“By moving away from each department independently managing these activities, there are opportunities to drive economies of scale, achieve savings for taxpayers and improve services,” the budget reads. “Moving forward, the government will explore further whole-of-government approaches to reduce costs in the area of procurement of end-user devices and associated support services.”
The above is an excerpt from a April 5th article by Jordan Press (Federal IT agency tasked with hardware procurement duties) in which the writer reported on the government’s decision to mandate Shared Services Canada with the task of procuring end-use hardware and software for “workers in the 43 federal agencies is serves, along with a handful of parliamentary watchdogs and other federal agencies.” In total, 106 federal organizations’ IT spend will be managed by SSC.
In and of itself this isn’t really news. In fact anyone who has been actively involved in and with the public sector will likely tell you that the government’s decision to transfer IT acquisition responsibility to the SSC as opposed to creating a new agency to buy hardware was a when as opposed to an if scenario. Besides being the defacto ICT Agency for the Federal Government, putting IT purchasing under the SSC immediately presents the opportunity to move away from centralized procurement vehicles such as Standing Offers which, over the years, has proven to be ineffective on many levels.
For example under the old standing offer model, departments were usually forced to do their own sourcing of hardware and support services. For the vendors who went through an at times lengthy and costly process just to make the list, revenue opportunities were limited to localized relationships that rarely justified the effort in terms of financial return and business growth. In other words standing offers were little more than bulletin boards for unrealized opportunities for vendors, while splintering the supply stream for the government into an at times unmanageable spend morass.
In this regard I have to tip my hat to Mr. Flaherty, in that this decision has finally laid the foundation for getting the job done right!
All this being said I think it is important to recognize right off the bat that when it comes to hardware, you are for all intents and purposes acquiring a fully managed service. After all no one really buys hardware anymore do they? This lesson was learned by the BC government who, in outsourcing all of their end user computing services to IBM, concluded that it is better to approach IT acquisition from the standpoint of it being a service rather than a purchase of hard assets.
Within this context, the real question becomes one of support. How do you support departmental needs through the provision of a fully managed service to enable the introduction of new applications and support more sophisticated end user expectations?
In an attempt to both understand and address this question, the majority of federal government departments as well as agencies like CIOB, PWGSC and the DND have expended considerable cycles doing everything from analyzing countless studies from firms such as Gartner, to engaging consulting firms – including ours – in an effort to get a handle on driving innovation and savings with the intended outcome being improved productivity. Once again, with the decision to move the IT acquisition function to the SSC, it appears that a major obstacle to achieving these objectives has been removed.
However, and as promising as the news is, for the government to harvest the benefits of this move there must also be a change in how technology is viewed. Specifically, there must be a concentrated and deliberate transition towards a more agile and dynamic user environment. In other words, and looking beyond what will likely be a significant human resource transformation, the government must see their IT agenda as an exercise in building and managing relationships.
In 2002, I personally lead a team of IT and procurement specialists from both the public and the private sector in which we worked together to establish a relational governance structure for the Province of Ontario. The success of the program speaks for itself, as do the results of a benchmark study conducted by the CRA a year after they adopted the same model.
There is of course no reason why the present day government cannot realize similar results as it relates to savings (the CRA program for example showed at 25% reduction in acquisition costs), as well as dramatically improved productivity levels across the board.
It is with this firm understanding of the potential benefits associated with the recent decision that the following questions have to be asked (and answered);
- Is SSC going to outsource the service, and if so what model of outsourcing should they use? We know that the traditional models have proven to be ineffective.
- How will the SSC address the challenges associated with the aggregation of demand that has traditionally led to a shrinking supply base? Historically, aggregation has almost always led to diminished competition and escalating costs. What is the strategy here?
- As opposed to protecting SMEs, how do we facilitate or stimulate SME participation and growth as an important partner in the transition to a more agile and dynamic user environment. After all, Initiatives like this should not be done at the expense of SME sustainability and development – if we do we all lose in the end.
Focus on building relationships that create sustainable value in Canada key to CF-18 Hornet replacement contract (Part 1) by Andy Akrouche
“I am not pro or against the technology, I just want to build value in Canada. So let’s take the focus off of politics and technological leanings and place it where it best serves everyone’s interests. What I am talking about is leveraging the proper industry analysis, strategic vendor capability assessment tools and to build the relationships that are necessary to create sustainable value in Canada. If you do that you will inevitably make the right decision.”
