Future of Sourcing - Partnership http://futureofsourcing.com/tags/partnership en Get “360” Feedback from Key Suppliers, Partners and Customers to Up-Level and De-Risk Your Relationships http://futureofsourcing.com/get-360-feedback-from-key-suppliers-partners-and-customers-to-up-level-and-de-risk-your <div class="field field-name-field-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even" rel="og:image rdfs:seeAlso" resource="http://futureofsourcing.com/sites/default/files/articles/360_Feedback_624x325.jpg"><a href="http://futureofsourcing.com/sites/default/files/articles/360_Feedback_624x325.jpg" title="Get “360” Feedback from Key Suppliers, Partners and Customers to Up-Level and De-Risk Your Relationships" class="colorbox" rel="gallery-node-1432-Cyi9McQTx74"><img typeof="foaf:Image" src="http://futureofsourcing.com/sites/default/files/styles/juicebox_medium/public/articles/360_Feedback_624x325.jpg?itok=jT6OzM_R" width="624" height="325" alt="" title="" /></a></div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>As a business leader you get 360s, so why doesn&rsquo;t the business you lead?</p> <p>Individually, you benefit from 360s exposing blind spots and unintended consequences of your &ldquo;default&rdquo; way-of-being. Your company has blind spots and default ways-of-being, too&hellip;and they undermine the success of critical relationships with outsourcing providers, product and channel partners, and anchor customers &ndash; the vital &ldquo;360&rdquo; space around your company.&nbsp;</p> <p><em>Are partners &ldquo;nickel and diming&rdquo; you? Do you worry their best people aren&rsquo;t on your account? Are quality or speed issues cropping up? Do you wish they&rsquo;d invest more in innovation or expansion?&nbsp;</em></p> <p>These are symptoms of a misaligned partnership with low self-awareness on one or both sides. That&rsquo;s where the value of an &ldquo;Enterprise 360&rdquo; comes in, helping you achieve stable, co-prosperous relationships rather than the drama- and disappointment-filled ones that are all too common.</p> <p>Imagine the value you can unlock if you deeply understand where a relationship is today, clearly see the forces affecting it and have a concrete plan to realize the thriving partnership you envisioned when you signed the deal.</p> <p>With this as your&nbsp;<em>why</em>, let&rsquo;s consider&nbsp;<em>what&nbsp;</em>characterizes strong relationships and then discuss&nbsp;<em>how&nbsp;</em>to move in this direction with an Enterprise 360 approach.</p> <div> <h2>Dimensions of Thriving, Co-Prosperous Relationships</h2> </div> <p>You know that motivating and managing your people is only partially about financial incentives. Shared purpose, values and culture, behavioral norms and a sense of long-term opportunity are also incredibly important.&nbsp;</p> <div> <h2>Holistic Success Dimensions for High-Stakes, High-Complexity Partnerships</h2> </div> <p><strong><img alt="" src="https://futureofsourcing.com/sites/default/files/Holistic_Success_Dimensions.png" />&nbsp; &nbsp; &nbsp; &nbsp;</strong></p> <p>Let&rsquo;s take a holistic look at the deeper less-visible dimensions&mdash;beyond the limited impact of financial/legal terms&mdash;that drive success in highly-complex partnerships.<strong>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;&nbsp;</strong></p> <div> <h2>Incentives Created by Terms</h2> </div> <p>As a business executive, you feel economic pressure, which feeds the instinct to &ldquo;win&rdquo; a negotiation. Your partner faces similar pressure, but in response, it may willingly enter into an arrangement even when the economics squeeze its ability to acceptably perform. This is &ldquo;the paradox of the willing partner.&rdquo; Sometimes, the other side just needs that deal this quarter or that revenue this year, or to keep its factory or workforce utilized. And even when you have an initially-fair and balanced deal, it can easily be knocked out of balance by changing market conditions.&nbsp;</p> <p>That&rsquo;s why the landscape is full of partnerships that are bad for one side. But over time, what&rsquo;s bad for one side is bad for&nbsp;<em>both</em>. Imagine a landscaper you don&rsquo;t pay quite enough, so he hurries on to the next job and doesn&rsquo;t clean up thoroughly in your yard. It&rsquo;s&nbsp;<em>you&nbsp;</em>who steps on the rake.</p> <p><em>You may object: &ldquo;But suppliers, partners and customers always say they deserve more of the financial pie within your relationship. I can&rsquo;t always respond to this. That&rsquo;s business.&rdquo; That&rsquo;s an understandable and fair point &ndash; and a good Enterprise 360 approach helps determine when there is a real wolf, or the other side is just crying wolf. &nbsp;</em></p> <div> <h2>Impact of Culture and Organization</h2> </div> <p>Your business culture and the way you&rsquo;re organized impact the partnership, too.&nbsp;</p> <p>For example, do you have a culture of invention or operational precision? These strong suits probably helped get you where you are today. But they may also make you overly prescriptive in third-party relationships. Maybe you&rsquo;re not just telling them&nbsp;<em>what&nbsp;</em>you need&hellip;you&rsquo;re telling them&nbsp;<em>how</em>. Many partnerships exist specifically because the other side has expertise and capabilities you don&rsquo;t &ndash; so over-prescriptiveness limits your upside.&nbsp;</p> <p>Maybe your structure burdens partners, too. Think of a contract manufacturer with a global customer organized around regional P&amp;Ls, for instance. If all territories are involved in managing outsourcing, then supplier personnel do everything three times (with the Americas, EMEA and Asia Pacific). Wondering why your key contact isn&rsquo;t getting to the root cause of that issue or helping drive innovation? Maybe it&rsquo;s because she&rsquo;s doing everything &ndash; calls, email and reports &ndash; in triplicate&hellip;or maybe she can&rsquo;t get a timely straight answer when she needs one from you because there&rsquo;s no clear process owner on your side.&nbsp;</p> <p>You may say, &ldquo;But culture or organizationally-driven issues are not 100% under my control.&rdquo; While this is certainly true, unless you&rsquo;re the CEO &ndash; where relationship outcomes are critical &ndash; it&rsquo;s not a good enough excuse. The question becomes: how will you lead and influence inside your company? An Enterprise 360 provides powerful data here.</p> <div> <h2>Relationship and Trust</h2> </div> <p>Even if you ensure incentives are aligned and you are aware of the impact your culture and organization have on partners&hellip;problems periodically arise.&nbsp;</p> <p>To deal with them, is there an authentic and empathic relationship between partner company executives and, based on that tone-setting, between the working teams? Only this type of relationship supports a shared view of current reality and a productive &ldquo;shared contribution&rdquo; approach (instead of blame) to problem solving.&nbsp;</p> <p>And is there mutual trust &ndash; in each other&rsquo;s capabilities, reliability and motivation?</p> <p><em>Authenticity</em>,&nbsp;<em>empathy&nbsp;</em>and&nbsp;<em>trust&nbsp;</em>may sound &ldquo;soft,&rdquo; but imagine if they were absent within your company. Wouldn&rsquo;t cross-functional problem-solving and pursuit of new opportunities be severely hamstrung? That&rsquo;s not to say these things are easy, but inside your company there are (hopefully) degrees of flexibility, resilience and improvisation based on the presumption of good will and capability among colleagues &ndash; and the willingness to act accordingly.</p> <p>Just because you rely on a third-party, these qualities are not any less important. In fact, they may be even more critical. That&rsquo;s why your Enterprise 360 approach should listen for this dimension with equal emphasis as the others.&nbsp;</p> <div> <h2>Degree of Strategic Alignment</h2> </div> <p>What if your strategy and your partner&rsquo;s create different views on what&rsquo;s worth investing in, what&rsquo;s worth bending on and what the future looks like? Sometimes, even when everything else is going well, this is a hidden inhibitor.&nbsp;</p> <p>Imagine a corporate tech reseller/integrator and an enterprise software company whose solutions it distributes. Economic incentives may be aligned, culturally- and organizationally-driven inefficiencies may be under control, and relationships may be strong. But if the software company&rsquo;s strategy is to increase emphasis on direct sales and become part of solution suites with &ldquo;platform&rdquo; partners (de-emphasizing reseller-type channel partners), then a growing headwind will affect the partnership.&nbsp;</p> <p>That&rsquo;s why it&rsquo;s critical to keep using Enterprise 360-style listening not just to gain self-awareness, but also to assess the ongoing fit with partners. Without this, you&rsquo;re implicitly counting on your partners&rsquo; strategic priorities to remain frozen in a world where nothing lasts forever.</p> <div> <h2>Enterprise 360 for Deep Systemic Listening Across These Dimensions</h2> </div> <p>OK. If all this motivates you to gain broader perspective on how your company shows up in critical third-party relationships, here are suggested next steps.</p> <ol> <li>Invest time and energy to&nbsp;<strong>get a&nbsp;</strong><strong>clear baseline understanding&nbsp;</strong>of where relationships are today. I&rsquo;m not talking about a &ldquo;conducting a survey.&rdquo; To get what you want here, you need thoughtful and customized 1:1 discussions with partner executives, account leaders and operational people.</li> <li>Prioritize bringing your internal stakeholders together to&nbsp;<strong>get oriented around what you&rsquo;ve learned</strong>, what the implications are and what your options are for action where that&rsquo;s warranted. Often, the first key step is to get aligned on the fact that your partnership success relies on the dimensions discussed here.</li> <li><strong>Develop or update your guiding vision&nbsp;</strong>for the partnership. What will a long-term, excellent relationship feel like and deliver &ndash; and what&rsquo;s your company&rsquo;s part in achieving it? This step isn&rsquo;t always about positive aspirations&hellip;an effective process sometimes leads to purposefully de-emphasizing or ending relationships, too.</li> <li><strong>Make aligned action plans&nbsp;</strong>to target the things that &ldquo;must be true&rdquo; for achievement of the vision. These could include evolution on any/all of the dimensions detailed above. Since there are often collective blind spots and deeply-ingrained ways-of-being at work here, treat this as a concerted transformation effort.</li> </ol> <p>Often, for high-complexity, high-stakes relationships, you&rsquo;ll get the most out of this Enterprise 360 approach by using an objective third party to engage with partners and facilitate your company&rsquo;s orientation and action-planning around what you&rsquo;ve learned. Find one who understands your business&nbsp;<em>and</em>the critical human/partnership dimensions in play, and who has the ability to credibly engage and draw out relationship-sponsoring executives and key day-to-day relationship managers alike.&nbsp;</p> <p>Remember that individual 360 we started off referring to? If you&rsquo;ve gone through that process, you know it can be uncomfortable&hellip;but you also understand that the information you get from it is invaluable. With an Enterprise 360 effort, you can lead that same powerful learning and growth for your company.