Posts Tagged ‘vendors’

Project Reality Check #21: Acknowledgement

by Gary Monti on May 10, 2011

Acknowledgement can increase the speed and accuracy of your project and business interactions. Being grounded in honesty it has an added bonus of creating an atmosphere where people can risk being spontaneous and open. This is especially important when discussing difficult matters, not just the “high five” accomplishments. In contrast, lack of acknowledgement leaves people wondering where they stand causing a waste of energy and destabilization of the relationship.

Acknowledgement shows others they are worth the time and effort it takes to think about them. It has proved invaluable when having to evaluate team members, stakeholders, or vendors whose performance has not been up to par…well at least the ones who value the relationship. It keeps the focus on behaviors important for successful continuation of ongoing work.

Providing acknowledgement says,

“Working interdependently with you is important to me.” That open recognition goes a long way towards potentially deepening the relationship by the development of trust, which in turn can increase commitment. Loyalty is promoted.

For those who don’t care about the relationship, the effort spent acknowledging them still has a benefit by bringing into clear focus the need to modify or end the relationship.

Nuances and Weak Signals

Acknowledgement promotes the sharing of nuances, important when building success. It is like an added bonus. Let me explain. Nuance is about the little things; the little things that can make all the difference in the world. In complex situations nuances go by another name: Weak signals.

Successful weak signal analysis (WSA) is one of the holy grails associated with complex projects. WSA is essential on any complex project since it helps determine as early as possible signs of pending success or failure. This information helps the PM change approach in order to enhance the former and dampen the latter and do it in a cost effective way.

The hunt for and analysis of weak signals can keep a project manager up at night causing loss of focus and the development of tunnel vision. The loyalty and trust promoted by acknowledgement encourages others to help the PM stay on track with eyes wide open. The odds of success go up accordingly.

Think of the trusting clerk with whom you’ve built a relationship. How do you feel when they steer you in the right direction regarding a product with which you have little familiarity but need to work correctly right out of the box? That feeling is the payoff, or should I say one of the payoffs. After all, it just feels good to treat people right.

A Challenge to you!

I’d like to put a challenge out to the reader. How much time are you willing to spend acknowledging others? Who would you pick? Why? Keep your thoughts and associated actions in mind for the next blog where we’ll go deeper into the benefits of acknowledgement along with the damage that occurs when it is absent.

I’ve spent many years as a consultant helping companies analyze their business to improve performance and reduce costs, Clients large and small often ask questions regarding outsourcing/managed-sourcing. They’ve often read case study after case study showing how companies of their size/in their industry have shown real cost savings from their IT outsourcing programs, but their own initiative seems to be lacking in some fashion, often experiencing cost overruns and sub-par service levels.

I always come back with the same answer – A question:  Did you have the right information to make this business changing decision, and did you enter into your agreement from a position of strength?  The prospective client’s answer is usually slightly defensive, wondering why I’m questioning that company’s decision-making ability.  Which essentially I am – clearly something is amiss. At this point, the wheels are in motion and a serious conversation about how the agreement was entered into can take place.  This conversation is meant to figure out what has gone wrong and how it can be fixed.

Here are the main points where an outsourcing agreement can go wrong:

  1. Is the true cost of IT known and understood?
  2. Was proper due diligence performed and a business case developed?
  3. Did you open negotiations to multiple companies so as to get the best deal for your enterprise?
  4. Are you enforcing the contract?
  5. Has your company had any changes that would affect your agreement.

If these five questions can be answered, your company will be well ahead of the game and can facilitate changes that will help resolve the issues you may be experiencing. Lets look at these a bit more:

Understanding the true cost of IT

Many companies think they understand the true cost of IT, but most don’t.  It’s not just what is in the budget, it’s what isn’t as well.  Since every employee is part of the larger family, things are often done in a way that wouldn’t necessarily be the case with an outsource company.  For example, IT support staff would likely service a broken computer while they happen to be in that particular location to fix something else; an outsource company won’t (and unless on-site, can’t) do that.  There are hundreds of other “off book” examples (an ad-hoc server repair in the datacenter without a ticket being called into the help desk, perhaps) that, once outsourced, will no longer occur.  These are true costs of doing business that are challenging to foresee and don’t always get accounted for internally, however with an outsourced vendor these types of activities become chargeable events. In a large organization, this can lead to millions of dollars in additional outsourcing costs.