The above is the response that I gave regarding a recent question from the media surrounding the controversy of the F-35 situation, and in particular the paper by the Conference of Defence Associations Institute.
I of course read the F-35 paper with great interest, noting in particular that the authors and the institute itself at least indirectly, seem to be championing the fighter jet as being the right answer for Canada’s military needs.
For me the paper’s efforts to stack the deck in favor of the F-35 by suggesting that a new procurement framework be used to specifically select the fighter under the proposed “international model for defense procurement scheme” thereby averting our usual procurement regime, is disconcerting on many levels.
To start what the paper is suggesting would ultimately mean our abandoning an investment in Canada and leaving it to the “International Allies” to throw us some “leftovers” under a sub-contract arrangement. This is hardly the ideal scenario under which we can develop our own capability to build weapon systems of significant military value. It would also mean that a select few US, UK, French and German corporations would become the de-facto suppliers, thereby reducing our national role to that of nothing more than a trained consumer of defense systems and technologies. In practical terms this would all but kill the whole idea of using procurement to promote innovation and jobs in this country.
Let’s look at Canada’s Industrial and Regional Benefits or IRB policy.
The primary goal of the IRB policy is to ensure “that Canadian industry benefit from Government defence and security procurement.” In this capacity, the IRB policy is a crucial instrument for SME innovation which, as everyone would agree, is the engine of our economy.
Now there are those who contend that by actively working towards achieving the goals associated with the IRB policy, it will cost more to build warships and fighter jets. That may be true, but as an investment in our country’s industrial base, we will create an economic endowment in Canada in which the benefits will far outweigh the additional initial cost, for generations to come. I am not just talking about jobs. I am also talking about progressing and securing the nation’s economic position in the world by developing the all-important Tertiary and Quaternary industrial sectors.
For those of you who may be unfamiliar with this reference, the Quaternary sector is considered to be an extension of what was originally referred to as the “three-sector hypothesis of industry.” Developed by Colin Clark and Jean Fourastie, the hypothesis includes the extraction of raw materials (Primary), manufacturing (Secondary), and services (Tertiary). The Quaternary sector is generally viewed as being the engine driving both innovation and expansion. It consists of those industries providing information services such as “computing, information & communication technologies, consultancy, research and development.”
Because this transitional process spans many years, the groundwork for where we are today was laid a long time ago, through different times and involving many different governments. Therefore from a political perspective, and in relation to my earlier reference regarding government procurement, we have to both ask and answer the following question; “has the government done enough to stimulate development and growth (including re-training) through each sector for future generations?”
Given the significant cuts in recent years to Department of Defence budgets, the fact that we would potentially reduce our industrial stake in remaining contracts – such as the CF-18 Hornet replacement undertaking – to that of a spectator, would suggest that the answer to my question would be no.
What is particularly important to note, is that this is truly a bipartisan issue that should not solely rest at the feet of the current administration. As a result, the adherence to the true intent of the IRB policy is critical because it transcends political agendas and affiliations as well as which party is or is not in power.
In part 2 of today’s post, I will talk about what needs to be done to refocus our attention on leveraging military spend to achieve IRB objectives, including the tools that are available to ensure that we build the proper relationships to meet Canada’s military needs today and solidify our economic position in the emerging global economy.
Relationship Contracting Expert: Questionnaire on CF-18 Hornet replacement dubious at best by Jon Hansen
In relation to the so called KPMG framework, there is nothing that one couldn’t find readily available in a managerial or financial accounting academic text book. As a tax payer, I hope I didn’t pay much for it and frankly I am not surprised by TBS falling for it because it supports current TBS framework for approval of complex capital projects, which by the way, I have been trying to change with some success. In any case the issue is the same, they are trying to bring price predictability into the selection of a long term relationship which we know does not work. Although, they recognize the need to be innovative ( which is good) they are focused on the wrong stuff and using the wrong tools. LCC (which, as we explain in our seminar and our online training program, is an ongoing cost analysis option) cannot be used to predict the cost, based on primarily an initial set of inputs and assumptions. I don’t even think it would be legitimate to select vendors on these basis. So net-net, I don’t think the outcome in this procurement would be any different than previous procurements of the same kind.
