Strategic

Relationships

Solutions

Despite industry’s best efforts to modernize and

“professionalize” sourcing practices, project management and service delivery methods, over 70% of significant business relationships or large projects continue to fail to meet their objectives.

This is due to the fact that organizations in both the public and private sector rely on outsourcing partners who continue to provide their services based on a static requirement at a specific point in time. Relationships that are structured around these types of models inevitably fail because a “single transaction” approach does not take into account the natural evolution of needs and stakeholder capabilities.

The challenges are further exacerbated in Public-Private Partnerships (PPP) or Futuresourcing™ situations where there is an introduction of a new service requirement or a capability in which neither the client nor the vendor has any tangible experience.

Despite promises of a significant up-front reduction in operating costs, vendor responses to outsourcing bid requests are speculative, and often times tied to a let’s win the business first and worry about making it work afterwards mindset.

As EDS discovered with its failed major outsourcing contract with the U.S. Navy, making something work on the fly benefits no one. The fact that EDS had to take a first quarter net loss of $126 million which was part of a much larger $334 million write-off speaks to the accuracy of this assessment.

On what was originally a $7 billion multi-year contract to build an intranet for the Navy Marine Corps, these mounting losses undermined the entire project. Faced with continuing losses, and pressure from the markets relating to stock price, EDS’ focus shifted from service delivery to one of financial recovery.

This is hardly the foundation upon which to build a long-term, win-win relationship.

Sadly, failed contracts like the one between the U.S. Navy and EDS continue to be the norm in the industry as opposed to being the exception.

To reverse the trend of disappointing results, we have to change the way we view contracting and contract governance. We have to think in terms of being “relational.”

What is meant by relational? A viable alternative to the adversarial nature of contract-oriented governance, the relational outsourcing model represents a new framework for structuring and managing PPP and Outsourcing business relationships. It is a model based on strategic fit, flexibility, continuous alignment and sustained mutual benefit.

Similar to the principles that define the Six Sigma business management strategy, these tenets of success are nothing new. In

fact the relational outsourcing model is structured around the enduring core values that are exemplified by integrity of intent and mutual or shared partner benefit. The main departure from Six Sigma

is the primary focus on outsourcing and shared services.

How to make your outsourcing & PPP

initiatives successful - By Jon Hansen

Building Relationships That Last

How is it different from what is usually done? Williamson’s 1985 conceptualization of “relational” governance

recounted how economic weapons such as hostages and credible

commitments to keep opportunistic behaviour at bay, have long

been the order of the day.

Relating

Mutuality

Respect

Innovation

Continuous Alignment

Empowerment

Connecting and linking in a naturally complimentary way

Recognizing each other’s needs, requirements, contributions, abilities, qualities and achievements

Making necessary adjustments to optimize or improve outcomes and maximize benefits realization

Introduces joint management structures and processes for effective and timely decision making within scope and provided envelopes of authority

Use of combined strength and synergies to deliver improved outcomes

“Relational”

The Center for Relational Outsourcing defines “Relational” as a Process-Centric Business Interaction and Delivery Management

Model that promotes collaboration and fosters trust.

The model focuses on joint relationship structures as the pivotal point at which delivery and contract performance are

carried out, measured and evolved.

Having the same or similar view or output each to the other

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.

What is especially encouraging about the socially oriented relational 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 pressing problems of a given situation.

The SRS Relational Outsourcing Model Long before the mainstream recognition of the viability of the socially oriented concept that was championed by Poppo and Zenger, Andy Akrouche developed the Strategic Relationship Solutions or SRS outsourcing model.

Over a 15 year period, and through the success of many high profile client relationships, Akrouche’s relational model focused on stakeholder relationships as the pivotal point in terms of measuring performance and ongoing delivery and service management capabilities.

The key tenet of the SRS relational model is a reliance on joint governance and management structures to process and facilitate collaboration, gain meaningful insight into relationship

parameters as well as effectively manage joint resources to achieve expected relationship outcomes.

Specifically the SRS relational model advocates the structuring of a relationship that encompasses the following three main components:

Shared Relationship Mission and Purpose Joint Governance Open Book Financial Management Framework

(Transparency) How does it address the issues associated with the old model? The SRS relational model eschews what IACCM’s Tim Cummins referred to as “the blame game,” in that it leads to greater cooperation within a contract’s framework. It accomplishes this by 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 behaviour by punishing disclosure as opposed to rewarding it.