</p> </div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Tags:&nbsp;</div><div class="field-items"><div class="field-item even" rel="dc:subject"><a href="/tags/consulting" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Consulting</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/strategy" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Strategy</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/partnership" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Partnership</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/alignment" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Alignment</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/goals" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Goals</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/enterprise-360" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Enterprise 360</a></div></div></div><div class="field field-name-field-addthis field-type-addthis field-label-hidden"><div class="field-items"><div class="field-item even"><div class="addthis_toolbox addthis_default_style " addthis:title="Get &amp;ldquo;360&amp;rdquo; Feedback from Key Suppliers, Partners and Customers to Up-Level and De-Risk Your Relationships - Future of Sourcing" addthis:url="http://futureofsourcing.com/get-360-feedback-from-key-suppliers-partners-and-customers-to-up-level-and-de-risk-your"><a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_linkedin"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_facebook"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_twitter"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_googleplus"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_pinterest_share"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_reddit"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_email"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_print"></a> </div> </div></div></div><div class="field field-name-field-region field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Region:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/regions/global" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Global</a></div></div></div> Mon, 29 Apr 2019 17:45:08 +0000 Mark Teitell 1432 at http://futureofsourcing.com http://futureofsourcing.com/get-360-feedback-from-key-suppliers-partners-and-customers-to-up-level-and-de-risk-your#comments Opportunism: the other side of trust (Part 1) http://futureofsourcing.com/node/751 <div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>We often hear stories of business relationships that appeared strong suddenly turning sour. These relationships may even have existed for some time. So what is going on? It is likely acts of opportunism.</p> <p>Here&rsquo;s an example. A client of mine awarded a multimillion-dollar, multi-year deal to the lowest bidder. The bid was characterised as &ldquo;too good to be true&rdquo;; and, indeed it was too good to be true. Over 18 months, the supplier has run over budget, been late on scheduled delivery of services, and both companies are in a dispute about whether the supplier actually performed work for which it invoiced my client more than 12 months ago. The supplier has increased its back office staff from five to 15, lost its performance bonus and feels the pressure that its head is on the chopping block. My client is way over budget, had to staff up to meet deadlines and feels quite a bit of buyer&rsquo;s remorse.</p> <p>Why would the supplier bid so low? Why would the buying company award the business? Could this situation be explained by acts of opportunism on both sides of the relationship? To understand opportunism we first have to understand trust, because without some level of trust, there can be no opportunism.</p> <p><strong>Trust Is the Other Side of Opportunism</strong></p> <p>Trust is the core quality of any collaborative partnership. Trust lowers transaction costs, fosters innovation and provides the necessary space for the flexibility and agility needed in today&rsquo;s business relationships.</p> <p>Trust is a choice. Individuals can choose to trust each other and choose to act in a trustworthy manner. Or, they choose not to. It is that simple. Business relationships with high degrees of trust can spend their energies leveraging each other&rsquo;s core strengths and creating value, rather than on compliance, enforcement, or worse, fighting metaphorical fires as a result of poor performance.</p> <p>Trust, however, creates the opportunity for one party to take advantage of the other. This ability to take advantage of the other party is often called &ldquo;opportunism&rdquo;. Oliver Williamson, the Nobel Prize-winning economist described it as &ldquo;self-interest seeking with guile&rdquo;.</p> <p>Opportunism in today&rsquo;s pressured environments can be very attractive to decision-makers who are expected to continually improve results. Unfortunately, people don&rsquo;t get how opportunistic actions are driven by their own desires and not the other party&rsquo;s actions. In effect, when one party acts opportunistically, they justify their actions by blaming the other party for their own actions.</p> <p>In the situation above, the supplier chose to submit a ridiculously low bid and my client chose to accept it. Now, mind you they blame outside influences for those choices. The supplier claims it felt economic pressure in the industry to lower prices to stay competitive, and my client also feeling economic pressures to reduce costs awarded the work based on unusually low pricing. Nonetheless, each acted of their own accord. Each was acting out their own form of opportunism.</p> <p><strong>Why Choose Opportunism?</strong></p> <p>Trust and the threat of opportunism are two opposing forces fighting for the negotiator&rsquo;s attention. Commentators have suggested that opportunistic behavior is the default position in many business relationships. In fact, Dan Airley in his book&nbsp;<em>The (Honest) Truth About Dishonesty: How We Lie to Everyone &ndash; Especially Ourselves</em>&nbsp;may shed some light on this subject. He suggests that opportunism may well be inevitable. Airley proposes that we are all in a delicate balance between our desire for gain by whatever means and our need to see ourselves as a &lsquo;good person&rsquo;. This is the balance between being opportunistic and being trustworthy.</p> <p>Much of the prevailing thinking in the area of contract law is built around the concept that without controls embedded into contracts all arrangements would be subject to opportunism. It is often tempting to write contracts that make the consequences of opportunistic behaviour so extreme that it will make any attempt to seek unfair advantage uneconomically feasible. This approach to contracting assumes that negotiators will detect opportunistic behavior, which might be difficult.</p> <p><strong>Active and Passive Forms of Opportunism</strong></p> <p>Opportunism comes in many forms. Researchers in Norway and the US identified that it could be either active or passive. Active opportunism is usually employed by the powerful party. It can involve activities ranging from pushing out payment terms to arbitrarily taking discounts on invoices. Passive opportunism is of course more subtle; it can include actions such as not providing innovative ideas to the other party or letting quality standards slide.</p> <p>It is extremely likely that where there is active opportunism from one party there will be passive opportunism from the other. Perhaps the most recognised case of passive opportunism is the&nbsp;<em>General Motors (GM) v. Fisher Body</em>&nbsp;case. This relationship sparked vigorous debate between leading economists. Many years ago, GM offered Fisher Body an exclusive contact for a number of years to ensure a consistent supply of vehicle bodies. To attract Fisher Body, GM offered a pricing structure where GM would pay Fisher Body cost plus 17.5% margin. This payment approach did not incentivise performance but rather created a perverse incentive in that the more inefficient Fisher Body was the more money they got paid (in cost reimbursement).</p> <p>The issue came to a head when GM asked Fisher Body to move their factories closer to the GM vehicle production facilities (which would lower freight costs and reduce lead time) and to invest in higher levels of automation in producing bodies (which would replace expensive labour with more efficient methods). Since there was a financial incentive for Fisher Body to maintain inefficient production methods and to locate factories where they could service other vehicle production companies at no penalty, they refused. To solve its need for cost savings and production efficiencies, GM bought Fisher Body and made it a 100%-owned subsidiary.</p> <p><strong>Personal and Corporate Forms of Opportunism&nbsp;</strong></p> <p>Opportunistic behaviour can come from the decisions of an individual or from corporate policy. Personal ethics, or the lack thereof, can have an impact on contract negotiations. The attitudes of senior management can have a very significant effect on the degree to which staff may undertake opportunistic actions with their counterparts.</p> <p>Research in the US found that senior leadership influenced the degree of opportunism directly when they acted opportunistically themselves, but also indirectly when their staff noted and followed the same opportunistic behaviour patterns.</p> <p>In the case of corporate opportunism the firm may, as part of a larger strategy, decide to use (misuse) its market power to improve its position vis-a-vis its suppliers. A common example happening today is that of powerful customers arbitrarily pushing out payment terms from 30 to 60 days or beyond throughout the supply chain. Those payment terms often hit the smallest companies in the supply chain the hardest (also a form of active opportunism).</p> <p><strong>Establishing Enough Trust to Subdue Opportunism&nbsp;</strong></p> <p>Because trust is so fundamental to success and opportunism is such a real threat to success, companies (and the negotiators who architect the agreements) should establish their business relationship around six social norms. The norms outlined below are the same ones that govern successful societies.</p> <p>In my book&nbsp;<em>Getting to We: Negotiating Agreements for Highly Collaborative Relationships</em>, I describe six social norms, referred to as guiding principles. These social norms serve as the foundation for developing trust. They are reciprocity, autonomy, honesty, equity, loyalty and integrity. These principles, so important in our personal endeavours and interactions, also drive collaborative business behaviours and sustainable business partnerships.</p> <p>Business people really must accept the precept of abiding by social norms. If negotiators don&rsquo;t actively establish them, then the parties&rsquo; will passively work from their organisation&rsquo;s unwritten social norms. If those unwritten social norms conflict, there are enormous problems.</p> <p>On the other hand, with a commonly agreed to set of social norms for the relationship, opportunism will wane because the chosen norms will guide the behaviours of individuals and organisations alike to help them make the right decisions for the benefit of the relationship.</p> <p>To maintain trust, each company is responsible for always following the principles. For example, if both companies take seriously the principles of loyalty and integrity, the buying company will not disingenuously threaten suppliers with re-bidding work, and suppliers do not sell the &ldquo;A&rdquo; team just to substitute the less expensive &ldquo;C&rdquo; team to make a hefty profit.