Andy Akrouche, President of The Centre for Relational Outsourcing & Strategic Management
In my February 18th, 2013 post Government’s proposed changes to procurement show that they are in the right room but haven’t turned the lights on . . . yet!, Andy Akrouche provided what was both an interesting and thoughtful assessment regarding the government’s contemplation of; a) rolling out individual “secretariats” for each successive military procurement, as was done in the fall of 2011 for the Royal Canadian Navy’s new fleet of warships or b) consolidate an estimated 10,000 bureaucrats from three federal departments – Defence, Public Works, and Industry Canada – into a “single huge new agency, under the aegis of a single minister.”
However, and based on an article by Dave Majumdar in the Flightglobal website (Canada releases industry questionnaire on CF-18 Hornet replacement), regardless of what option the government chooses – individual secretariats or single agency – success with complex capital projects will remain an elusive quest.
As outlined in his above assessment regarding the utilization of a questionnaire to “support a rigorous examination of available fighter aircraft options,” Akrouche sees little difference in the viability of the current process and the one that was originally used to select the ill-fated F-35′s as a replacement for Canada’s aging CF-18 Hornets.
So here is the $9 billion dollar – well make that $17 billion, or should it be $40 to $60 billion – question; why does the government keep making the same mistake by following the lead of consultancy firms such as KPMG?
What are your thoughts?
Government’s proposed changes to procurement show that they are in the right room but haven’t turned the lights on . . . yet! by Jon Hansen
“What makes what you do so exciting Andy is that you not only see the process beyond the actual procurement but that you have also created a model that incorporates the relationship factor into the buying equation itself. In essence you have created a methodology that goes beyond experience or gut feel (things that while important are not scalable and often leads to charges of favoritism), that identifies and weighs the importance of key relationship characteristics up front thus ensuring ongoing and long-term initiative success.”
I made the above statement during an interview with Andy Akrouche regarding his soon to be published book “Relationships First: The new relationship paradigm in contract management.” More specifically his emphasis on sourcing relationships as opposed to sourcing deals.
The timing for the interview was fortuitous in that it was scheduled well before the news broke that the government was “mulling” the viability of a new procurement agency for the expressed purposes of procuring “ships, planes, trucks, and all the other extraordinarily expensive and frequently controversial gear required by a modern military.” Especially since the shipbuilding contract referenced in the newspaper that was awarded to Irving Shipbuilding Inc. and Seaspan Marine appeared typical of contracts he discussed in his book.
Recognizing that I could utilize this news to better understand Akrouche’s model in the context of a real-world present day challenge, I obviously could not resist asking him what all of this meant in terms of the government’s contemplation of two possible options.
For those of you who may not yet be familiar with the recent developments, the article published in the Ottawa Citizen stated that the government is looking to either; a) roll out individual “secretariats” for each successive military procurement, as was done in the fall of 2011 for the Royal Canadian Navy’s new fleet of warships or b) consolidate an estimated 10,000 bureaucrats from three federal departments – Defence, Public Works, and Industry Canada – into a “single huge new agency, under the aegis of a single minister.”
However, when I asked Akrouche the million dollar question – which option do you think is the best, his answer was unique and quite enlightening.
“Well I will tell you,” started Akrouche whose authoritative manner reflects the experience of someone who over the past 25 years has held senior positions with some of the planets largest IT and electronic publishing organizations, “either option has a degree of logic to it.” While the government’s thinking clearly shows that “they are in the right room,” he continued, it also “highlights the fact that they have not yet turned on the light in a manner of speaking.”
“Right room” . . . “haven’t turned on the lights?” I have to admit that he got both my attention and interest.
“The biggest problem with both considerations” Akrouche explained, “is that they do not go far enough in that they do not put into place a framework for managing the post-acquisition relationship. It is like giving someone a new car without any gas in it. It will look good while promising you a good ride but in reality won’t get you out of the parking lot.”
This is an important disconnect according to Akrouche, because awarding the business is not the same as realizing (or managing) the desired outcome.
So how do you manage to achieve the “desired outcome?”