Therefore and as it relates to the establishment of desired outcomes, the more logical alternative is to not place the sole emphasis on said outcomes being missed. Instead the emphasis is placed on the importance of full disclosure of the delivery process capability under the umbrella of a Jim Collins autopsy without blame approach.

In this regard, vendor selection with the SRS relational model 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. In other words, and in a complex global marketplace,

problems or challenges are a given. How we deal with them as opposed to denying them is a key tenet of the SRS relational model.

About vendor selection Establishing such 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 used as an effective selection criteria.

In the absence of a proven track record, a closer examination of the vendor’s strategy and core capabilities are paramount to determining the likelihood of the ultimate success of the relationship.

Beyond these needed checks and balances, the SRS relational model sourcing process advocates an intense industry analysis and engagement both before and during the actual procurement. This involves the application of advanced analytical tools to objectively assess and evaluate the fit between a vendor’s strategy, core capabilities and the initiatives expected outcome.

The Relational Contracting Model is about sourcing and managing high performing business relationships by establishing a Relationship Charter founded on the following three (3) architectural pillars:

SRS

Relationship

Charter

Why are we in this relationship?

Stakeholders Fit (Alignment of Client Relationship Purpose with Vendor business strategy – Product/Market focus, Value

to clients, Core Activities and R&D)

Deliverable Generation/Delivery

Continuous Alignment Problem Solving Decision Making Escalation Conflict Resolution Change Management Harmonization of review &

approval process Innovation Management Performance Management Joint Relationship Score Card Reciprocal Evaluation

Financial Accountability, Transparency Pricing Model Financial Management Earned Value Management

Relationship

Charter

Pillars

Shared

Mission &

Vision

Joint

Governance

Open Book

Framework

Used to determine the veracity of the “collaborative fit” between the client and vendor, the advanced analytical tools associated with the SRS relational model establish the framework for the Relationship Charter. What is the Relationship Charter? Under the SRS relational model that was developed by Akrouche the Relationship Charter, in which relationship needs take precedence over the contract itself, becomes the platform for:

Relationship analysis and strategic management Delivery and performance management Issues management and resolution.

How can the relational model be implemented in the public sector? “A cooperative venture between the public and private sectors, built on the expertise of each partner, that best meets clearly defined public needs through the appropriate allocation of resources, risks and rewards.”

The above paragraph is how The Canadian Council for Public-Private Partnerships “CCPPP” defines both the framework and intent of a collaborative partnership between public and private entities.

Unfortunately the majority of public-private partnerships are still structured around the “single transaction” approach with its inherent problems. As a result, and as was referenced earlier in this brief, the failure to take into account the natural evolution of needs and stakeholder capabilities have led to the high rate of relationship failures.

The SRS relational model has proven to be an effective alternative for the public sector. What makes it particularly attractive for the public sector is that the relational model is in effect injected into a public sector procurement regime as a complimentary module. This means that it is not a replacement for the existing sourcing or procurement process, but is instead a relationship and results facilitator. Or to put it another way, the SRS relational model does not radicalize the public sector procurement process, it compliments and enhances its effectiveness. Conclusions: While a high level briefing such as this is effective for providing a solid foundation for understanding the core elements of the relational governance model, it is through a true collaborative effort that the results referenced above can and will be achieved.

There is of course a long list of notable case studies from both the public and private sectors that can be provided upon request. This being said and based upon the successful track record of the model within this country, the Canadian government is uniquely positioned to take the lead amongst nations in delivering maximum service to its citizens while simultaneously reducing significantly the costs associated with the business of government.

About The Author:

Jon Hansen is the author of more than 2,000 articles and studies on emerging purchasing trends and practices in both the public and private sectors. Funded in part by the Government of Canada’s Scientific Research and Experimental Development Program “SR&ED,” the results of his research were captured in his seminal paper on the operational differences between enterprise solution development under an agent-based model versus an equation-based model and the corresponding merits of structuring the procurement process on an adaptive capability as opposed to a static compliance framework.

As the author of this Executive Brief Hansen has provided in point form, the reasons he believes that the relational governance model is essential in terms of reversing the trend relative to the continuing failure of outsourcing and shared services initiatives.

About Strategic Relationships Solutions Inc. (SRS)

Strategic Relationships Solutions Inc. (“SRS”) is a knowledge-based, customer-focused, strategic services and relationship management firm specializing in achieving results for clients through innovative and adaptive strategic management services, capacity building and knowledge transfer, and sustainable business relationships. SRS works closely with CKM Advisors of NY. The Firms have established a strategic relationship through which they jointly help clients around the world establish and manage dynamic business relationships.