Understanding The (New) Role of Relationships In Achieving Business Success

A recent international conference brought together senior buying executives, vendors and lawyers from around the world, to discuss solutions to the high rate of initiative failures. According to one study, more than 70% of all business arrangements fail to deliver the expected results.

What were the two key conclusions that came out of the conference in terms of reversing this trend? Building and managing strong relationships is essential to achieving desired outcomes for all stakeholders.

I would personally like to extend to you and your colleagues, an invitation to attend my Fall seminar on November 25th and 26th, 2015 on Relational Contracting and Strategic Relationships Management.

Held at the Courtyard Marriott in Downtown Toronto, this highly interactive and engaging 2-day seminar will equip participants with the know-how and skills to:

  • Gain a total system understanding of collaborative business relationships with an emphasis on outcome realization and change management;
  • Plan, source, establish, manage and participate in high performing collaborative business relationships;
  • Improve the performance of current arrangements such as MOUs, Agreements and Contracts; and
  • Establish the relationships & vendor management organization, and build its capacity to create a culture of collaboration and trust.

Discussions will cover two important classes of relationships:

  • Client-Vendor Relationships such as operations management arrangements, Alternative Service Delivery (ASD), Public-Private Partnerships (PPP), Commissioning, Outsourcing, Futuresourcing™, Major Capital Projects, and In Service Support (ISS) contracts; and
  • Intra-Public Sector Relationships such as Shared Services arrangements, Program Owner-Provider relationships, Transfer Payments and Intra-Municipal Agreements.

Please feel free to contact me with any questions you may have.

See you in Toronto!

Andy Akrouche

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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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The Ultimate Relational Contracting Model Primer by Andy Akrouche

I was recently asked a question regarding Futuresourcing™ in terms of developing an effective contract governance model.  Specifically, what is the best way to structure a contract to ensure that the desired results are achieved when neither the buyer nor the supplier have had any previous experience with the required task.

My answer was simple . . . Futuresourcing™ is an inherent part of all contract relationships in that history is not a sufficient indicator of future success, nor can you anticipate all future events or try to manage them within the framework of a static contract.  In short, regardless of whether or not one is dealing with the delivery of a known product or service or looking to source an entirely new deliverable, relying on a contract to ensure an intended outcome will not work.

Rather than merely providing a critique of existing contracting protocol without offering a viable alternative, I wrote the book Relationships First: The New Relationship Paradigm in Contracting as a means of introducing the Relational Contracting Model.

For those of you who have already read the book you know that within its pages is a practical guide – supplemented by corresponding case studies – for structuring a relationship-centric model that has over the past 20 years, consistently delivered the expected outcome for clients in both the public and private sectors.

In February, we will be extending this knowledge transfer through our new interactive Relationships First webinar series on Udemy.

With more than 2 hours of quality, high impact content, I will personally take you through my new introductory course that will provide you with the basic framework for establishing a truly relational contract.

As part of our series launch, Udemy will be providing one-time special discount pricing, so you will definitely want to take advantage of their exciting offer.

In the meantime, take a few minutes to watch the following video to learn more about the new Webinar and the SRS Relational Model.

Andy Video Pic1

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The Relational Divide: Why CGI HealthCare.gov experience reflects more about the contracting process than the company itself by Andy Akrouche

I read with interest the January 14th Wall Street Journal article “Accenture to Take Over Fixing HealthCare.gov Website” by Stephanie Armour, in which it was announced that CGI’s contract with the Federal U.S. Government would not be renewed.

Even though the loss of the contract was small in terms of CGI’s overall revenue, what likely stings the most is the perception that blame for the highly publicized challenges with the new website was the sole responsibility of the Montreal-based consulting firm.

But does this conclusion reflect the true story?

One of the biggest lessons I have learned over the years, is that when faced with the opportunity to enter into a true partnership based on a shared mission and purpose there really is no other alternative. You must choose to collaborate.  Unfortunately and as repeatedly demonstrated by so many initiatives in both the public and private sector, collaboration is an afterthought when it comes to the contracting process.