Referencing Akrouche’s in the room with the lights off analogy, here is what he had to say:
Both of the options presented in the Citizen article propose an approach that continues to disconnect the procurement of a long-term business relationship from the very operational or fulfillment considerations that are essential to achieving sustainable success. With complex procurement these considerations include factors such as the impact on our economy as a whole, foreign policy as well as other strategic national objectives. Specifically, it is not just about building a ship or buying fighter jets. It is about meeting the seemingly disparate yet undeniably interconnected interests of different stakeholders simultaneously and consistently. In their efforts to address these relational challenges the government is in the right room from the standpoint of acknowledging that there is a problem. The light will come on so to speak when they realize that the framework or model for managing the relationships between these various stakeholders must be incorporated into the process at some point. Ideally this relationship model would be introduced as part of the initial procurement process. However, and as demonstrated by past successes, the model’s introduction can be facilitated by a willing group of stakeholders at any point in time.
The fact is that until a viable relationship model is put into place success, as demonstrated by the secretariat framework that was established for the current shipbuilding initiative, will continue to be an elusive quest in terms of realization. These very sentiments were expressed in an Atlantic Business Magazine article by Jon Tattrie which was published under the heading “Ships will start here (eventually).” Tattrie deftly pointed to the fact that for Irving, the biggest challenge in the wake of the $25-billion contract win is “managing expectations.” Unfortunately you cannot manage stakeholder expectations from the confines of the individual silos associated with the project-oriented approach that is commensurate with the present TBS approval process.
Taking into account the above, I would be in favor of individual secretariats as opposed to a consolidated centralized organization under the following guidelines:
- Each individual secretariat would include representatives from all stakeholders to ensure that collective interests are understood and properly managed on an ongoing basis
- There would be a defined focus on specific types of procurement
- The creation of a built-in flexibility to adapt to yet unseen changes in areas such as market conditions or stakeholder capabilities to ensure that the end result represents the best outcome
- Finally, and similar to the U.S. Veteran’s Health Administration’s VISN structure, each secretariat would be held accountable for achieving the expected outcome. Of course to hold them accountable they must be given the tools to effectively manage the stakeholder relationships associated with complex acquisitions.
While each of the above guidelines is important the ability to adapt to unforeseen changes is particularly critical. You cannot put yourself in the position to identify let alone respond to the inevitable changes that will occur over the life of a contract if you source long-term relationships with a project mentality. The reason for this is fairly obvious . . . past experience is no guarantee for future success. Nor can you adequately address future or unanticipated contract/relationship risks through the typical financial inducements or increased oversight of a project-centric approach that ends with the procurement itself.
This is why we have to start sourcing relationships as opposed to transactions or deals.
I have recently been invited to participate in industry consultations on IT procurement and Bench-marking for Shared Services Canada. The official name of the group is Industry Technology Infrastructure Round-table (ITIR), Procurement Benchmarks Advisory Committee. We have had two meetings so far, and I represent CATA (Canadian Advanced Technology Alliance). SSC is a new organization (10-12 months old) created by the Feds to bring all IT infrastructure together for the purpose of doing two things: the first being Efficiency, which we all understand to be lower costs, and the second is “effectiveness” which we all know is much more elusive to define, tackle and measure.
The purpose of this industry advisory group is to advise SSC management on procurement process and bench-marking The reason I agreed to participate is to use this SSC procurement design initiative as an opportunity to improve and fix some of the traditional problems inherent in the Feds procurement regime and to also use this opportunity to employ procurement as strategic tool for enabling innovation in small and medium enterprises.
I thought it would be great to have an open discussion on this subject (on this blog) and solicit your opinion and advice on this procurement design initiative as it relates to any of the following:
1) The concept of shared services and how different it is from outsourcing;
2) How to effect major consolidations while improving the odds for small and medium business particularly in the area of innovation;
3) How to make Small Business play more critical role in large government procurement;
4) How to achieve efficiency in public sector? What is realistic?
5) How to achieve effectiveness in public sector setting.
I have heard many opinions about the government’s ability to make significant change in this area. What do you think? I look forward to your comments.
Recent Relational Management Seminar Raises Net-Net Question When It Comes To Complex Government Projects
One of the primary questions that came up as a result of the recent Relational Outsourcing Management seminar, especially from those in a leadership position, was centered on the “net-net” result of using the Relational Model for major Government projects.
As we discussed, the Relational Model is founded on two critical elements. The first is the model’s effectiveness as an enabler of key success factors. The second is its provision of an Integrated Intelligence-based Risk Mitigation (IIRM™) framework.