</p> <p><em>To continue reading this article,&nbsp;<a href="http://outsourcemag.com/opportunism-the-other-side-of-trust-part-2/" target="_blank">click here</a>&hellip;</em></p> </div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Tags:&nbsp;</div><div class="field-items"><div class="field-item even" rel="dc:subject"><a href="/tags/relationship-management" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Relationship Management</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/partnership" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Partnership</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/procurement" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Procurement</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/innovation" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Innovation</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/ethics" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Ethics</a></div></div></div><div class="field field-name-field-addthis field-type-addthis field-label-hidden"><div class="field-items"><div class="field-item even"><div class="addthis_toolbox addthis_default_style " addthis:title="Opportunism: the other side of trust (Part 1) - Future of Sourcing" addthis:url="http://futureofsourcing.com/node/751"><a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_linkedin"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_facebook"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_twitter"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_googleplus"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_pinterest_share"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_reddit"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_email"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_print"></a> </div> </div></div></div><div class="field field-name-field-region field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Region:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/regions/global" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Global</a></div></div></div> Mon, 01 Aug 2016 13:01:17 +0000 Jeanette Nyden 751 at http://futureofsourcing.com Stewart and Plotkin, the Prisoner’s Dilemma and Generous Strategies http://futureofsourcing.com/stewart-and-plotkin-the-prisoner%E2%80%99s-dilemma-and-generous-strategies <div class="field field-name-field-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even" rel="og:image rdfs:seeAlso" resource="http://futureofsourcing.com/sites/default/files/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_88.png"><a href="http://futureofsourcing.com/sites/default/files/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_88.png" title="Stewart and Plotkin, the Prisoner’s Dilemma and Generous Strategies" class="colorbox" rel="gallery-node-1115-Cyi9McQTx74"><img typeof="foaf:Image" src="http://futureofsourcing.com/sites/default/files/styles/juicebox_medium/public/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_88.png?itok=BurllpEw" width="624" height="325" alt="" title="" /></a></div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>I&rsquo;ve been a game theory fan for many years, particularly as it relates to showing that cooperative behavior indeed creates true &ldquo;win-win&rdquo; situations. So I was excited to read a work of University of Pennsylvania professors Alexander J. Stewart and Joshua B. Plotkin, &lsquo;<a href="http://www.pnas.org/content/early/2013/08/28/1306246110.full.pdf" target="_blank">From Extortion to Generosity, Evolution in the Iterated Prisoner&rsquo;s Dilemma</a>&lsquo;,&nbsp;published recently in the&nbsp;<em>Proceedings of the National Academy of Science</em>&nbsp;(PNAS).</p> <p>I was even more excited by their findings, which underscores (once again) that the evolution and validity of cooperation is a better approach than using the power of extortion to gain cooperation. It is definitely an academic study worthy of &ldquo;unpacking.&rdquo;</p> <p>The Stewart and Plotkin study sheds some a new light on a classic question concerning human behaviour: is it better to gain a lot at the expense of another person, or to gain slightly less while simultaneously promoting the other&rsquo;s wellbeing? They explore this question through the application of a spin on the classic&nbsp;<a href="http://www.econlib.org/library/Enc/PrisonersDilemma.html" target="_blank">Prisoner&rsquo;s Dilemma</a>&nbsp;game. A Prisoner&rsquo;s Dilemma is a situation, common in society and business, where the short-term self-interest of each party conflicts with the parties&rsquo; long-term interests. Research has shown that over the long term, people (or organisations) are better off if they cooperate. I wrote about the Prisoner&rsquo;s Dilemma for this column in May, 2011,&nbsp;<a href="http://outsourcemag.com/john-nash-robert-axelrod-game-theory-and-the-art-of-playing-nice/" target="_blank">&lsquo;John Nash, Robert Axelrod, Game Theory and the art of playing nice&rsquo;</a>.</p> <p>Stewart and Plotkin&rsquo;s work is full of rather dense mathematical equations and Venn diagrams that looks at what they reference as &ldquo;zero determinant (ZD) strategies.&rdquo; They write: &ldquo;Recent work has uncovered a remarkable class of extortion strategies that provide one player a disproportionate payoff when facing an unwitting opponent.&rdquo; This is what is called the zero determinant (ZD) and is typified by a solution where one party &ldquo;wins&rdquo; at a much higher rate than the opponent. They identify ZD, as &ldquo;a new class of probabilistic and conditional strategies&rdquo; that unilaterally set the expected payoff of an opponent in iterated plays of the Prisoner&rsquo;s Dilemma no matter the opponent&rsquo;s strategy, or else determines the ratio between a ZD player&rsquo;s and their opponent&rsquo;s expected payoff.</p> <p>While the math is impressive, it&rsquo;s their conclusion that excites me. Simply put, they find (like all the other research!) that cooperation and generosity are better modes of behaviour than obstinance and self-interest when it comes to thriving within a society.</p> <p>While extortion strategies &ldquo;perform very well in head-to-head competitions,&rdquo; at least for a brief period of time, Stewart and Plotkin write, &ldquo;they fare poorly in large, evolving populations.&rdquo;</p> <p>Common sense &ndash; right?</p> <p>What is maybe not so common sense is that Stewart and Plotkin look beyond ZD extortion strategies to something they refer to as &ldquo;generous ZD strategies.&rdquo; The generous ZD strategy subset involves active cooperation with others and the forgiveness of defection, thus replacing the extortionists.</p> <p>In general, Stewart and Plotkin continue, &ldquo;Extortion and ZD strategies are disfavored by evolution in populations. This has led to the view that ZD strategies are of importance only in the setting of classical two-player game theory, and not in evolving populations.&rdquo;</p> <p>Their conclusion: when the various Prisoner&rsquo;s Dilemma strategies are in play, generous strategies are &ldquo;disproportionately favoured&rdquo; over extortion strategies. That&rsquo;s because they &ldquo;stabilise cooperative behaviour.&rdquo;</p> <p>Stewart and Plotkin&rsquo;s results underscore the value of collaboration and cooperation &ndash; major tenets of the&nbsp;<a href="http://www.vestedway.com/" target="_blank">Vested</a>model &ndash; and help explain the evolution of cooperation in the Prisoner&rsquo;s Dilemma scenario.</p> <p>Of course &ndash; it makes sense to me. Be nice and cooperate and you will win much more often than not. Be generous and you will really win friends and influence others, which will come back in positive ways in the future. While some would call this good karma, others need the underlying math and science to prove common sense. So I am thankful Stewart and Plotkin took the time to do the math and &ndash; yet once again &ndash; prove you can indeed win more with a &ldquo;what&rsquo;s-in-it-for-we&rdquo; (WIIFWe) mindset!</p> </div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Tags:&nbsp;</div><div class="field-items"><div class="field-item even" rel="dc:subject"><a href="/tags/competition" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Competition</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/cooperation" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Cooperation</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/negotiation" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Negotiation</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/partnership" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Partnership</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/vested-outsourcing" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Vested Outsourcing</a></div></div></div><div class="field field-name-field-addthis field-type-addthis field-label-hidden"><div class="field-items"><div class="field-item even"><div class="addthis_toolbox addthis_default_style " addthis:title="Stewart and Plotkin, the Prisoner&amp;rsquo;s Dilemma and Generous Strategies - Future of Sourcing" addthis:url="http://futureofsourcing.com/stewart-and-plotkin-the-prisoner%E2%80%99s-dilemma-and-generous-strategies"><a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_linkedin"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_facebook"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_twitter"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_googleplus"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_pinterest_share"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_reddit"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_email"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_print"></a> </div> </div></div></div><div class="field field-name-field-region field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Region:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/regions/global" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Global</a></div></div></div> Wed, 16 Oct 2013 01:01:59 +0000 Kate Vitasek 1115 at http://futureofsourcing.com http://futureofsourcing.com/stewart-and-plotkin-the-prisoner%E2%80%99s-dilemma-and-generous-strategies#comments Getting to We: Time for a New Negotiating Paradigm http://futureofsourcing.com/getting-to-we-time-for-a-new-negotiating-paradigm <div class="field field-name-field-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even" rel="og:image rdfs:seeAlso" resource="http://futureofsourcing.com/sites/default/files/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_89.png"><a href="http://futureofsourcing.com/sites/default/files/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_89.png" title="Getting to We: Time for a New Negotiating Paradigm" class="colorbox" rel="gallery-node-1116-Cyi9McQTx74"><img typeof="foaf:Image" src="http://futureofsourcing.com/sites/default/files/styles/juicebox_medium/public/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_89.png?itok=nMqHBhRg" width="624" height="325" alt="" title="" /></a></div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>If your recent experiences with new or renewal contract negotiations are something akin to visiting the dentist for a root canal, we&rsquo;d like to introduce you to a much better &ndash; and pain-free! &ndash; way to go about negotiating. It&rsquo;s called Getting to We: a five-step process for crafting business relationships with the intent to drive collaborative partnerships.</p> <p>Getting to We is based on what we call a &ldquo;what&rsquo;s-in-it-for-we&rdquo; (WIIFWe) mindset. The WIIFWe mindset rejects the conventional &ldquo;I-win-you-lose&rdquo; or &ldquo;what&rsquo;s-in-it-for-me&rdquo; (WIIFMe) mindset.</p> <p>WIIFWe is the philosophical mantra forming the structure of a collaborative and trusting relationship. Once embraced, WIIFWe has the potential to deliver a competitive advantage for the parties long after a deal is signed.</p> <p>The WIIFWe mindset is slowly gaining traction as companies begin to embrace the concept that &ldquo;win-win&rdquo; is truly more than a nice thing to say &ndash; but has the power to bring significant bottom-line results to buyers and suppliers who truly want to unlock the potential of a highly collaborative relationship. Think &ldquo;win-win&rdquo; is a myth, or just too difficult? Look no further than the books&nbsp;<em>Vested: How P&amp;G, McDonald&rsquo;s and Microsoft are Redefining Winning in Business Relationships</em>&nbsp;and&nbsp;<em>Vested Outsourcing: Five Rules that Will Transform Outsourcing</em>&nbsp;for success stories.