In the following excerpt from Relationships First: The New Relationship Paradigm in Contracting, I talk about why initiatives – and more specifically relationships – such as the one involving the HealthCare.gov website go off the rails:

Why Do the Majority of Outsourcing Initiatives Fail?

Despite industry’s best efforts to modernize and professionalize sourcing practices, project management and service delivery methods, 70% of significant business relationships or large projects do not meet their objectives.

This is because organizations in both the public and private sector continue to rely on outsourcing partners who provide services based on a static requirement that is established at a specific point in time. Relationships that are structured around this approach inevitably fail because a ‘single transaction’ approach does not allow for the natural evolution of needs and stakeholder capabilities.

These issues are further exacerbated by ‘futuresourcing’ which takes place when new service requirement capabilities are introduced in the absence of client or vendor experience.

Even with the promise of significant up-front reductions in operating costs, vendor responses to ‘futuresourcing’ bid requests are speculative and often tied to a ‘let’s win the business first and worry about making it work afterwards’ mindset.

As discussed in Section I, the failed relationship between the U.S. Navy and EDS demonstrates the folly of this approach. Yet it continues to be the norm in the industry.

In order to reverse this trend, we must change our mindset around contracting and contract governance. We have to think in terms of being ‘relational’.

In my book I go into great detail in terms of what it means to be relational.  For the purposes of this post I will say that without a relational framework collaboration is a virtual impossibility.  And this is where the challenges with the creation and launch of the HealthCare.gov website likely originate.

The fact is that this was an extremely complex undertaking, which meant that traditional contract governance models would prove to be ineffective in creating the kind of collaborative framework that would have been necessary to address the website challenges in a timely and cost effective manner.

The real question going forward is simply this . . . has Accenture been set-up for success or failure?  If the same engagement process that was used to originally create the relationship with CGI was also used to select Accenture, how can we expect a different outcome?  This of course is the real story behind the headlines.

Over the coming weeks and months we will likely learn the answer – at least in part – to this last question.

CGI post HealthCare

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Does flawless negotiation create certainty? by Andy Akrouche

Have you ever wondered why there is such a great emphasis placed on learning negotiating techniques?  After all, and as a simple search on the Internet will demonstrate, there are tens if not hundreds of books written on providing insight and direction on negotiating deals rather than building relationships.  From “negotiating to yes” to “zero sum” and everything in between, the myriad of models all seem to aim at establishing the ever elusive win-win or “we” arrangement.

What is being completely missed here is that the prerequisite conditions for a true collaborative relationship cannot be borne or delivered from a “contract first and relationship second” mentality.

So what is a contract first mentality?

Quite simply, it represents the “you get what you negotiate not what you deserve” mindset that is based upon an adversarial approach to working with your partners.   Or to put it another way, you first have to “beat” your partner before you can start to “work” with your partner.  Regardless of the negotiating technique you employ, this one-upmanship approach is hardly the ideal scenario for forming a lasting, mutually beneficial relationship.

In my book Relationships First: The New Paradigm in Contract Management, I discuss how there is no real substitute for insight-based decision making in successful long term relationships.  Of course the only way to gain the required level of insight for a successful long-term relationship is through an ongoing joint focus on relationship planning, business process improvement, issues management and opportunities development leading to improved relationship outcomes.  Again, this is something that is difficult if not impossible to do at the negotiating table.

This is also the reason why in my book and at my seminars, I discuss at length the following three crucial elements and the key role they play in establishing and managing successful relationships:

•             Industry analysis – a process of in-depth understanding of related industries, strategic groupings and private sector capabilities that drives the alignment of relationship objectives and outsourcing or partnering strategy

•             Strategic Fit evaluation – assessing vendors not just on their ability to meet the known requirements but also the alignment of their corporate strategy and strategic capabilities with client strategic outcomes and key enablement requirements

•             Establishing and managing a Relationship Charter within which delivery, performance and relationship is managed and evolved

In the end, what I am really saying is that we need to place less emphasis on the negotiation phase, negotiator skills or tactics, and instead place greater reliance on building truly collaborative relationships throughout the entire procurement process.