In short, the Relational Model identifies critical success factors, avoids and manages project risks, and delivers essential business process intelligence that addresses deficiencies and enables improvements on a continuous basis.
Net-net, it delivers higher relationship performance as measured by the following criteria:
Lowest Cost: William Deming once said that “The most important things are unknown or unknowable.” Therefore the only way to achieve the optimum cost savings for a project on an ongoing basis is through increased visibility of the entire value chain from raw material – to finished product. To gain this visibility, the Relational Model’s Joint Governance and Business Process Intelligence Joint Integrated Teams “JIT” consisting of Client, Vendor and 3rd party BP specialists will continuously examine the processes that influence or impact a project’s desired outcome.
By leveraging the Relational Model’s “Open Book” financial management mechanism, the JIT will also be able to establish meaningful incentives for achieving ongoing business process efficiency including skill/capacity enrichment. This will serve as a catalyst to drive further process enhancements.
Of course strategic fit between project stakeholders is paramount for realizable success, and therefore the Relational Model’s initial procurement and selection process is focused on bringing the right players to the table from day one onward. Utilizing our Industry Analysis methodology, the evaluation of a firm’s strategy, competitive advantage and core capabilities means that we will be working with partners who are already positioned to deliver the solution at an effective cost. In essence, the foundation for success will have already been properly laid.
Besides paying less for the product or solution – or conversely have the opportunity to produce more from our current budgets, the Business Process for our partners will also improve. This means that they will likely become more competitive on a national and perhaps even global basis.
It is reasonable to conclude that the Relational Model’s win-win approach and outcome ultimately serves the best interests of all stakeholders both individually and collectively.
Better Quality: The benefits associated with the Relational Model’s Joint Governance and Business Process Intelligence JIT will inevitably drive optimum quality improvement at each point of the value chain.
Working together and keeping quality assurance as the primary focus, the JIT teams gather and manage intelligence on an ongoing basis. The open collaborative efforts fostered by the Relational Model in terms of identifying and eliminating risk is critical as no amount of audits, and oversight can achieve similar certainty. This is due to the fact that there is a vast difference between information and knowledge.
Citing Deming once again, he emphatically stated that “The world is drowning in information but is slow in acquisition of knowledge.” The only way to gain true knowledge is through JIT transparency leading to collective stakeholder input and understanding.
No Surprises: Joint Governance and Business Process Intelligence provides the means for gaining both the insight and understanding of the critical operational and administrative concerns of stakeholders in terms of project objectives. Within the framework of a Relationship Charter Agreement considerations such as financial, policy and other similar type relational elements are carefully recorded and weighed within the context of achieving a maximum degree of stability and outcome certainty.
In short, and through the Relationship Charter, Joint Governance and BPI provides proactive insight into influencing factors so that no one is hit with surprises in terms of schedule, cost or the quality of end product /service.
Optimum Outcomes: In the end, the Relationship Charter Agreement is the most effective vehicle through which individual stakeholders can collaboratively manage large and complex relationships.
While there is no doubt that political, environmental, social and legal systems both individually and collectively play a determinate role in the success of any relationship and related project, the non-adversarial behavior that is fostered by the Relationship Charter Agreement brings all key stakeholders to a common or shared starting point.
The Relationship Charter Agreement in reality becomes a harmonizing guide that continuously aligns complimentary skill sets and capabilities so that they can be best leveraged to the mutual benefit of all stakeholders.
This harmonization as I call it will manifest itself in lower costs, better quality and improved scheduling. It also the means that we will be better able to stimulate and support Canadian innovation in small and medium business, and in the process improve the capital endowment of our country.
Use the SlideShare Personal Viewer to read and download the new executive brief on How To Make Your Outsourcing Initiatives Successful:
Telfer School of Management joins with Strategic Relationship Solutions to offer Relational Outsourcing Management Seminar by Jon Hansen
“In today’s environment, executives and managers are regularly faced with tough outsourcing decisions. Our partnership with SRS is a reflection of our continued commitment to excellence in executive leadership and management training.”
Doug Dempster, Executive Director, Centre for Executive Leadership, Telfer School of Management, University of Ottawa
One of the great things about working in this industry is the fact that you meet amazing people who work with both a passion and a definitive idea as to how to make an existing model better.