</p> <p>Negotiating the true nature of the relationship under a WIIFWe mindset means that the negotiating parties move away from the usual tit-for-tat cycle of actions and reactions; instead they create a negotiation atmosphere that encourages cooperation. There are three things about a WIIFWe relationship that alter the conventional tit-for-tat strategy:</p> <ul style="list-style-type:square;"> <li>The players turn into partners for success through a long-term relationship where each partner strives to preserve partnership rather than muscle or intimidate their partner by moving to another supplier or customer. The old-school transaction-based business relationship becomes a strategic partnership.</li> <li>The relationship honours and adheres to the common set of guiding principles that drive cooperative behaviour.</li> <li>The partners live the WIIFWe approach in daily interactions and use a formal, governance structure to ensure compliance with cooperative behaviour.</li> </ul> <p>Getting to We combines the WIIFWe mindset with a five-step process that is becoming the new paradigm for negotiating; it can take you and your partners beyond the handshake and the initial &ldquo;yes&rdquo; to a long-term business relationship that&rsquo;s based on collaboration, trust and sharing value. The philosophy and process are explained in detail in our new book&nbsp;<em>Getting to We</em>. Getting to We&rsquo;s five-step negotiation process changes the goal of the negotiation from simply getting the deal done to forging a long-term, win-win partnership. Following the Getting to We process revolutionises and transforms modern agreement negotiations &ndash; because the relationship itself becomes the focus of the deal.</p> <p>So what are the five steps?</p> <p><strong>1. Getting ready for WIIFWe.</strong></p> <p>The first step looks at three foundational elements for a successful collaborative relationship: trust, transparency, and compatibility. When the parties complete this step they will have a good idea whether there is a solid foundation to move forward. If they don&rsquo;t, they can work on solidifying the relationship, and then continue. Completing this step enables partners to determine whether a WIIFWe mindset has merit for them and whether they are willing to explore establishing or renegotiating a highly collaborative relationship.</p> <p><strong>2. Jointly agree on a shared vision for the partnership.</strong></p> <p>The parties discuss and create a shared vision for the partnership. Each party enters the discussion with their own vision, of course. But then the parties transform those separate visions into a shared vision, giving the partnership its purpose far beyond a series of transactions. Further, it will guide the partners, not only throughout the negotiation process, but throughout the term of the relationship.</p> <p><strong>3. Collaboratively negotiate the guiding principles for the partnership.</strong></p> <p>The Getting to We process demands that partners not only improve the relationship but also abide by a set of core principles that flow from true commitment to trust: reciprocity, autonomy, honesty, equity, loyalty and integrity. This is the critical step that distinguishes highly collaborative relationships from average functioning relationships. The principles provide the mindset to support the partners on their journey to live in a WIIFWe partnership. Without guiding principles to prevent opportunism and competitive tit-for-tat moves partners will not behave in a collaborative manner with each other.</p> <p><strong>4. Negotiate as We.</strong></p> <p>It is now time to begin to negotiate the deal. Partners following the Getting to We process should not start by negotiating the details of the deal such as the scope of work, pricing, and terms and conditions. Rather, they must first establish the mechanisms they will use as they negotiate those details. This includes agreeing on the &ldquo;negotiation rules&rdquo;, the strategies and tactics, and the methods for ensuring the deal is fair and balanced, especially when it comes to how the parties deal with risk allocation and creating value. Once the partners have agreed to these mechanisms, they will use them to achieve a consensus on the deal&rsquo;s specifics.</p> <p><strong>5. Living as We.</strong></p> <p>At this point the partners have reached the final stage of the journey: living as We, which occurs when they maintain a focus on the shared vision and guiding principles throughout the life of the relationship. Because relationships are dynamic, the partners choose to focus on relationship management by taking actions and measures required to keep it highly collaborative. The principles continue to play a critical role by driving the partners&rsquo; daily behaviours.</p> <p>In the Getting to We approach, the relationship becomes the focus of the deal, throughout the life of the deal. That&rsquo;s why Getting to We is a paradigm shift that takes business agreement negotiations far beyond signing on the dotted line.</p> <p>Are you ready to move beyond simply getting to &ldquo;yes&rdquo; to Getting to We?</p> <p><em>This article originally appeared in&nbsp;</em>Outsource<em>&nbsp;magazine Issue #33 Autumn 2013.</em></p> </div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Tags:&nbsp;</div><div class="field-items"><div class="field-item even" rel="dc:subject"><a href="/tags/collaboration" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Collaboration</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/negotiation" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Negotiation</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/partnership" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Partnership</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/relationship-management" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Relationship Management</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/trust" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Trust</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/vested-outsourcing-0" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Vested Outsourcing:</a></div></div></div><div class="field field-name-field-addthis field-type-addthis field-label-hidden"><div class="field-items"><div class="field-item even"><div class="addthis_toolbox addthis_default_style " addthis:title="Getting to We: Time for a New Negotiating Paradigm - Future of Sourcing" addthis:url="http://futureofsourcing.com/getting-to-we-time-for-a-new-negotiating-paradigm"><a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_linkedin"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_facebook"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_twitter"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_googleplus"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_pinterest_share"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_reddit"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_email"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_print"></a> </div> </div></div></div><div class="field field-name-field-region field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Region:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/regions/global" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Global</a></div></div></div> Wed, 02 Oct 2013 01:08:55 +0000 Kate Vitasek 1116 at http://futureofsourcing.com http://futureofsourcing.com/getting-to-we-time-for-a-new-negotiating-paradigm#comments Breaking the Outsourcing Conundrum http://futureofsourcing.com/breaking-the-outsourcing-conundrum <div class="field field-name-field-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even" rel="og:image rdfs:seeAlso" resource="http://futureofsourcing.com/sites/default/files/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_95.png"><a href="http://futureofsourcing.com/sites/default/files/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_95.png" title="Breaking the Outsourcing Conundrum" class="colorbox" rel="gallery-node-1121-Cyi9McQTx74"><img typeof="foaf:Image" src="http://futureofsourcing.com/sites/default/files/styles/juicebox_medium/public/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_95.png?itok=ZMh8tyn7" width="624" height="325" alt="" title="" /></a></div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"> <p><a href="http://outsourcemag.com/outsource-31-turning-you-on-spring-2013/" target="_blank"><br /><em>This article was co-authored by Rob Urbanowicz, Principal and Owner of The Geehan Group, and originally appeared in&nbsp;</em>Outsource<em>&nbsp;magazine Issue #31 Spring 2013.</em></a></p> <hr style="clear:both;" /> <p>As the outsourcing market has matured over the last 15 years, many service providers have developed capabilities that go beyond the original scope of delivery to their customers. New business models have evolved to create mutually beneficial relationships, increasing cost savings for the buyer and increasing margins for the provider. But all too often companies that have outsourced proclaim their relationship is stale and lacks innovation &ndash; it&rsquo;s the Outsourcing Conundrum.</p> <p><strong>Let&rsquo;s look at a classic example we have seen&nbsp;repeated many times</strong></p> <p>OUT company has been providing outsource services to MFG company since 2007. When the initial project was launched, each had high expectations that the relationship would become bigger and better for both companies. MFG had a vision to leverage the OUT company&rsquo;s capabilities across multiple divisions, saving the company millions of dollars while maintaining quality and service levels. OUT had visions of the MFG account growing into a highly profitable marquis account.</p> <p>By 2012 the relationship became stale. Even though OUT was achieving a &ldquo;green&rdquo; scorecard and meeting service level agreements (SLAs), neither side could move strategically towards the vision expected from their strategic outsourcing relationship.</p> <p>The story of MFG and OUT is repeated every year in hundreds of outsourcing relationships. Visions of grandeur in a strategic outsourcing relationship are checked at the door during the first round of contract negotiations. Buyers focus on their bottom line by driving costs down. Service providers hunker down to deliver on the promise of the green scorecard at the pre-negotiated price. Neither side invests in the strategic relationship. Neither side advances their business models and margins.</p> <p><strong>Why have outsourcing relationships fallen in this rut? How can they get out of it?</strong></p> <p>These are questions University of Tennessee researchers have studied since 2005. The findings? Too often the relationships and frontline organisational models have lagged, preventing companies and their service providers from maximising value. Neither buyers nor providers are stepping back to rethink their relationship and find the roadmap to success. Both are unhappy, but are too entrenched to revisit their strategic vision for outsourcing and develop a roadmap for success.</p> <p><strong>The Roadmap: Business Model Mapping Framework&nbsp;</strong></p> <p>The good news today is that the roadmap to success is becoming clearer. The University of Tennessee&rsquo;s research points the way for companies to view their outsourcing relationships through a new lens and business model. A recent white paper by UT and the Sourcing Interests Group, &lsquo;Unpacking Sourcing Business Models&rsquo;, offers insights for providers and buyers to learn the differences between the various sourcing business models and determine if &ldquo;moving up&rdquo; the framework is the right approach.