Not only will your adoption of the Relationships First mindset ensure that you have the right partner at the table both now as well as into the future, it also means that you will be able to establish a jointly agreed upon collaborative framework that will enable you to co-manage the generation of deliverables, ongoing relationship performance and the inevitable situational changes that occur throughout the life of the contract.

Negotiating to lose . . . even when you win?

Are you negotiating to lose . . . even when you win?

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The truth about Public-Private Partnerships by Andy Akrouche (Part 2 of 3)

In yesterday’s Part 1 post (The truth about Private Public Partnerships) Colin Cram provided some much needed insight in terms of both the promise and the failings associated with Private-Public Partnerships or PPP-driven initiatives.

Cram, who has served in the public sector at the senior executive level for more than 30 years, is obviously familiar with PPPs.  As a result, he adeptly points out the unquestionable benefits in terms of the public sector getting facilities, hospitals, roads or prisons built without upfront investment.  The challenge however is not in the promise of an end result but in the management of expectations, returns and ultimately relationships.

This last point has proven to be the major stumbling block that has derailed many PPP-driven programs.

The problems according to Cram originate with the process for negotiating what he refers to as being complex and inflexible “consortium” contracts.  Then through what he considers to be the ineffective decentralized management of disjointed objectives, PPP relationships usually denigrate into a self-serving abyss of unrealized outcomes.

In other words, in the rush to capitalize on complementary strengths and individual gains, PPP stakeholders overlook the most important elements of a successful partnership, which is the Relationship governance model.

This is why recent announcements of relationship-based PPP legislation in states such as Florida are very interesting.

While I applaud Florida’s Governor for seemingly walking away from the traditional transaction oriented mindset that governed past initiatives, I cannot help but wonder how the new legislation in and of itself will foster a more collaborative or relationship oriented approach.

Certainly the intent for a practical and manageable governance model exists as demonstrated by the following legislative requirements associated with Florida’s HB 85 PPP Bill:

·         The legislation requires that the responsible public entity ensures that provisions are made for the private entity’s performance and safeguards the most efficient pricing.

·         The legislation provides for protections that will ensure that provisions are made for the transfer of the private entity’s obligations if the comprehensive agreement is terminated or a material default occurs.

·         Additionally, there is an assurance that the public entity must perform an independent analysis of the proposed public-private partnership that demonstrates the cost-effectiveness and overall public benefit.

Once again, the above requirements or elements of the new Bill   ̶   if read correctly   ̶   are laudable, as they actually reflect the insight versus oversight process associated with the SRS relationship-based model.

For those who may not be familiar with the SRS relational model, it is a model that advocates an evolutionary approach to relationships by ensuring that stakeholder expectations, priorities and needs are properly aligned with present day realities on an ongoing basis.

In the previous post Colin Cram pointed to the importance of this ongoing adaptability when he made reference to the inflexibility of traditional contracts and the difficulty in seeing many years into the future.  The fact is that attempting to structure a deal based on an initial set of assumptions and plans limited to what we know in the here and now is a recipe for disaster.

What is required is a dynamic model that is responsive to change, as opposed to a rigid and inherently adversarial static transactional model.  This of course is the key to creating a truly collaborative and adaptable governance framework in which all stakeholders benefit according to their different yet inextricably linked objectives.

As the Florida Bill is likely to be used as a reference point for other states, let’s examine the key elements or requirements in greater detail.

With regard to the first point, when we talk about the need for ensuring that provisions are made for the private entity’s performance and safeguarding the most efficient pricing, what we are really discussing is the need to pursue dynamic relationships as opposed to transactional engagements based solely on present day assumptions.  More specifically, this means that the legislation requires a continuous alignment throughout the entire relationship, and not just at the beginning by way of the traditional “carved in stone and signed in blood bankable” P3 agreements with which we are most familiar.

In terms of providing the protection referenced in the second point by way of provisions which ensure the transfer of the private entity’s obligations should the agreement be terminated or a material default occur, this quite simply refers to an executable “off ramp.”   An executable off-ramp provides the means by which the relationship would be terminated in the event that the strategic fit between stakeholders ceases to exist.  Interestingly enough, the likelihood that a strategic fit will endure over the life of the contract should be established as part of the original sourcing process utilizing the certainty score evaluation methodology associated with the SRS relational model.

