When companies announce technology deals both the company and the vendor are keen to describe the deal as a partnership and not a transaction. This is because a partnership sounds more strategic. There is hope that this relationship between the company and the vendor can create some long-lasting value or mutual gain, but the reality soon bites. The relationship soon changes from a partnership to transacting, which often leads to bickering and disappointment. Papers regularly report stories of long-term sourcing or services partnerships that are not renewed or are cut down in size. This makes us wonder if the vendor partnership is simply just a myth.
The Origins of the Problem
The problems with vendor relationships often start during the sales process. In complex or ambitious undertakings there are more chances that the client’s understanding of what is wanted is different to what the vendor thinks they are providing. In services contracts especially, despite the long RFP requirements, clients can have unrealistic ideas of what service they need and how they will manage and benefit from it. Many customers think they know exactly what they want and then ask the vendors to deliver the same. Vendors then price exactly what the client specifies, but this may not be actually what the client needs!
In the vendor selection process, price plays a big part. Clients think vendors have fat margins and can offer greater discounts. Many vendors do bid unrealistically low prices to win business, to make profit on change requests or follow on work.
Unrealistic expectations, mistrust and mis-priced deals make the future execution or delivery of the service extremely challenging. In many cases the sales team moves on after the deal and the delivery team is tasked with making the deal work. Consequently, the partnership soon starts to unravel.
Building Effective Partnerships
Partnerships, like any worthwhile endeavour, should begin with the end in mind. We would not dream about creating a building or an application without having a good idea of what it would look like when it is completed. Partnerships are no different. We have to think about what type of relationship we would want with the vendor, such as, do we want just a transaction or something more long-lasting? Good partnerships are based on three fundamentals, “Mutual Benefit”, “Reliable Behaviour” as well as “Mutual Trust and Openness”.
- Mutual Benefit is when both parties gain something out of the relationship, that is, a ‘win-win’ scenario. This is the basic reason for entering into any partnership. For the client it means getting an acceptable service for an acceptable price and for the vendor it means getting a fair profit margin and potential business growth. If one side thinks that the other side has an unfair advantage over the other, there will be no mutual benefit. For mutual benefit, both sides ought to share the rewards from the success and the pain from the failures.
- Reliable Behaviour is what both parties expect and experience. Reliable behaviour occurs when the parties make small and large promises to each other and keep them. Both parties will complete the tasks as promised, deliver information and support each other. Reliable behaviour helps build mutual dependence. When both parties find that the other side is delivering on their promises, trust begins to grow.
- Mutual Trust and Openness is about sharing information between the partners. This can include information on plans, priorities, future resource needs as well as concerns and issues. Generally the healthier the relationship is there, the more information will be shared. Open, honest and frank communication between partners is essential to forming a successful partnership. It is through communication that trust is built and customers understand their vendors’ capabilities and limitations. It is through communication that the “rules of engagement” for any relationship are formed and enhanced.
Now that we understand the fundamentals of a partnership, we need to look towards building a partnership.
Just like couples date before getting married, it is necessary to build partnerships in a step by step way. There is a temptation to look at similar partnership arrangements and their results without appreciating all the steps taken that led to the result. Successful partnerships are built incrementally from the beginning by gradually tackling more complex initiatives based on the competencies gained from the previous efforts. You have to invest to get results and the process is important in achieving successful outcomes. Every situation presents a different set of opportunities based on the unique organisational and cultural realities in which a partnership must work. Learn from the experience of others. Good partnerships take a steady investment of time and energy to build and develop. Successful partners understand that building a solid the foundation is necessary to go forward.
Understand Each Other
Organisations have their own culture (way of doing things), people and values. It is important to acknowledge these differences and understand how they can contribute to the strength of the mutual endeavour. In partnerships such as offshoring or global sourcing, understanding the culture, use of the language and dealing with authority and decision-making style is critical to the success.
In contracts client goal may be to cut costs, while vendor goal is to increase revenue. It is important to discuss this apparent contradiction, so that the relationship starts right.
Multi-level relationships, from the top of the organisation down to the team leader level, improve understanding and go a long way to reinforcing a message of mutual benefit. Multi-level relationships are also powerful in addressing disagreements at the right levels.
In spite of the detailed tenders(RFP), contract flexibility in the relationship is critical. A flexible approach allows the partners to effectively leverage each other’s capabilities as challenges arise or circumstances change, such as, when economic situations change, projects get stopped, key people resign or unforeseen difficulties arise. In such cases, flexibility allows for better use of mutual strengths, creates mutual dependence and builds trust. Without flexibility, a blame game often results.
Maintain an Environment of Trust
Trust is an essential ingredient for successful partnerships, as it enables collaboration and contribution. Trust must be demonstrated and earned day by day. A single betrayal can be costly and make it hard to regain the same level of trust between the partners. Unilateral action by one partner, grandstanding, not keeping one’s word, commitment or confidentiality, or acting in any way contrary to the mutual interest, destroys trust. You build trust through the consistency and integrity of your actions over time. You have to trust your partners in order to be trusted.