Performing Due Diligence to get the best deal possible

Knowing the true cost is the first step in the due diligence process.  Other things need to occur, including:

  • Prioritizing which functions should be run internally and which should be run by experts that can drive costs out of the equation
  • An understanding of which parts of the labor force will be affected either by being re-tasked to the outsourced vendor running the operations or being relieved of their positions entirely
  • Service levels need to be agreed to internally; and
  • Building a business case that supports the initiative, this includes noting all assumptions so as to be able to go back and audit.  By doing this, the company knows what is expected and then study the agreement forensically to uncover why the initiative is not proceeding as planned.

Handling Negotiations to Secure the “best” deal possible

Each company has their own process by which they procure goods and services.  The key questions to ask here are:

  • Were your company’s policies and procedures followed?
  • Were RFI’s and RFP’s constructed properly and submitted to all viable vendors?
  • Did your company negotiate purely on price, and were factors such as the Service Levels (mentioned above) taken into consideration?
  • Did you do research on the providers, talk to their current clients, etc to make sure they were the right fit for your needs?

All of these questions need to be given consideration up front, or you’ll risk the likelihood of compromised service down the road.

Enforcing the agreement with the selected vendor

This is key. Your company, when entering an outsource agreement, must establish a structure to allow for monitoring of the agreement and related SLAs. Is the vendor living up to their end of the agreement? If no, are steps being taken to alleviate the issues?  If you are not monitoring your agreement, you are as much at fault as the vendor for any perceived failures.  The agreement and the activity associated with it need to be continually monitored, and analyzed.

Knowing the changes in business conditions that might affect your outsourcing agreement

These business conditions can take many forms, and some affect all business – the current downturn in the economy, for example.  Perhaps your company may not have grown at the rate assumed in your business case and therefore in your negotiations with your chosen outsource vendor.  Other condition changes to consider include mergers and acquisitions, perhaps you are using more computing power then you estimated and did not take into consideration when purchasing another company.  Have you come out with an incredible new product that has driven growth within your organization? This is a good affect, but one that may not have been included in the portion of the new products business case that deals with internal costs such as IT, manufacturing and supply chain management.  All of these reasons and many others can affect the actual agreement, therefore it’s a must that your agreement be continually monitored as I noted earlier.

Conclusion

Several reasons can result in your company essentially leaving dollars and services on the table with respect to outsourcing.  There’s no such thing as too much thought when evaluating an outsourcing initiative.  If you need help, there are many experts available to you who can provide guidance and help develop a sound strategy tailored to your organization. Whatever your size or complexity of project, we’re here to help.

Regardless of the size of your organization, someone is responsible for identifying the need of a service or product being purchased. One could therefore surmise this individual would also assume the ongoing ownership and maintenance of the product, providing vendor management oversight, right? Well, you might be surprised by the number of occasions on which the linear progression of identifying a need and satisfying the need becomes disconnected in technology organizations.

This disconnect often occurs when a business unit obtains approval to bring a new product to the company which in turn places new or expanded requirements on its Information Technology (IT) organization.  With their backs often against the wall, the IT department will “buy” the technology in order to meet required deadlines. What happens in this case is that the IT department ends up relying on the vendor to manage the technology, and often times let the supplier act as the IT point of contact for the “customer” – the internal business unit.  Well, as we know problems often start out small and later mushroom out of control.  This situation is no exception:  If the new product the company has developed becomes successful, IT will continue to buy more of the necessary technology for the business unit.  The next thing you know, the original contract for, say, $100,000 morphs into an agreement covering perhaps $5M in purchases – and since the vendor manages the technology, no clear internal owner exists.  A sure-fire recipe for big problems.

The process starts with the negotiation of the contract which typically initiates a rather ‘interesting” time within the organization.  The discussions with the supplier often times become stressful with both sides treating the negotiations as a form of competition to obtain the best price and terms.  This is further complicated with the coordination of the different groups who provide input and are required to approve on both sides of the agreement. For example, the finance departments will be called upon to review the financial impact to budgets and Return on Investment (“ROI”), while the procurement and legal departments review terms and conditions.  With all these organizational units involved, the final agreement ends up segregated into sections which are relevant to disparate groups within the organization, and in many instances no single person understands the agreement as a whole.  This issue can be avoided by identifying the organizational unit that owns and drives the negotiation of the agreement, and ensuring this unit also has the authority to represent the company and manage the supplier.  By insisting on thorough preparation and coordination regarding input and approval processes in advance, the individual or group acting in the vendor management capacity will not only secure a contract which is beneficial to the company but will also foster a positive ongoing relationship with the supplier.