Finally, Florida’s Governor wants to make certain that there is a high degree of accountability in terms of whether or not the public-private partnership is actually delivering value.  This is why the third point is so important.  Traditionally, and for those familiar with the P3 planning process, a public sector comparator case or PSC is initially used to financially justify an acquisition or initiative that excludes the private sector “partner” element.   Once the PSC case has been built, a Value for Money or VfM assessment is undertaken to determine the impact that the introduction of a private sector partner would have on the same acquisition or initiative.  The hope is that the outcome of the VfM assessment will justify a Public-Private Partnership.  The inherent flaw with the above assessment process is that it attempts to get an accurate read on the nature of the relationship 20 to 30 years down the road based solely on assumptions in the here and now.  As Colin Cram pointed out in Part 1 of this series, many fail to recognise beforehand or erroneously believe they have the expertise to effectively see into the future.  Unfortunately they do not, which ultimately results in a sub-optimal project or even worse, a near disastrous one.

The only way the Governor and the State of Florida can realize the true and full value of a Public-Private Partnership, is to ensure that the VfM assessment is linked to an ongoing or continuous management and realignment process.  As allude to earlier, an insight as opposed to oversight process that is focused directly on improving the outcome and performance of the relationship.

In the third and final part in this series, I will share with you a set of practical steps to form and manage a dynamic public-private relationship.

Remember to also check out the advanced publisher’s eBook and hard copy versions of my new book Relationships First! The New Paradigm in Contract Management (see below).

Click to purchase Relationships First!

Click to purchase Relationships First!

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Relational Outsourcing as a practical contracting and management model is finally coming into its own

Outsourcing of business operations is a growing trend in the U.S.  In-house employees are replaced by a firm which handles the business using its own staff. Such agreements, writes Dennis F. Penepacker of Chicago’s Meyer Brown Rowe & Maw LLP, require the closest kind of relationships between the parties. He argues that neither the command-and-control mechanisms of in-house operations nor the arms’-length contacts typical of ordinary supplier contracts are appropriate.

As you read the above paragraph one might be excused in thinking that it is a present day recognition of the important role that relationships play in the success of an outsourcing initiative.

After all, and with the recent introduction of a new seminar by SRS that focuses on bridging both the communicative and collaborative divides that have for so many years undermined the promise of the majority of outsourcing programs, its revelatory importance certainly contradicts what for many organizations was an exercise in head count reduction and bottom line savings.

In fact, this abdication mindset was in reality the antithesis of relational considerations in the provider selection process, as there was often times a prevailing good bye and good riddance disposability regarding those functions that were deemed to be outside of the organization’s core competencies.

Of course nothing could be further from the truth in that a dumping of functional responsibility rarely if ever delivered the promised savings, but instead in many instances actually undermined the organizations brand through a decline in customer service levels.  Or to put it another way, passing the proverbial buck without considering the implications beyond the myopic financial impact almost guaranteed failure.

Even in those instances where there was a recognition of outsourcing’s overall strategic importance over and above a dollar and sense perspective, the lack of practical training in critical areas of the contracting process reduced engagement to one of legalize where contract terms and conditions were the driving elements of stakeholder conduct.

The irony of the opening paragraph to today’s post is that a lawyer was the one to point out the inadequacies of the traditional contracting approach to outsourcing.  That he did so close to 7 years ago speaks to how slow the market has been to both recognize and adopt the new protocol for stakeholder responsibility and execution.

Are relationships the key to outsourcing success?

All of this has now changed with the pressing reality of current day demands for greater efficiencies and savings, coupled with the now obvious gaps with the contracting process of the past.

This is one of the reasons why the SRS Relational Outsourcing seminar is both timely and necessary.

It is also the reason why I found that yesterday’s discussion with SRS’ Andy Akrouche to be one of the more interesting interviews I have done of late.

What are your thoughts regarding relational outsourcing?

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