly demonstrated that the failure to operationalize a relationship, will almost always lead to an adversarial culture that will manifest itself in one form or another between the buyer and vendor(s).  This will ultimately result in what I have commonly referred to as being the contract divide, in which individual stakeholders begin focusing on a self-serving agenda.

In my next and final post in this series, I will talk about the steps you will have to take to ensure that your organization is ready to be part of a collaborative relationship.

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How Do You Source A High Performing Business Relationship? by Andy Akrouche

Now that we have in my previous post, identified what a high performance relationship actually is, the next question is how do you find one?  Or perhaps the better word would be “establish” one?

“The contract must become a platform to manage inevitable change, not pursue certainty based on the original deal.” – Ian Mack. Director General Major Project Delivery (Land & Sea), Canadian Department of National Defence

The “Relational” Ties That Bind

Establishing a collaborative high performing relationship requires a different sourcing process, as one cannot use the prescriptive or familiar procurement mechanisms to source a dynamic business relationship.

This becomes particularly important as it relates to Futuresourcing projects.

With Futuresourcing projects, where neither the client nor the vendor has constructed, built or delivered the required capability, past work experience cannot be solely relied upon or used as a selection criteria.

In sourcing dynamic relationships, a closer examination of the vendor’s strategy and core capabilities are paramount to determining the likelihood of the ultimate success of the relationship.

In this context, all projects should be viewed with this fresh look of uncertainty, especially given the fact that the vast majority have failed to deliver the expected results.

Beyond these needed checks and balances, the sourcing process about which I will be talking today, advocates an intense industry analysis and engagement before and during the actual procurement, as well as post procurement.  This sourcing process also involves the application of advanced analytical tools to objectively assess and evaluate the fit between a vendor’s strategy, core capabilities and the initiative’s strategic objectives in relation to the expected outcome.

With high performing relationships, collaboration is born out of common purpose and intent, and must therefore be a product of strategic fit.  The advanced analytical tools associated with my SRS relational model are used to determine the veracity of the “strategic fit” between the client and vendor.  This “fit” as I call it is critical for establishing the framework for the Relationship Charter about which I will be talking at great length in an upcoming post.

I think that it is important to note at this point that irrespective of where you presently are in terms of your current contract management lifecycle, it is never too late to introduce the relationship-based model.  That being said, the sooner in your process that the model is used, the more effective your relationship management framework interms of achieving all the benefits delivered by the relational model.

business teamwork - business men making a puzzle

Within the context of the above, the following 4-Step process will enable you to reliably source and establish high performing relationships.

Step 1 – Creating the BRF Framework

In 2003, and based on our team’s extensive experience to that point in time, we established Benefits Realization Factors (BRF®) as a means of defining the variables or key factors that must be enabled to achieve success relative to the expected outcome.

Not to be confused with Key Performance Indicators (KPIs), which need to be defined jointly with your selected partner at a later stage, a BRF® to a procurement initiative outcome is much like a Critical Success Factor (CSF) to project management and risk factor in risk management.

It is a factor without which the desired benefits associated with an acquisition or delivery cannot be harvested.  In this context I am certain that almost all procurement professionals can recall at least one initiative where despite the success of one or two success factors the expected outcome in terms of the overall initiative was never realized.

Step 2 – Industry Analysis

I have often been asked about the advanced analytical tools that I have used to understand an industry and assess the strategic fit between potential partners.

The fundamental idea behind the use of these tools is to introduce Competitive Analysis and Competitive Intelligence gathering  within a procurement framework prior to the actual procurement itself.  These tools ultimately  enhance both the insight and the understanding of specific industries and organizations within those industries, as it relates to identifying the critical points of strategic fit relative to achieving an expected or desired outcome.

In essence, and as an initial step, by understanding an industry as opposed to an individual company, you will be in a better position to compare all competitive bidder capabilities by a single standard that truly aligns with your contracting goals.

Or to put it another way, to really understand individual company capabilities you must first understand what their specific industry is doing as a whole.  This is of course where the importance of strategic grouping comes into play.

A strategic group is a concept used in strategic management that groups companies within an industry that have similar business models or similar combinations of strategies.

My Strategic Group Analysis (SGA) aims to identify organizations with similar strategic characteristics, following similar strategies, or competing on a somewhat similar basis.

The Industry Analysis phase will also provide added insight needed in your procurement strategy, enabling you to determine if your expected outcomes and BRFs can be achieved.

