Don’t obsess over Contracts, obsess over Relationships

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In this Blog that appeared on LinkedIN’s PULSE platform HCL Technologies’s CEO Anant talks about the need to change the approach to customer engagement from “Contracts” to “Relationships” in pursuit of consistent and sustainable value generation.

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Don’t obsess over Contracts, obsess over Relationships

  1. 1. Don’t obsess over contracts, obsess over relationships By Anant Gupta, CEO, HCL Technologies How is a contract supposed to work in today’s uncertain world? It’s a question I’ve been thinking a lot about lately, one that comes up frequently in our relationships with customers. But I’d say that it’s a relevant question in most businesses. Obviously, a carefully drafted contract is necessary to clarify the expectations of both a provider of services – in our case, information technology services – and the client that is served. But too often these days, the contract seems a woefully inadequate instrument. Just look at the IT services industry, where failed outsourcing agreements are increasingly common. The disintegration of a some six- or even seven-figure contracts have made a lot of headlines recently. But they are only the tip of the iceberg, given that most companies don’t wash their dirty laundry in public the way public agencies are required to do. And if problems often arise in contracts designed to boost efficiency, they’re even more likely in agreements aimed at generating innovation, which increasingly is replacing cost reduction as the reason companies seek outside help in designing and managing their IT systems. Why do these agreements so often fail? One reason is the array of dizzying changes – many of them unforeseen until they are almost upon us – currently transforming business. Contracts are based on assumptions about the future using the past as a yardstick. With the accelerating advances of digital technology, what may seem like a rock-solid agreement – in our case, say, a five-year remote infrastructure management contract – can very quickly look irrelevant or even counter-productive just months later. I was going through venture capitalist Mary Meeker’s most recent report on Internet trends the other day, and she notes the speed with which computing technology cycles – which from the mainframe to the laptop tended to last about a decade – are becoming compressed. For example, tablet sales in the three years following launch of that device grew three times as fast as the sales of smart phones did during their first three years. Both devices are likely to be swamped in the next few years by sensor- laden wearable computers. It’s not just the rapid adoption of new mobile technologies that can make a business contract irrelevant. Social media networks are causing radical changes in customer behavior. Big data analytics and cloud computing will reshuffle many companies’ IT priorities in the next few years. So how do contracting parties reconcile the need for an agreement that clearly delineates responsibilities with an awareness that those very responsibilities may suddenly and surprisingly become outdated? Let me offer a suggestion. We all know that the most satisfying and mutually beneficial relationships are not defined by words on a page. They are defined by mutual respect. And trust. And transparency. And flexibility.
  2. 2. This is as true in the business world as it is in our personal lives – though that truth usually gets lost in the sterile language of disclaimers and SLAs and “parties of the first part” that govern business contracts. I’ve already noted that in business such formal agreements are necessary. But in my experience, these agreements merely provide the legal basis for a relationship that goes beyond the contract. I believe such a relationship is so important – more important than technology (often commoditized) or solutions (often similar from provider to provider) or promises of innovation (often lacking in detail) – that we now emphasize in our communications the value that we, as a company, place on this type of relationship. Now, if you’re a service provider, a relationship beyond the contract doesn’t simply mean doing more work more quickly or more cheaply than you promised – though that may be part of it. It means that you respect and understand the value of a lasting relationship enough that you constantly strive not just to meet the terms of the contract but to create sustainable value for your client. That might involve agreeing, mid-engagement, to a new set of deliverables in order to achieve the original result, despite a major client restructuring. Or making your compensation contingent upon the business benefits you generate for a client. Or recommending a plan that will benefit your client, though it reduces your revenue stream or even makes your current services redundant – proactive obsolescence. Of course, such a relationship is likely to flourish only if it is part of a company culture that embodies those same ideals of trust, transparency, flexibility, and value creation. But flourish it must, if a service provider and client are to thrive, not just survive, through multiple generations of technology evolution and a succession of long-since irrelevant contracts. To view a video expression of relationships beyond the contract, go to http://bit.ly/1nOHogG

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