With the vendor management role clearly defined, you will avoid the most costly mistake of relying on the supplier to manage the agreement for your company.  The vendor manager will not only monitor the suppliers’ performance, but will also leverage the vendor on your company’s behalf to provide service level and performance metrics along with other valued services such as expert consulting support.  The individual acting in this role in your company can carry the title of Vendor Manager and coordinate with the technology owner(s), or this role can actually be incorporated into the technology owner’s job description.  In any event, the most important role of the vendor manager is to routinely meet with the supplier to review performance and to insure the negotiated service level agreements are applicable and are being met.  For those of you who practice ITIL, you may even want to invite your suppliers to attend your problem management reviews.  Problem Management aims to resolve the root causes of incidents and thus to minimize the adverse impact of incidents and problems on business that are caused by errors within the IT infrastructure and to prevent recurrence of incidents related to these errors.   Inviting suppliers to problem management reviews was always my favorite way to make sure the supplier understood my business and was focused on working for my company.

Identifying issues with your existing contract will insure that your company is prepared when it is time to negotiate a new agreement. This is especially critical in large organizations with dedicated procurement departments.  These procurement teams are responsible for negotiating agreements on behalf of the technology owner(s), often based upon templates and procurement methodologies meant to cover everything from bed pans to mainframes.  In these circumstances, the vendor manager must be prepared to identify and educate the procurement manager on any issues with the current supplier. This is especially true with products that the procurement department might consider as “commodities”.   (Products are referred to as commodities when the product is seen as fungible or the same no matter who produces it.)  The commodities tag can sometimes prove to be a BIG mistake, especially with technology as this term is often applied incorrectly.  I once had a junior level negotiator assigned to a request for purchase because the procurement department perceived desktop computers as fungible commodities.   That quickly changed once we were able to quickly show – from trends in our monthly product performance scorecards that we had experienced a 20% failure rate of over 75,000 desktops that had been in service less than a year.  These failures not only had a negative impact on customer service but also negatively impacted IT service level metrics with a dramatic increase in help desk calls and required additional contracted field support to fix the devices.  The vendor manager was subsequently able to successfully team with the procurement department and negotiate product quality guarantee’s which the suppliers indicated had never before been included in their contracts.

Once your suppliers are being actively managed, your organization can maintain a fully mature vendor management model by monitoring the lifecycle of your agreements.  The hallmark of a mature vendor management lifecycle model is tracking when agreements are scheduled to terminate.    Being prepared for expiring contracts is critical because your vendor manager will make sure all necessary parties are prepared to enter into a negotiation and avoid delays which result in the original agreement being extended because the organization was not ready to negotiate.  This is often times the point where organizations which are not prepared will bring in outside assistance to coordinate the competitive bid process and subsequent negotiations.  If you believe your organization needs external assistance, make sure that whomever you contract with is not only negotiating terms and conditions, but also provides an on-going vendor management model after the negotiation.

Lastly, I mentioned the importance of fostering a positive relationship with your supplier.  You want your account manager and his/her team to be the envy of the organization for account relationships.   Obviously the amount of revenue an account team brings to their organization is a major component in determining their performance within their company.  However, don’t underestimate the importance that suppliers place on their representatives to maintain healthy relationships.  Just as within your organization, you want your suppliers’ account team to be proud to be working for their company and proudly say they are servicing your company because, at the end of the day, your success is a result of performance – and support – of suppliers’ product and services.

At this point you’re ready to begin managing your vendors.  As we’ve seen, a successful relationship with your suppliers begins not with the contract itself but with the management of the agreement after it has been negotiated.  If you haven’t met with your suppliers recently give them a call and initiate your vendor management process by asking for an account review.  Before the review, draft a list of items you would expect them to cover when they walk into the room and then compare your list with their presentation.  You’ll quickly be able to identify gaps in your supplier relationship and use your list as a roadmap for obtaining better pricing and services from your vendor.  The results are guaranteed not only to surprise yourself but will result in new respect from your vendor.