This second step establishes the preliminary alignment between your objectives and industry capabilities, that will enable you to intelligently engage the targeted industry.

Step 3 – Strategy and Industry Engagement

One of the critical issues engulfing the procurement regimes particularly in the public sector, is what is referred to as industry engagement.  For many years the government had simply relied on defining their requirements and then taking them to market in the hope that a vendor, any vendor would be able to step forward and deliver to contract specifications.

The problem with this approach is that it abdicates buyer responsibility in terms of the successful delivery of the required product or service.   In essence the government would ask for “A” and then rely on imposing legal terminology and financial penalties as a means of enforcing the desired outcome.

History has clearly demonstrated that this approach in both the public and private sectors has failed to produce successful outcomes.

With Steps 1 and 2, we have addressed this issue.

Based on your newly gained insight of the industry, rather than raising the defined requirement flag in the hope that a vendor – any vendor, will salute it, you are now able to develop a strategy that focuses on two key elements.

The first being the Business arrangement framework which includes a description of your strategic objectives, and the resulting alignment with target industry capabilities.  From this, the profile for an ideal business arrangement that encompasses the actual relationship itself, as well as the corresponding service and financial management framework will emerge.

Once you know what you require in a high performing relationship partner or partners, the second element, which  is a description of the procurement process itself, can be mapped out and acted upon.

It is important to note that this initial connecting point with the target industry, is part of a ongoing engagement process that will continue to provide intelligence to what will become the joint governance team, throughout the duration of the relationship.  I will talk about joint governance in greater detail in my next post when I review the process to “operationalize” the Relationship Charter.

In the meantime, we are now ready to move on to the fourth and final step in sourcing a high performing relationship.

Step 4 – Vendor Selection

In sourcing high performing relationships, vendor selection is based primarily on the following four components:

  1. A business proposal that describes the general approach and strategy for meeting known deliverables and immediate or short term goals along, with any technical, HR and management plans that may be required in the immediate future as seen and determined by the bidder;
  2. Strategic Fit Assessment – As mentioned earlier in this post, this is a process that uses advanced analytical tools to objectively quantify the fit between a corporate strategy and core capabilities, with BRFs. The assessment output is what we call a Relationship Certainty Score and is carried out by an independent team of qualified professionals and academic personnel in strategy, finance and business operations.
  3. Relationship charter components and Joint Governance team qualifications. The Relationship Charter (components of which are covered in prior posts, and will be revisited in my next post on Operationalizing the Relationship Charter) is introduced as a Straw model template format during the procurement process. Finalized at the negotiation phase of the procurement – it is one of the few things that will require phase based negation in the relational approach.
  4. Open book Framework, which is the financial evaluation of vendors proposed financial terms and management metrics. As I mentioned in a previous post, the OBF is a pricing model based on actual cost accounting with dynamic constructs and incentives depending on the type of activities involved during the relationship lifecycle.
  5. Last but not least, and before any transition can take place, operationalizing the relationship charter is critical as it empowers stakeholders to work in teams as a cohesive single unit. This collaborative cohesion is at the heart of any high performing strategic relationship, and it is the Charter platform that provides the parties with the ability to effectively and successfully address problem areas as they arise, as opposed to being avoided.  This Charter platform also provides the insight into the relationship elements that enable the delivery of improved outcomes and, the intelligence across the value chain to better leverage change as a strategic advantage as opposed to being viewed as an undesired and unanticipated risk.  As a result, there will be a resiliency to the relationship in times of inevitable change that will ensure an effective shared response, and ultimately a successful outcome.

As previously indicated, in the next post I will go into greater detail regarding how to operationalize the Relationship Charter.  However, the key take away from today’s post can be found in the following response from a senior private sector executive when he was asked why relationship-based models work:

Successful private sector organizations attribute their success to close customer intimacy where they learn and work with their clients to produce the next generation products and services – the Relationship based model is the systematic approach that delivers customer intimacy”.

Register for our next Seminar – November 18 – 19, 2014 Toronto, Ontario

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What Is A High Performing Business Relationship? by Andy Akrouche

In my previous post Are You Ready To Become Relational, I talked about the need to move beyond the semantical definition of a business relationship to a state of relational readiness.  Specifically, positioning your organization to look outside of the narrowly defined and largely ineffective performance-based contracting model, to an adaptive relational framework that is focused on improving outcomes.

