With everyone from deal architects to premier transaction firms embracing a “Relationship” mantra when it comes to complex contracting and outsourcing, the true meaning of the word is being lost in a sea of good intentions. Or to put it another way, just because you say the word relationship, or incorporate it into your negotiation process, does not mean you have a relationship with your trading partners. This is especially true when you continue to view doing business through a transactional lens.
The fact is that 70% of all long-term outsourcing, futuresourcing and PPP initiatives underperform or fail because they are structured as a deal or a transaction as opposed to a strategic relationship between key stakeholders. Whatever name you give it, a transaction or a deal is still a deal.
So what is The “REAL” Art of the Deal? Quite simply it is knowing when something isn’t a deal or a transaction.
At this point I would like to emphasize the fact that I am not against deals or transactions. There is definitely a place for them. However, the mistake we frequently make is to erroneously apply a deal or transactional mentality to what is supposed to be a dynamic business arrangement.
What is a deal or a transaction?
A deal or a transaction is an instance of buying or selling something, such as closing on your house, getting a new mortgage, withdrawing money from an ATM machine. In a transaction like the ones previously described, there is no flexibility, no need to interact and absolutely no changes allowed. This of course works well in these instances. After all, what interaction is really required after you get your money from the ATM machine? It is a done deal!
Complex business relationships or dynamic business arrangements are not as cut and dried, as a deal is never done – even after the ink dries on the contract.
Change both within and outside of the complex or dynamic relationship is inevitable. Whether it be the result of Political, Economic, Social, Technological or Legal otherwise known as “PESTL” variables, the fact remains that change will happen. In this light, attempting to respond to said changes within the framework of a transaction arrangement is as the Department of Defence’s Ian Mack put it, tantamount to trying to “achieve certainty based on the initial deal.” It just doesn’t work. Hence the reason why 70% of all outsourcing, futuresourcing and PPP initiatives miss the mark!
Despite this dubious track record, legal firms and financial advisers are still trying to manage both the anticipated and unanticipated risks associated with complex business relationships within the confining framework of a deal or transactional structure. By doing so, they are attempting to “legislate” change and its associated risk rather than recognize and adapt to it.
This is not a true relational approach.
So what do I mean by a relational approach?
When I first developed the relational model more than 20 years ago, I in essence redefined what complex business relationships actually entail.
If you have had the opportunity to attend one of my many seminars or workshops or, have had the chance to read my book, you will already know that I define a relationship in a business context as being a continuous, process-centric interaction involving an infinite number of deals or transactions.
From this standpoint, the focus is not solely on contractual metrics such as timelines, financial obligations and service level quality, but on the establishment of a Relationship Charter within which each of these critical areas is jointly managed.
Consisting of three parts: Shared Mission and Purpose, Joint Governance, and the SRS Open book financial management framework, the Relationship Charter is based on six foundational principles, which are as follows:
- Act of Relating – and this is where “relational” comes from. Connecting and linking in a naturally complementary way
- Mutuality – Having the same or similar view or output each to the other
- Respect – Recognizing each other’s needs, requirements, contributions, abilities, qualities and achievements
- Innovations – Use of combined strength and synergies to deliver improved outcomes
- Continuous Alignment – Making necessary adjustments to improve and achieve relationship objectives
- Empowerment – Introduction of Joint management structures and processes at the strategic and operational levels to manage the realization of relationship objectives.
My book Relationships First: The New Relationship Paradigm in Contracting provides an introduction to what is needed to source and manage relationships vs deals or transactions. Coupled with the SRS Complex Outsourcing Body of Knowledge COBOK™, you will have everything you need to establish high performing complex business relationships.
In the meantime, I would exercise due caution when you hear phrases like “negotiating to Yes” and “negotiating to We” as they reflect the “old” as opposed to “Real” Art of the Deal.