</p> <p>From this research three distinct&nbsp;business model categories emerged: Transaction Based, Outcome Based, and Investment Based. These models are further broken down by their level of maturity to identify the sourcing relationship, ranging from simple transaction provider to equity partner&nbsp;(see below).</p> <p><a href="http://outsourcemag.com/wp-content/uploads/2013/04/KV-March2013-FIGURE-1.jpg"><img alt="Breaking the Outsourcing Conundrum" height="594" pagespeed_url_hash="2229483264" sizes="(max-width: 600px) 100vw, 600px" src="http://outsourcemag.com/wp-content/uploads/2013/04/KV-March2013-FIGURE-1.jpg" srcset="http://archive.outsourcemag.com/wp-content/uploads/2013/04/KV-March2013-FIGURE-1-300x297.jpg 300w, http://archive.outsourcemag.com/wp-content/uploads/2013/04/KV-March2013-FIGURE-1.jpg 600w" style="line-height: inherit; float: right; height: auto !important;" width="600" /></a></p> <p>UT&rsquo;s work has led to four books on the topic of what researchers call Vested Outsourcing: a structured approach for&nbsp;creating highly strategic outcome-based agreements between buyers and suppliers. The research has shown companies that embark on a Vested approach are able to achieve breakthrough results spawned by hyper-collaboration and the desire to invest in innovation in the strategic partnership. Moving up the business model framework provides mutual benefit for providers and buyers in terms of revenues, cost savings, quality, consistency and most importantly, margin improvement. The research proves that companies executing a relationship-based strategy succeed at faster rates than their competition. The latest book on the Vested topic,&nbsp;Vested: How P&amp;G, McDonald&rsquo;s and Microsoft are Redefining Winning in Business Relationships, shows the Vested approach is not just a nice theory, but has the ability to deliver real, transformational results.</p> <p>But just how does a service provider work with buyers to achieve this Holy Grail? Sean Geehan, CEO and Founder of the Geehan Group, outlines a roadmap for success in his book,&nbsp;The B2B Executive Playbook.</p> <p>The answer lies in service providers consciously creating a path to a Vested relationship. To achieve the path to success, providers and buyers need to think more creatively, become receptive to ideas and open to new ways of doing business. The good news: it is possible. The bad news is that moving outsourcing relationships up the business model framework often takes much more time, effort and energy than initially envisioned. Changes in scope, resources and business environments create obstacles to make the upstream trek seem like an upstream fight against a raging snowmelt river in the Colorado canyons.</p> <p>Let&rsquo;s explore the path to success&hellip;</p> <p><strong>Laying the Foundation: Understanding the B2B Relationship Continuum&nbsp;</strong></p> <p>Geehan outlines five distinct categories in the B2B Relationship Continuum in&nbsp;The B2B Executive Playbook. The continuum begins with a commodity supplier and moves to a business partner&nbsp;(see below).</p> <p><a href="http://outsourcemag.com/wp-content/uploads/2013/04/KV-March2013-FIGURE-2.jpg"><img alt="Breaking the Outsourcing Conundrum" height="118" pagespeed_url_hash="2523983185" src="http://outsourcemag.com/wp-content/uploads/2013/04/KV-March2013-FIGURE-2.jpg" style="line-height: inherit; height: auto !important;" width="600" /></a></p> <p>The ability for a provider to sell or collaborate on more partnership-oriented programs is dependent on where they are perceived in the relationship continuum, and the level of business relationships they have within the organisation.</p> <p>The first step along the journey is to build a foundation of trust. A mutual trust-based relationship is needed to achieve more advanced business model engagements. Today most provider firms have some program or approach they are attempting to implement that will drive business-leader-level relationships to become more &ldquo;trusted&rdquo;. In many cases providers focus on one-to-one account-based selling and delivery models to focus more closely on the customer. These models have had positive success for many organisations, especially those who have experienced delivery issues and who are looking to provide more of their outsourcing services to other parts of the organisation.</p> <p>But moving up the business model continuum to gain trust with the customer&rsquo;s top &ldquo;C-level&rdquo; leaders requires more than the frontline being organised to solve delivery issues and prove value. Today, successful outsourcers are finding that organisational commitment to the relationship must go beyond the sales team. The provider&rsquo;s C-level must also become a key component in the relationship with top clients.</p> <p>Providers must prove themselves at each level to earn their way up the continuum towards a more trusted status. The more trusted status allows a provider to position their brand and company as capable of delivering greater levels and amounts of services, ultimately earning more business.</p> <p><strong>Understanding the Perception Deficit Dilemma&nbsp;</strong></p> <p>An insight uncovered in B2B relationships is that most providers often measure their relationship at a level that doesn&rsquo;t align with the future business model or level of services they&rsquo;re intended to deliver. There are three distinct relationship levels in the B2B world, and the B2B provider must be careful to focus on building trust with the level capable of advancing to the next business model&nbsp;(see below).</p> <p><a href="http://outsourcemag.com/wp-content/uploads/2013/04/KV-March2013-FIGURE-3.jpg"><img alt="Breaking the Outsourcing Conundrum" height="266" pagespeed_url_hash="2818483106" src="http://outsourcemag.com/wp-content/uploads/2013/04/KV-March2013-FIGURE-3.jpg" style="line-height: inherit; height: auto !important;" width="600" /></a></p> <p>A &ldquo;perception deficit&rdquo; exists when the C-level in the buyer organisation perceives the relationship at a lower level than the operational vice president leader. This perception deficit means the provider cannot move up the business model&nbsp;continuum until it becomes more relevant to the C-level leader and consequently improves how it is perceived.</p> <p>Unfortunately, the B2B world is rife with complexities in relationships. But a simple way to break it down is to consider three distinct levels of relationships: Staff/Managers responsible for managing the service level agreements; VPs/Directors who take responsibility for the programs under contract; and CXOs, who are concerned with developing strategies to deliver ROI and shareholder value.</p> <p><strong>&ldquo;Has this happened to you?&rdquo;</strong></p> <p>Provider X has a &ldquo;trusted advisor&rdquo; relationship with the vice president of finance (operational leader) who has responsibilities for their contract and services. Provider X presents an idea to the vice president. The idea will help the organisation cut costs and advance its operations in the supply chain operations of the company. The vice president is excited and provides an introduction to her COO, two layers above her. The COO has a perception that Provider X effectively delivers under their current contract and considers Provider X a &ldquo;reliable supplier&rdquo;.&nbsp; The COO is pleasantly surprised to hear of the supply chain idea and immediately asks the vice president of logistics to look into the idea. Within three months an RFP is issued to three separate vendors. Provider X is one of the finalists, but ultimately loses to a company the COO perceives to be more strategic. When Provider X asks why they didn&rsquo;t win the contract, the response is that &ldquo;we like your approach and capabilities, but in the eyes of the COO, the other vendor was more qualified&rdquo;.</p> <p>The problem that exists is that the perception of the business leaders (the COO) often takes precedence over the perception of operational leaders (the vice president of finance). Outsourcing firms often have great barriers to overcome to effectively build relationships with business leaders occupying the C-suite and board rooms. Not only must the provider possess business and industry knowledge, but it must overcome other barriers that can include cultural, generational and language differences to mention a few.</p> <p>Overcoming these barriers, and forging business relationships at a senior level in an organisation, allows the provider to move up the business model framework to achieve the investment-based-level relationship referred to as the Vested Relationship.</p> <p><strong>The Path to Success</strong></p> <p>Most contracts for outsourced services begin at the procurement and operational level within an organisation. For providers to achieve their goals of increasing revenues the buyer must view the provider as a trusted advisor or business partner. Moving up to a more strategic and ultimately Vested relationship by the provider requires both moving up the B2B Relationship Level and over on the B2B Relationship Continuum&nbsp;(see below).</p> <p><img alt="Breaking the Outsourcing Conundrum" height="446" pagespeed_url_hash="3112983027" src="http://outsourcemag.com/wp-content/uploads/2013/04/KV-March2013-FIGURE-4.jpg" style="line-height: inherit; height: auto !important;" width="600" /></p> <p>Moving higher on the relationship level requires the provider to be increasingly business-savvy and have broader business&nbsp;perspectives than simply the work under contract. The provider must navigate through the corporate hierarchy by engaging with more senior leaders. With each encounter and interaction, the provider must prove it understands the buyer&rsquo;s business, offering insights in a peer-to-peer relationship capacity.</p> <p>Moving to the right on the Relationship Continuum (see above) means that the provider not only understands the buyer&rsquo;s business, but has the wherewithal, insights and capabilities to deliver increasingly dynamic and complex solutions to the buyer&rsquo;s problems and visions for the future.</p> <p>Investment in the relationship creates a Vested relationship, and the rewards are significant. As the organisations align on business goals, joint teams identify areas for cost savings that will benefit the buyer. At the same time, efficiencies in the outsourced process increase the margins of the provider. As both organisations increase their operating margins, the investment in the relationship pays off with the benefits of a Vested relationship.</p> <p>The Vested relationship journey undoubtedly takes time to navigate. But some organisations, such as India&rsquo;s high-tech outsourcing firm HCL, have moved towards the Vested relationship at a faster pace than others; they have been rewarded quite handsomely in terms of revenue growth. Earning the way to the Vested relationship requires commitment and a programmatic approach to engaging with business leaders in meaningful working relationships.</p> <p>Shami Khorana, President of HCL America, comments: &ldquo;This platform allowed us an exchange of ideas with true decision-makers from our major clients to gain &lsquo;collective feedback&rsquo;. This has ultimately contributed to our sales growth and the value of the services we provide.&rdquo;</p> <p>For buyers, providing access to senior-level decision-makers and having your providers participate in strategy-planning sessions will help you to identify innovative ideas and align strategies with partners that can deliver to future needs more consistently and cost-effectively.</p> <p><strong>Increasing the Relationship Decreases Business Risks</strong></p> <p>So what if we decide we like it where we are in the relationship and decide the status quo is OK? Why not continue doing business as usual forever?</p> <p>The outsourcing relationship is like a marriage. The more time invested together, the bigger the loss that is realised if the relationship fails. If a loss of appreciation for each other or the zest for visioning the future stalls, the likelihood for a divorce increases.