A critical element of this transition begins with the recognition that both objectives and stakeholder capabilities can and frequently do change from the point of initial engagement.  Recognizing the inevitability of change in complex business relationships is the first step.  Next, you must create a framework for managing these changes within the context of both existing as well as new relationships.

This is the point of relational readiness towards which organizations must work.

In doing so, there are three distinct areas of focus.  Today we will discuss the first; defining the high performance business relationship.

A general understanding of the relationship-based model from the standpoint of not only its differences from transactional or performance-based models, but the benefits that can be derived from it in terms of improved outcomes. This includes an understanding of the needed organizational structure, process and behavioural changes associated with being a participant in high performing relationship.

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First let’s get the myth out of the “relational” terminology.

Relational contract theory has been around for a long time. It simply means that the whole agreement is not necessarily within the four corners of the contract.   Almost all complex contracts contain this type of provision giving the ability to do amendments via a prescribed change order process.   In this sense everyone’s model is relational.

So on one extreme you have models that promote spending tremendous amounts of energy to define some sort of an end state, create work statements and metrics that presumably would achieve that end state, then source a vendor that can deliver that state.  I often refer to those as transaction oriented performance based models.  Now those deals also contain relationships and have relationship management frameworks .  However, the relationship management function exist mostly to materialize the deal based on an initial set of assumptions and parameters.  In other words, the relationship management function is really no more than another approach to enforce compliance so as to achieve a predetermined state.

Procurement is easy in this type of model.  Vendor selection is based on technical capability and capacity to deliver a known end state (product or service)  and a fixed definition of value (financial or otherwise) as perceived at the time of the transaction.

Needless to say, this approach usually falls short in terms of meeting stakeholder expectations. We have already seen the consequences of these types of arrangements, particularly when they span decades.  The greatest challenge is that no amount of time and expertise expended by executives, lawyers, financial modellers, program managers or procurement people can create certainty over the long life of a contract.

A relationship-based model lies exactly on the other side of this spectrum.  In this model, the relationship is embodied in what we call the SRS Relationship Charter.  The Charter, which provides the operational framework for a joint organizational entity, is centered around a clearly defined mission that includes the relationship’s purpose, values, supporting processes, and people.

It is through this integrated joint entity that the generation of deliverables, the development and continuous alignment of the relationship’s strategic plan, product/service delivery and performance is managed.  It is important to note that when I refer to delivery and performance management, I am not talking about vendor performance, but relationship performance.  This is an important distinction because while the word relationship is frequently bandied about, it is usually within the context of a traditional performance-based contract.

With the relationship-based model, the process for selecting a strategic partner or partners is different.  It is based on what I call a strategic fit assessment and financial pricing model.  Of course the pricing model to which I am referring is different from that with which most are likely familiar in that it is centered on dynamic cost-objects, as opposed to a predefined set of items that define value at a certain point in time.

Recognizing and being able to adapt and leverage the inevitability of change as a strategic advantage, is one of the key benefits of the relationship-based model.  This is because the relationship-based model proactively channels stakeholder energies towards continuously improving the definition of the outcome and the related technical processes that ultimately generates the deliverables.  In this regard, it is a dynamic and continuous process for planning, implementing, measuring, learning and problem solving.  It is also from within this type of framework, that high performing relationships ultimately grow.

For those who have had the opportunity to read my book, you will know that a high performing relationship is one that exhibits the following business process traits or elements:

  • Act of Relating – Connecting and linking in a naturally, complementary way. This is where strategic fit assessment is paramount, including the alignment of strategic direction and capabilities within the context of  strategic program objectives;
  • Mutuality - Sharing the same or similar views, ethics, outputs, each to the other;
  • Respect – Recognizing and considering each other’s needs, requirements, contributions, abilities, qualities and achievements;
  • Innovation – Use of combined strengths and synergies to gain insight and deliver improved outcomes;
  • Continuous Alignment – Commitment to making the necessary adjustments to minimize risk, optimize or improve  the outcomes and maximize the realization of benefits for all stakeholders;
  • Empowerment – Introducing joint integrated management structures and processes to gain needed insight to manage risk and for managing the relationship at the strategic, tactical and operational levels.

Understanding these elements, it becomes clear that high performing relationships are all about creating high performing teams.  As the inexhaustible number of case studies and reference materials over the years have demonstrated, no amount of contractual structuring based upon a traditional procurement process can accomplish this objective.