Andy Akrouche is one of these individuals.
With a new book scheduled to come out sometime later this year titled Relationships First: The New Relationship Paradigm in Contract Management, Andy has done something very few have been able to do . . . recreate a scalable model that is viable for all scenarios.
What do I mean when I use the term all scenarios?
The short explanation is that the model Andy has created is relationship-based. Unlike the traditional static governance models with their performance legislated belt with suspenders terms, the Relational Outsourcing Management Model reflects an adaptive approach built around a shared vision on the part of clients and suppliers.
It all of course sounds good you might suggest, but this relationship-centric approach with their win-win edicts are nothing new. Of course you would be right but . . . in the past these warm and fuzzy sentiments have rarely made it beyond the preliminary meeting point. Or to put it another way, and like the thin layer of icing on a cake, mutuality has been little more than an ephemeral wish that is gone after the first bite. In the end the majority of what you will be eating will be cake and based on the high failure rates associated with outsourcing initiatives, dried out cake at that!
This is what makes Andy’s work so exciting.
Having held over the past 25 years senior positions with some of the planet’s largest IT and electronic publishing organizations such as IBM and Electronic Data Systems (EDS), Andy comes from a position of having true front-line expertise. In fact, and as his book will share, this expertise was critical to both successfully implementing as well as saving many major outsourcing projects in the public and private sectors.
Back in 1993, when he pioneered what was to become the Strategic Relationship based Model (SRbM®), it was a vision focused on providing a viable alternative to the adversarial nature of contract-oriented governance. It was and is today, a new framework for structuring and managing business relationships; one based on strategic fit, flexibility, continuous alignment and sustained mutual benefit.
This is perhaps one of many of the reasons why Telfer School of Management has teamed with SRS to offer a one day management-level seminar on the Relational Outsourcing Management Model.
The first of what will likely be many seminars will take place in Ottawa on November 22nd, 2012.
From my perspective and experience this is one seminar you will not want to miss. I know that I will be in attendance as I continue to gain a ever increasing understanding of what I believe is one of the major breakthroughs in contract management.
To learn more about the seminar as well as reserve your place send an e-mail to Relationaloutsourcing@srscan.com.
Transaction cost economics (TCE) has emerged as a common framework for understanding the choice of governance mode in economic activities. TCE suggests that in response to exchange hazards, firms either craft complex contracts or may choose to vertically integrate when such contracts are too costly to craft and enforce. As exchange hazards rise, so must contractual safeguards, if contracting is chosen as the governance mechanism (Williamson 1985).
I am at once reminded of the story of the truck that was too tall for an underpass and ended up getting stuck.
With the ensuing traffic jam growing by the minute, the city officials called in various experts to determine how to remove the truck from under the underpass and once again allow the traffic to flow freely.
They first consulted an engineer who suggested that they remove the section of the overpass immediately above the truck. A complex exercise to be certain this, reasoned the engineer, would be the best way to free the trapped vehicle.
The city officials then turned to the head of road maintenance for her opinion.
She suggested that they dig out a trench on both sides of the vehicle and then after propping it up with stabilizers, remove the ground beneath it. This way she reasoned the truck could either drive out of the mini-ravine or be pulled out.
While the experts were each advocating their recommended solution as being the best a young girl, who was watching the events unfold from her nearby yard, approached the city officials with a simple suggestion; “why not let enough air out of the tires so as to lower the vehicle enough so that it can easily drive out from under the underpass?”
The mere simplicity of the young girl’s suggestion makes this is a powerful story.
It also challenges the premise that traditional governance mechanisms in which rigid and for the most part unnecessarily complex and onerous conditions to ensure vendor performance are effective.
I am not suggesting that such conditions be eschewed but . . . they are far too often blindly incorporated and followed without the corresponding collaborative mechanisms being incorporated into the process. As a result, contracts provide little more than stagnating reference points for missed SLAs as opposed to living guides that can be adjusted to ensure ongoing compliance.
This results in stakeholders focusing their energies on managing to avoid failure rather than on actually meeting the requirements that the contract is supposedly in place to ensure. It is tantamount to a golfer trying not to miss the putt rather than making the putt.
The question is why do we do this?