</p> <p>When the outsourcing relationship is elevating towards a shared vision the risks of relationship failure actually decrease.</p> <p>In situations where the provider is perceived as a reliable supplier or less, the provider becomes tired of mundane delivery and continued cost and margin pressures it faces. The provider&rsquo;s team can&rsquo;t meet the profit margins demanded so they look to cut corners. Quality goes down as lower-cost alternatives are substituted to improve profitability. The buyer has now put its operation at risk with the lower quality, and the inevitable decrease in performance levels only mean that replacement is just around the corner.</p> <p>For those relationships that haven&rsquo;t moved beyond the &ldquo;problem-solver&rdquo; level, organisational change and business change risks persist &ndash; on both sides of the relationship fence. For instance, when an organisational change occurs, both parties must work extra-hard to build new working relationships and re-establish the past level of trust. The best recipe for prevention of future issues, and ultimately a failed relationship, is to forge deeper and wider relationships on each side of the outsourcing fence.</p> <p><strong>Summary</strong></p> <p>Transforming the buyer/provider relationship from stalled normalcy to the development of mutually beneficial growth is achievable. Investing in relationships will create a Vested relationship. Vested relationships by their nature offer the best mutual opportunity for increased operating margins with the risk and reward payoff. While entering into a Vested relationship can be a high-risk proposition at the outset, it becomes one of the least risky relationships in terms of chances to fail. Why? Unwinding a Vested relationship is a significant, time-consuming and costly situation, and thus occurs very infrequently.</p> <p>Outsourced business relationships are dynamic. Moving business models from transaction-based to outcome-based to investment-based requires continual improvements in the delivery of services, building of relationships and improving perceptions of the working relationship. Those providers that take the programmatic approach to foster relationships and continually prove value will see growth and business model evolution at a pace faster than the industry. Those buyers who continually foster innovation and collaboration with their providers have the opportunity to gain competitive advantage by implementing new ideas ahead of competitors. The parties create a win-win situation when they continually work together to foster change and innovation, identify new opportunities and create better synergies to drive mutual growth&nbsp;and mutual benefit.</p> </div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Tags:&nbsp;</div><div class="field-items"><div class="field-item even" rel="dc:subject"><a href="/tags/partnership" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Partnership</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/perception-deficit" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Perception Deficit</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/pricing" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Pricing</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/trust" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Trust</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/trusted-advisor" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Trusted Advisor</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/vested-outsourcing" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Vested Outsourcing</a></div></div></div><div class="field field-name-field-addthis field-type-addthis field-label-hidden"><div class="field-items"><div class="field-item even"><div class="addthis_toolbox addthis_default_style " addthis:title="Breaking the Outsourcing Conundrum - Future of Sourcing" addthis:url="http://futureofsourcing.com/breaking-the-outsourcing-conundrum"><a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_linkedin"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_facebook"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_twitter"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_googleplus"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_pinterest_share"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_reddit"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_email"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_print"></a> </div> </div></div></div><div class="field field-name-field-region field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Region:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/regions/global" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Global</a></div></div></div> Tue, 09 Apr 2013 22:22:20 +0000 Kate Vitasek 1121 at http://futureofsourcing.com http://futureofsourcing.com/breaking-the-outsourcing-conundrum#comments Vaia and Tommasetti: connecting governance with trust and commitment http://futureofsourcing.com/vaia-and-tommasetti-connecting-governance-with-trust-and-commitment <div class="field field-name-field-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even" rel="og:image rdfs:seeAlso" resource="http://futureofsourcing.com/sites/default/files/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_96.png"><a href="http://futureofsourcing.com/sites/default/files/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_96.png" title="Vaia and Tommasetti: connecting governance with trust and commitment" class="colorbox" rel="gallery-node-1124-Cyi9McQTx74"><img typeof="foaf:Image" src="http://futureofsourcing.com/sites/default/files/styles/juicebox_medium/public/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_96.png?itok=OhBUtygp" width="624" height="325" alt="" title="" /></a></div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>I often talk about the need for insightful governance as an essential part of business frameworks. In fact, it&rsquo;s what Vested&rsquo;s&nbsp;<a href="http://www.vestedway.com/rule-5-governance-structure-should-provide-insight-not-merely-oversight/" target="_blank">Rule 5</a>&nbsp;is all about. So I was happy to learn about the work of two scholars from Italy&rsquo;s University of Salerno who have taken this idea a vital step forward.</p> <p>Giovanni Vaia and Aurelio Tommasetti are fellow academics and the authors of a recent paper, &lsquo;<a href="http://books.google.co.uk/books?id=07duDT3nEAAC&amp;pg=PA217&amp;lpg=PA217&amp;dq=Giovanni+Vaia+and+Aurelio+Tommasetti&amp;source=bl&amp;ots=1X8bFgmrE1&amp;sig=Rpk6cEOZjTPwXq3Sp9ZySi5m-s4&amp;hl=en&amp;sa=X&amp;ei=v1Q2Ube2NOz_yQG5ioEo&amp;redir_esc=y" target="_blank">The Role of Contracts and Informal Relations in the Governance of IT Outsourcing Processes</a>&lsquo;.</p> <p>Vaia and Tommasetti write that &ldquo;the governance of IT outsourcing processes needs the development of complex informal relationships in support of the contracts.&rdquo; They examine the concepts of &ldquo;technological dynamism&rdquo; and &ldquo;market evolution&rdquo; in the IT outsourcing sector. In a nutshell, they are writing about what should be radically common sense: that companies that outsource and their service providers face a high degree of uncertainty both in managing and innovating business services.</p> <p>Their call to action is for adaptation and flexibility in IT outsourcing. Specifically, they advise companies to treat suppliers as strategic partners that are &ldquo;pushing towards a harmonious and cooperative relationship based on trust and commitment.&rdquo; They go on to make this interesting and valuable observation: &ldquo;The more the IT services are outsourced, the more long-term relations last and the focus is on results and trust rather than on the contract.&rdquo;</p> <p>Vaia and Tommasetti compare several cases of what they call &ldquo;static&rdquo; contract management, or &ldquo;traditional classic contracting&rdquo;, with &ldquo;dynamic&rdquo; contract management, or dynamic contracting.</p> <p>It is this latter point that I find compelling, because they basically describe a&nbsp;<a href="http://www.vestedway.com/" target="_blank">Vested</a>&nbsp;approach: &ldquo;The [dynamic] contract does not ever specify what it is necessary to do any time exactly, but it often defines only the aims to achieve and the procedures to follow (or the methods of revision of the main parameters which regulate the contract); the necessary adjustments due to events produced during the relation are regulated time by time, considering the whole development of the relation until the event (these adjustments often concern the amount rather than the price). Finally, the contract guarantees the observance of most contractual terms rather than the legal system, with the fixed incentives and any following agreements.&rdquo;</p> <p>While the article is written in classic scholarly language (it&rsquo;s a tough read for the average practitioner), they are describing a Vested collaborative and flexible framework. Simply put, a contract, whether it involves IT companies or other types of outsourcing endeavours, is more than a formal piece of paper with strict terms and conditions. It creates a relationship among the parties, including less formal interactions. This is very true in the realm of collaborative outsourcing, such as the Vested business model, where a partnership is based on a new mindset of trust and working together to share value.</p> <p>I also like how Vaia and Tommasetti state that the role of &ldquo;informal governance&rdquo; becomes highly important because trust becomes the essential driver to help manage the relationship, something that a rigidly controlled contract can&rsquo;t easily do. They argue (again radical common sense) that trust allows companies to base the relationship on rules &ldquo;characterised by flexibility and ability to adapt in order to manage the technological and business uncertainty, to start processes of knowledge exchange, to focus the growth of systems according to the real need of the company and the structural capabilities.&rdquo;</p> <p>This is very much along the lines of the topic of our next book on Vested,&nbsp;<em>Getting to We: Negotiating Agreements for Highly Collaborative Relationships</em>, on which I collaborated with Jeanette Nyden and David Frydlinger. The book will be published by Palgrave Macmillan this year.</p> <p>Thank you Vaia and Tommasetti for bringing some academic diligence to a concept that is so vital to today&rsquo;s business agreements. Sometimes the world needs academics to &ldquo;bless&rdquo; what is common sense!