Success with this new paradigm rests in our ability to change our familiar yet ineffective approach to sourcing and managing relationships.  This includes focusing on ways to create a culture of organizational trust and collaboration, particularly within the public sector.  Specifically, the need to see contracts beyond a “one off” deal or transaction based upon a specified need at a single, static point in time.

This of course requires a cultural change within an organization in which stakeholder teams as I call them, share a common purpose that are driven by an ongoing alignment of capabilities.

Towards this end, there is a need to redefine the organization’s internal vendor management and contract compliance protocols, as well as risk management oversight, before a true transformation to a high performing relationship model can occur.  In short you have to stop managing vendors and start managing relationships based upon a culture of collaboration and trust.

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Are You Ready To Become Relational by Andy Akrouche

Over the past couple of years there has been a notable shift in the area of complex business arrangements including outsourcing,  public-public and public-private partnerships centered around the importance of relationships.  Specifically the recognition that effectively managing the “relationship” between all stakeholders is the single most critical element of a successful initiative.

Even industry associations and practitioners of transformational and vested outsourcing are now talking about “relational importance” as they transition their models towards what I call a relationship first approach.

So what does it mean to be truly relational?

Before I answer that question, let’s quickly identify what it isn’t?

To start, terms such as win-win and the mere acknowledgement that relationships are important is not enough.  The reason is that recognition without meaningful action is nothing more than wrapping the old adversarial model in shiny paper and putting a bow on it.

Unfortunately, this repackaging exercise has been repeated far too often because it is much easier to add a new label to an existing model, than it is to actually make the necessary changes to being relational – especially within the public sector.   The reason is that becoming relational means that you will almost always have to facilitate a cultural change within the organization from the top down. 

For many the prospects of a cultural change is a daunting, even fearful exercise.  This is because it forces us to shift from a familiar performance-based model that is structured around an adherence to the inflexible terms and conditions associated with a static outcome.

The main problem is that the real-world does not operate within the narrowly defined conditions of a contract – no matter how well it is structured.

Initiative goals can and do change, and with it the capabilities of key stakeholders to fulfill their established role.  This means that rather than attempting to enforce compliance to a rigid set of performance requirements based on a single point in time objective, one must be able to adapt to the reality of inevitable change.

The recognition and subsequent ability to adapt to changing goals and stakeholder capabilities, is the true definition of a relational arrangement.

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To reach this point of relational readiness, it is important to build awareness and capacity within the buying organization.  This “education process” as I will call it, must target all levels of the organization from senior executives to those who are managing the day to day activities. Therefore, the focus of this program should include:

  1. A general understanding of the relationship based model from the standpoint of not only its differences from transactional or performance-based models, but the benefits that can be derived from it in terms of improved outcomes. This includes an understanding of the needed organizational structure, process and behavioural changes associated with being a participant in high performing relationship.
  2. A guideline for how to plan and source a relationship, as opposed to a transaction or one-time negotiated deal including; i) How to define the attributes of the required relationship, ii) How to objectively select vendor(s) based on those attributes in a manner that satisfies the tendering process, and iii) How to build a Relationship Charter during the procurement process.
  3. A process to “operationalize” the Relationship Charter so that it is transformed from a well-intentioned paper model, to one in which it defines the way that stakeholders actually work together towards achieving a mutually beneficial improved outcome.
  4. The mechanism to organize, tool and manage the partner relationships management function within the organisation.

In subsequent posts, I will examine more closely each of the above elements in greater detail.

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Performance-based contracting and the road less traveled by Andy Akrouche

According to a World Bank report titled Performance-Based Contracting for Health Services in Developing Countries: A Toolkit, performance-based contracting is a type of contracting with;

  1. a clear set of objectives and indicators,
  2. systematic efforts to collect data on the progress of the selected indicators, and
  3. consequences, either rewards or sanctions for the contractor, that are based on performance.

Given the above, performance-based contracting seems to be fairly straight forward.

Unfortunately the world is anything but straight forward in terms of variables that can and do effect the original criteria upon which a performance-based contract is structured.  In short, there are natural changes in buyer requirements and supplier capabilities that occur over the life of a contract that cannot be anticipated from the outset.  This includes political, economic, social, technological and environmental changes.  As a result, what were once a clear and useful set of objectives, is no longer applicable in terms of achieving the desired relationship outcome.