To start, I think that this belt with suspenders mindset originates within the buying organization. When there is an absence of communication between internal stakeholders, how can one expect that things will be any different when external stakeholders or partners are introduced into the equation? Because of this disconnect contracts were, and unfortunately still are in too many instances, viewed as a replacement for real communication and collaboration.
Once again, the role of contracts should be to clearly spell out expectations and serve as a management guideline that focuses on success rather than addressing the possible remedies for failure.
What are your thoughts?
Are contracts without effective collaboration between stakeholders an effective means to ensure SLA performance?
Particularly, these attributes appear to play a major role in the context of IT outsourcing relationships in that successful management of an outsourcing relationship today requires a highly interactive, flexible relationship between two organizations in order to sustain over the strategic planning horizon.
from the Relational Governance section of the The Role of Service Level Agreements paper
While the above excerpt from the paper we have been discussing would seem to be both obvious and a given, within the realms of the procurement profession as it applies to the IT Outsourcing contracting process, nothing it would appear could be further from the truth.
In fact, and referencing Williamson’s (1985) conceptualization of “relational” governance, the paper recounts how economic weapons such as hostages and credible commitments to keep opportunistic behavior at bay, have long been the order of the day. In essence financial inducements such as penalization for missed SLAs were considered the only means through which a contractor could ensure vendor performance.
It is not until recent years that this sledge hammer contract management methodology has been gradually usurped by a socially oriented enforcement of obligations, promises, and expectations that according to Poppo and Zenger (2002) promote norms of flexibility, solidarity, and information exchange.
In this regard one cannot underestimate the critical importance of the emergence of social networking and social media in terms of facilitating this new age of buyer-vendor detente. This is due to the fact that the Internet has added the element of convenience to the practical and sound principles of real-time collaboration.
What is especially encouraging about the socially oriented approach is that it creates an environment of trust between key stakeholders. This means that potential problems can be recognized, acknowledged and dealt with effectively as opposed to remaining either hidden or alternatively justified, which ultimately results in little if any meaningful action being taken to remedy the situation.
Eschewing the blame game as IACCM’s Tim Cummins once called it, leads to greater cooperation within a contract’s framework encouraging stakeholders to actively seek potential problem areas with the intent of coming to a mutually beneficial resolution for all concerned. Or to put it another way, the economic levers championed by Williamson inadvertently rewarded the wrong behavior by punishing disclosure as opposed to rewarding it.
Therefore and as it relates to the establishment of SLAs, the more logical alternative is to not place the sole emphasis on SLAs being missed per se, but instead on the importance of full disclosure of the delivery process capability under the umbrella of a Collins autopsy without blame approach.
In this regard, vendor selection is based on the ability of the parties to effectively and successfully address problem areas as they arise instead of how effectively they can be avoided, which with the latter is a virtual impossibility in a complex global marketplace.
Of course the above creates a chicken or the egg scenario in that one might reasonably argue that because formal contracts inherently hinder the meaningful formation of collaborative or relationship-driven interaction, they are no longer a viable mechanism for achieving the desired contracting organization’s objectives.
However, there still exists a reluctance on the part of buyers to rely solely on the relational attributes of what the paper refers to as a trust arrangement. For those advocating the traditional means of ensuring performance, the belief is that the vendor must first prove themselves capable of delivering to SLA requirements and that until such time the economic leverage of the Williamson approach serves as a safety mechanism that protects the interests of the Buyer.
Much like the analogy that you cannot steal second base with your foot firmly planted on first base, if formal contracts hinder the ability for the parties to openly and transparently communicate about both the good and the bad then the relationship as it stands would stagnate. In other words, it would not likely progress to the point that the prerequisite performance would be achieved to warrant a non-contractual trust arrangement.
Within this context, the real question that needs to be answered is whether a hybrid approach in which some of the elements of a traditional contract can be successfully incorporated into a relational governance framework.
Referencing Baker et al. 1994; Mayer and Argyres 2004, such a merging of approach ideals is not only possible but is actually preferred. Specifically, the paper contends that “the process of developing a comprehensive and complex contract itself requires parties to engage in joint problem solving.” This in turn purportedly enhances the relationship building process between parties to the contract that might otherwise not have been possible.
The key obviously is to find the desired and/or needed balance.
In the next installment in this series, we will examine the specific contractual/SLA components of a blended approach that will help stakeholders to achieve the desired balance.