</p> </div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Tags:&nbsp;</div><div class="field-items"><div class="field-item even" rel="dc:subject"><a href="/tags/contract-management" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Contract Management</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/knowledge-transfer" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Knowledge Transfer</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/partnership" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Partnership</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/trust" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Trust</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/vested-outsourcing" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Vested Outsourcing</a></div></div></div><div class="field field-name-field-addthis field-type-addthis field-label-hidden"><div class="field-items"><div class="field-item even"><div class="addthis_toolbox addthis_default_style " addthis:title="Vaia and Tommasetti: connecting governance with trust and commitment - Future of Sourcing" addthis:url="http://futureofsourcing.com/vaia-and-tommasetti-connecting-governance-with-trust-and-commitment"><a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_linkedin"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_facebook"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_twitter"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_googleplus"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_pinterest_share"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_reddit"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_email"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_print"></a> </div> </div></div></div><div class="field field-name-field-region field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Region:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/regions/global" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Global</a></div></div></div> Thu, 07 Mar 2013 22:41:47 +0000 Kate Vitasek 1124 at http://futureofsourcing.com http://futureofsourcing.com/vaia-and-tommasetti-connecting-governance-with-trust-and-commitment#comments Co-operation’s role in long-term contracting http://futureofsourcing.com/co-operation%E2%80%99s-role-in-long-term-contracting <div class="field field-name-field-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even" rel="og:image rdfs:seeAlso" resource="http://futureofsourcing.com/sites/default/files/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_98.png"><a href="http://futureofsourcing.com/sites/default/files/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_98.png" title="Co-operation’s role in long-term contracting" class="colorbox" rel="gallery-node-1126-Cyi9McQTx74"><img typeof="foaf:Image" src="http://futureofsourcing.com/sites/default/files/styles/juicebox_medium/public/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_98.png?itok=kRY8Gpf_" width="624" height="325" alt="" title="" /></a></div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>I&rsquo;ve talked at length in this series recently about how academics and big thinkers have buttressed the importance of trust and collaboration in outsource deals. While it may seem like an anomaly, or at least a new idea, to mention cooperation and contracts in the same breath, it&rsquo;s neither.</p> <p>In fact cooperation is vital to the long-term success of contracts, as David Campbell and Donald Harris pointed out in 1993 in the&nbsp;<a href="http://www.jstor.org/discover/10.2307/1410166?uid=3738032&amp;uid=2&amp;uid=4&amp;sid=21101405571423" target="_blank"><em>Journal of Law and Society</em></a>. Campbell is a British professor who specialises in English contract law; Harris is a founding director of the Oxford Centre for Socio-Legal Studies.</p> <p>The article says there is a &ldquo;fundamental shortcoming&rdquo; in the way classical law addresses long-term contractual behaviour. &ldquo;Efficient long-term contractual behaviour must be understood as consciously co-operative,&rdquo; they wrote. &ldquo;We see a long-term contract as an analogy to a partnership. The parties are not aiming at utility-maximisation directly through performance of specified obligations; rather, they are aiming at utility-maximisation indirectly through long-term co-operative behaviour manifested in trust and not in reliance on obligations specified in advance.&rdquo;</p> <p>My translation of that mouthful: for a partnership to function successfully over the long term, it&rsquo;s vital to move away from a transaction-based mindset to that of a flexible, collaborative, outcome-based and trusting approach. These are essential elements for a solid long-term relationship; they are embodied in the Vested business and outsourcing model.</p> <p>It&rsquo;s always invigorating to come across academics and economists who were thinking Vested long before the term became the growing movement it is today!</p> <p>Campbell and Harris draw a distinction between the &ldquo;cooperative mechanism&rdquo; of the effective, useful long-term relationship and that of a short-term, highly specific contract.</p> <p>Flexibility and open-mindedness is the key. &ldquo;The precise conduct required by future long-term co-operation is necessarily unable to be specified in advance and the shares in the joint product of that co-operation are equally often not specified in advance,&rdquo; they write. &ldquo;The parties accept a general and productively vague norm of fairness in the conduct of their relationship.&rdquo;</p> <p>A &ldquo;productively vague norm of fairness&rdquo; in conducting the relationship is bit of puzzle to me. Is it really that way? If the parties are on the same page in communicating their intentions and desired outcomes within the context of a flexible &ldquo;business happens&rdquo; governing framework, as in Vested, then it seems to me that productivity increases while vagueness &ndash; which might also include uncertainty &ndash; is somewhat mitigated.</p> <p>But then the authors are spot-on when they say, &ldquo;as bluntly as clarity requires, that the explanation of long-term contracts requires the rejection of immediate individual self-interest as the measure of economic rationality and its replacement by common interest as this measure.&rdquo;</p> <p>They continue that the &ldquo;adequate form of self-interest in long-term contracts is co-operation.&rdquo; They further assert an emphasis on individual self-interest in the long-term contract &ldquo;as a rationally discussable theoretical concept is now so unproductive that it must be rejected in the explanation of long-term contracting and in this there is entailed a very strong criticism of the heart of the classical law.&rdquo;</p> <p>That, it seems to me, is a politely academic way of saying they want to blow away the &ldquo;heart&rdquo; of classical law &ndash; especially when dealing with strict risk liabilities and extra-legal strategies when liability occurs &ndash; as applied to long-term contracting. The degree of flexibility that results through long-term cooperation &ldquo;seems to make the classical law more or less irrelevant to these contracts.&rdquo;</p> <p>The authors&rsquo; model draws heavily on the transaction cost economic analyses and flexible framework insights of Oliver Williamson and Ronald Coase, and in the ideas on contracts as instruments of social cooperation expressed by Robert Macneil.</p> <p>That&rsquo;s heavy company to travel in. Their densely written treatise is a worthwhile addition that further buttresses the Vested principle of replacing self-interest with common interest and collaboration as the basic measures of &ldquo;economic rationality&rdquo; in contracting.</p> </div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Tags:&nbsp;</div><div class="field-items"><div class="field-item even" rel="dc:subject"><a href="/tags/collaboration" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Collaboration</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/contract" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Contract</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/cooperation" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Cooperation</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/economic-rationality" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Economic Rationality</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/flexibility" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Flexibility</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/partnership" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Partnership</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/vested-outsourcing" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Vested Outsourcing</a></div></div></div><div class="field field-name-field-addthis field-type-addthis field-label-hidden"><div class="field-items"><div class="field-item even"><div class="addthis_toolbox addthis_default_style " addthis:title="Co-operation&amp;rsquo;s role in long-term contracting - Future of Sourcing" addthis:url="http://futureofsourcing.com/co-operation%E2%80%99s-role-in-long-term-contracting"><a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_linkedin"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_facebook"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_twitter"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_googleplus"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_pinterest_share"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_reddit"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_email"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_print"></a> </div> </div></div></div><div class="field field-name-field-region field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Region:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/regions/global" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Global</a></div></div></div> Tue, 04 Dec 2012 22:52:19 +0000 Kate Vitasek 1126 at http://futureofsourcing.com http://futureofsourcing.com/co-operation%E2%80%99s-role-in-long-term-contracting#comments Steven D. Levitt: it’s all about incentives http://futureofsourcing.com/steven-d-levitt-it%E2%80%99s-all-about-incentives <div class="field field-name-field-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even" rel="og:image rdfs:seeAlso" resource="http://futureofsourcing.com/sites/default/files/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_113.png"><a href="http://futureofsourcing.com/sites/default/files/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_113.png" title="Steven D. Levitt: it’s all about incentives" class="colorbox" rel="gallery-node-1141-Cyi9McQTx74"><img typeof="foaf:Image" src="http://futureofsourcing.com/sites/default/files/styles/juicebox_medium/public/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_113.png?itok=k-reMTaO" width="624" height="325" alt="" title="" /></a></div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>If you walk past a bookstore or watch&nbsp;<a href="http://www.cbsnews.com/sections/60minutes/main3415.shtml?tag=hdr;snav" target="_blank"><em>60 Minutes</em></a>&nbsp;you have likely heard of the wonderful works by the academic economist&nbsp;<a href="http://pricetheory.uchicago.edu/levitt/home.html" target="_blank">Steven D. Levitt</a>,&nbsp;<a href="http://freakonomicsbook.com/" target="_blank"><em>Freakonomics</em>&nbsp;and&nbsp;<em>Superfreakonomics</em></a>. Levitt teamed with his journalist collaborator Stephen J. Dubner to create two bestsellers I highly recommend reading. The books are fun and clever, but more importantly they reveal basic insights about human economic activity while exploring &ldquo;the hidden side of everything.&rdquo;</p> <p>The books are based on some fundamental concepts:</p> <ul style="list-style-type:square;"> <li>&ldquo;Morality is what people should do.&nbsp; Economics is what people do.&rdquo;</li> <li>&ldquo;The conventional wisdom is often wrong&rdquo;</li> <li>&ldquo;Incentives are the cornerstone of modern life&rdquo;</li> <li>&ldquo;Dramatic effects often have distant, even subtle, causes&rdquo;</li> <li>&ldquo;Knowing what to measure and how to measure it makes a complicated world much less so&rdquo;</li> </ul> <p>One of Levitt&rsquo;s most powerful points is what he calls the &ldquo;law of unintended consequences.&rdquo; While he tells lively stories of how unintended consequences drive the behaviors of schoolteachers, realtors, crack dealers, prostitutes and expectant mothers, this law also greatly affects outsourcing deals as well.</p> <p>In fact, an outsourcing deal that is not collaboratively planned, tracked and governed will suffer from all sorts of random, unintended but predictable negative consequences. In my research at the University of Tennessee I outline 10 common unintended consequences which I call&nbsp;<a href="http://www.vestedoutsourcing.com/category/10-ailments/" target="_blank">ailments</a>&nbsp;&ndash; all of which diminish or derail the effectiveness of an outsource partnership.</p> <p>Levitt stresses in his second book,&nbsp;<em>Superfreakonomics</em>, that &ldquo;People respond to incentives.