Like the analogy of the fruit from the poisonous tree, when objectives and corresponding capabilities inevitably change, both the data collection framework and the criteria upon which the rewards and sanctions are determined, are no longer relevant.

The main question then becomes how do you manage this unknown yet expected change?

Traditionally, the approach in terms of measuring post-execution contract performance is usually centered around the enforcement of the original contract terms and conditions.  In other words, the contract itself becomes the driving force behind the attainment of buyer objectives and supplier responsibilities.  This is similar to encountering an unexpected roadblock on a long journey that you had previously mapped out.  Instead of looking for an alternative route you insist upon driving through the barricades.  You ultimately know that you are not going to go too far, no matter how much you insist that you must stick to the original route.

This insistence that you “stick with the original plan” – or in the case of performance-based contracting – the original terms and conditions of the contract, is the reason why so many relationships fail to deliver the desired outcomes.  Yet we insist upon trying to manage the barricade as opposed to forging a new and better route, because we have not structured the agreement and more specifically stakeholder relationships, around a collaborative approach to inevitable change.

In essence we have drawn a line in the sand that attempts to enforce a rigid set of original performance criteria that is more reflective of a penny wise and pound foolish mindset.  Or to put it another way, we place a greater emphasis on how we do something as opposed to how we can actual get there.

What we really need to do, is to recognize the fact that in order to be effective, a contract is a living document, and must therefore be flexible in its anticipation of the inevitable barricades that will come in the form of unanticipated change.  As a result, we must establish an entirely new set of criteria that focuses upon the ability to respond to change, regardless of whether said change takes the form of a buyer’s shift in needs or the supply base capabilities.

For example, what if the vehicle that you selected for the original journey is no longer suited to the terrain that you will have to take as a result of the roadblock?

Keeping in mind once again that neither you nor the supplier could have anticipated the fact that the original route will no longer work, or that a change in way or vehicle would be needed.  Do you still hold the supplier responsible for this?  Do you indicate that by taking the contract it is the supplier’s sole responsibility to address the roadblock, and penalize them for any possible delays?

This is the flaw in how performance-based contracting is implemented.  Specifically the inherent inflexibility that first seeks to hold the supplier accountable to a rigid set of criteria, as opposed to seeking a mutually beneficial alternative solution.

It is what I call the fork in the relationship road, because it forces the supplier to create a separate agenda that singularly reacts to challenges as opposed to jointly managing them with the buyer.  Similar to a disgruntled passenger in the back seat fuming that their journey has been delayed or forced to take a road less travelled the buyer, by contractual choice mind you, is in effect no longer in the driver’s seat as a co-pilot.

Like the Plexiglas partition in a taxi, a wall of limiting communication goes up, preventing the necessary collaboration that would lead to an arrival at a shared destination.

So what is the alternative?

Relational contracting.

In terms of complex, long-term relationships, performance-based contracting will only be able to produce positive outcomes or results within the context of a relational model.

This is due to the fact that with the relational model, the emphasis becomes one of sourcing and managing relationships with vendors versus a prescribed set of performance statements of work.  The end result is that a strategic fit between all stakeholders is maintained and aligned with the relationship’s original goals.

At the heart of the relational model, is the Relationship Charter.

The Charter is the business arrangement framework within which contractual elements and metrics such as deliverables, incentives, timelines, financial obligations and service quality are jointly managed, measured and evolved.  The Relationship Charter shifts the focus from one of adherence to a static set of vendor criteria within the confines of a single transaction, to one that places greater emphasis on ongoing collaborative problem solving.  This means that there is a framework for the adjustment and alignment of capabilities involving all stakeholders, that reflect the real-world changes that have an impact on the ultimate success of an initiative.

In short, with relational contracting, it is not how you get there, but that you get there.

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Andy Banner2

FrontLine Defence Magazine Special

Andy Banner

Click magazine cover to access article . . .

“To be truly successful, the Defence Analytics Institute or DAI has to take the program beyond itself to deliver results” – Andy Akrouche

Editor’s Note: Defence spending is a hot topic lately on both sides of the Atlantic, as government’s are challenging Defence Departments to do a better job in terms of procurement. In this special article for FrontLine Defence Magazine, I provide my perspective on the Canadian Government’s efforts to better manage Defence spending through the formation of the new Defence Analytics Institute.

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