&rdquo; Incentives are the &ldquo;cornerstone of modern life,&rdquo; and while people respond to them, unfortunately they do not necessarily respond &ldquo;in ways that are predictable or manifest,&rdquo; which is where unintended consequences enter the fray and become perverse incentives.</p> <p>Our research has also found that some of the most successful outsourcing deals leverage incentives heavily to motivate service providers. Deals are structured around business results &ndash; or Desired Outcomes &ndash; versus paying a service provider by transaction or headcount.</p> <p>In&nbsp;<a href="http://www.vestedoutsourcing.com/books/" target="_blank"><em>The Vested Outsourcing Manual</em></a>, I say that companies should always incorporate incentives &ndash; whether they are cost, performance, awards or nonmonetary incentives &ndash; that are mutually beneficial to the parties in order to offset the flaws of using conventional firm fixed price or cost-reimbursement models, which can lead to perverse incentives. If one side&rsquo;s incentives come at the expense of the other side then the outsourcing deal is in jeopardy.</p> <p>The challenge is to motivate outsourcing teams to make the&nbsp;<a href="http://www.vestedoutsourcing.com/the-gorilla-vs-the-elephant-part-2-the-elephant/" target="_blank">collaborative decisions</a>&nbsp;on pricing, performance and outcomes that ultimately will translate into the incentives that breed success and the win-win.</p> <p>In outsourcing, it&rsquo;s important to consider Levitt&rsquo;s insight: &ldquo;Morality is what people should do. Economics is what people do.&rdquo; He also says that &ldquo;in economics as in life, you&rsquo;ll never find the answer to a question unless you&rsquo;re willing to ask it, as silly as it may seem.&rdquo;</p> <p>Here&rsquo;s a parting word of advice if you are looking to structure an outsourcing deal. You&rsquo;ll never find the right incentive package unless you&rsquo;re willing to ask the right questions with your outsourcing partner. So rather than use your procurement and negotiation&nbsp;<a href="http://www.vestedoutsourcing.com/a-nobel-laureate-with-undertones-for-vested-outsourcing/" target="_blank">muscle</a>, stop and ask the service provider what motivates it and how it would structure a deal that&rsquo;s designed to achieve what you want. That&rsquo;s not silly to me at all.</p> </div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Tags:&nbsp;</div><div class="field-items"><div class="field-item even" rel="dc:subject"><a href="/tags/behavioural-economics" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Behavioural Economics</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/desired-outcomes" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Desired Outcomes</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/economics" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Economics</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/freakonomics" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Freakonomics</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/incentives" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Incentives</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/partnership" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Partnership</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/superfreakonomics" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Superfreakonomics</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/vested-outsourcing" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Vested Outsourcing</a></div></div></div><div class="field field-name-field-addthis field-type-addthis field-label-hidden"><div class="field-items"><div class="field-item even"><div class="addthis_toolbox addthis_default_style " addthis:title="Steven D. Levitt: it&amp;rsquo;s all about incentives - Future of Sourcing" addthis:url="http://futureofsourcing.com/steven-d-levitt-it%E2%80%99s-all-about-incentives"><a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_linkedin"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_facebook"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_twitter"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_googleplus"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_pinterest_share"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_reddit"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_email"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_print"></a> </div> </div></div></div><div class="field field-name-field-region field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Region:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/regions/global" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Global</a></div></div></div> Wed, 31 Aug 2011 17:00:00 +0000 Kate Vitasek 1141 at http://futureofsourcing.com http://futureofsourcing.com/steven-d-levitt-it%E2%80%99s-all-about-incentives#comments Ian R. Macneil and cooperative contracting http://futureofsourcing.com/ian-r-macneil-and-cooperative-contracting <div class="field field-name-field-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even" rel="og:image rdfs:seeAlso" resource="http://futureofsourcing.com/sites/default/files/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_114.png"><a href="http://futureofsourcing.com/sites/default/files/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_114.png" title="Ian R. Macneil and cooperative contracting" class="colorbox" rel="gallery-node-1143-Cyi9McQTx74"><img typeof="foaf:Image" src="http://futureofsourcing.com/sites/default/files/styles/juicebox_medium/public/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_114.png?itok=sRNxwx9X" width="624" height="325" alt="" title="" /></a></div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>A major focus of this series is on how academics and economists have transformed modern thinking about the nature of the business and outsourcing contract, from its relationship to the firm and how it is used and governed to its relationship on pricing and total cost.</p> <p>One of the most major of these thinkers is the late contract and legal scholar&nbsp;<a href="http://en.wikipedia.org/wiki/Ian_Roderick_Macneil" target="_blank">Ian R. Macneil</a>, who turned conventional views about contracts upside down more than 40 years ago with his ideas about business cooperation. Back in 1968 Macneil observed that most contracts are ill-equipped to address the complexity of business needs in his seminal work&nbsp;<em>Contracts: Instruments for Social Cooperation</em>. He wrote, &ldquo;Classical law views cooperation as being &lsquo;of little interest&rsquo; and external to the agreement. This argues for an agreement framework that encourages cooperation and dialogue.&rdquo;</p> <p>Macneil&rsquo;s work revealed &ldquo;somewhere along the line of increasing duration and complexity (the agreement) escapes the traditional legal model.&rdquo;&nbsp; He argued that contracts are tied to the classical contract law approach, crafted to address transactions and provide legal protections such as pricing and price changes, service levels, limitation of liability, indemnification and liquidated damages.</p> <p>His breakthrough message was that business agreements can be effective and governed efficiently &ldquo;only if the parties adopt a consciously cooperative attitude.&rdquo; His idea was that contracts are rooted in relationships and activities that have a large context, rather than as the discrete transactions we usually see written into a contract.&nbsp; Macneil&rsquo;s work was instrumental in developing a wider view of the contract that today is called &ldquo;relational contract theory.&rdquo;</p> <p>Unfortunately Macneil was ahead of his time and far too many business people (and lawyers!) have ignored his advice.&nbsp; Tim Cummins, chief executive of the International Association of Contract &amp; Commercial Management explains: &ldquo;Too many contracting and legal professionals either fail or feel unable to alter their negotiation priorities to reflect the potential value or the extent to which its realization depends on cooperation.&rdquo;</p> <p>The result is that contracts become exercises in me-first, power-play games, seen as obstacles to value creation rather than as fundamental assets to successful collaborative relationships.&nbsp; This is as true today as when Macneil first made his observations.</p> <p>But even more frustrating: the contracts community &ndash; or at least 80 per cent of those that responded to a recent IACCM survey &ndash; recognises that practices focusing on strict legal and transaction-based contract provisions do not result in the best outcome.</p> <p>I guess the old sayings of &ldquo;what goes around comes around&rdquo; and &ldquo;what&rsquo;s old becomes new&rdquo; are true. It has been a long time since Macneil issued his challenge for collaboration in the contracting world. As another famous man said back in the 1960s: &ldquo;If not now, when?&rdquo;&nbsp; The good news is that Macneil&rsquo;s stellar advice is starting to gain traction in the business world.&nbsp; The rise of&nbsp;<a href="http://www.vestedoutsourcing.com/" target="_blank">Vested Outsourcing</a>&nbsp;and its approach to collaborative, outcome-based outsourcing partnerships is firmly based on the concepts articulated by Macneil decades ago. What took 50 years?</p> </div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Tags:&nbsp;</div><div class="field-items"><div class="field-item even" rel="dc:subject"><a href="/tags/collaboration" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Collaboration</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/contract" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Contract</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/contract-management" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Contract Management</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/contract-theory" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Contract Theory</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/legal" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Legal</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/partnership" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Partnership</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/relational-contract-theory" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Relational Contract Theory</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/veested-outsourcing" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Veested Outsourcing</a></div></div></div><div class="field field-name-field-addthis field-type-addthis field-label-hidden"><div class="field-items"><div class="field-item even"><div class="addthis_toolbox addthis_default_style " addthis:title="Ian R. Macneil and cooperative contracting - Future of Sourcing" addthis:url="http://futureofsourcing.com/ian-r-macneil-and-cooperative-contracting"><a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_linkedin"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_facebook"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_twitter"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_googleplus"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_pinterest_share"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_reddit"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_email"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_print"></a> </div> </div></div></div><div class="field field-name-field-region field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Region:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/regions/global" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Global</a></div></div></div> Sun, 07 Aug 2011 17:00:00 +0000 Kate Vitasek 1143 at http://futureofsourcing.com http://futureofsourcing.com/ian-r-macneil-and-cooperative-contracting#comments