Jon Hansen is the author of more than 2,000 articles and studies on emerging purchasing trends and practices in both the public and private sectors. As the author of this Executive Brief Hansen has provided in point form, the reasons he believes that the relational governance model is essential in terms of reversing the trend relative to the continuing failure of outsourcing and shared services initiatives.

1. Strategic
Relationships
Building Relationships That Last
Solutions
How to make your outsourcing & PPP
initiatives successful - By Jon Hansen
Despite industry’s best efforts to modernize and What is meant by relational?
“professionalize” sourcing practices, project management and A viable alternative to the adversarial nature of contract-oriented
service delivery methods, over 70% of significant business governance, the relational outsourcing model represents a new
relationships or large projects continue to fail to meet their framework for structuring and managing PPP and Outsourcing
objectives. business relationships. It is a model based on strategic fit,
flexibility, continuous alignment and sustained mutual benefit.
This is due to the fact that organizations in both the public and
private sector rely on outsourcing partners who continue to Similar to the principles that define the Six Sigma business
provide their services based on a static requirement at a specific management strategy, these tenets of success are nothing new. In
point in time. Relationships that are structured around these fact the relational outsourcing model is structured
types of models inevitably fail because a “single transaction” around the enduring core values that are
approach does not take into account the natural evolution of
needs and stakeholder capabilities.
exemplified by integrity of intent and mutual or
shared partner benefit. The main departure from Six Sigma
The challenges are further exacerbated in Public-Private is the primary focus on outsourcing and shared services.
Partnerships (PPP) or Futuresourcing™ situations where there is
an introduction of a new service requirement or a capability in
which neither the client nor the vendor has any tangible “Relational”
experience. The Center for Relational Outsourcing defines “Relational” as a
Process-Centric Business Interaction and Delivery Management
Despite promises of a significant up-front reduction in operating Model that promotes collaboration and fosters trust.
costs, vendor responses to outsourcing bid requests are
speculative, and often times tied to a let’s win the business first Relating Connecting and linking in a naturally complimentary
way
and worry about making it work afterwards mindset.
Mutuality Having the same or similar view or output each to the
As EDS discovered with its failed major outsourcing contract other
with the U.S. Navy, making something work on the fly benefits no Recognizing each other’s needs, requirements,
Respect
one. The fact that EDS had to take a first quarter net loss of contributions, abilities, qualities and achievements
$126 million which was part of a much larger $334 million write- Use of combined strength and synergies to deliver
Innovation
off speaks to the accuracy of this assessment. improved outcomes
On what was originally a $7 billion multi-year contract to build an Continuous Making necessary adjustments to optimize or improve
intranet for the Navy Marine Corps, these mounting losses Alignment outcomes and maximize benefits realization
undermined the entire project. Faced with continuing losses, and
Empowerment Introduces joint management structures and processes
pressure from the markets relating to stock price, EDS’ focus for effective and timely decision making within scope
shifted from service delivery to one of financial recovery. and provided envelopes of authority
This is hardly the foundation upon which to build a long-term, The model focuses on joint relationship structures as the
win-win relationship. pivotal point at which delivery and contract performance are
Sadly, failed contracts like the one between the U.S. Navy and carried out, measured and evolved.
EDS continue to be the norm in the industry as opposed to being
the exception. How is it different from what is usually done?
Williamson’s 1985 conceptualization of “relational” governance
To reverse the trend of disappointing results, we have to change
the way we view contracting and contract governance. We have recounted how economic weapons such as hostages and credible
to think in terms of being “relational.” commitments to keep opportunistic behaviour at bay, have long
been the order of the day.

2. In essence financial inducements such as penalization for missed parameters as well as effectively manage joint
SLAs were considered the only means through which a
contractor could ensure vendor performance. resources to achieve expected relationship
outcomes.
It is not until recent years that this sledge hammer contract
management methodology has been gradually usurped by a Specifically the SRS relational model advocates the structuring of
socially oriented enforcement of obligations, promises, and a relationship that encompasses the following three main
expectations that according to Poppo and Zenger (2002) promote components:
norms of flexibility, solidarity, and information exchange.  Shared Relationship Mission and Purpose
What is especially encouraging about the socially oriented  Joint Governance
relational approach is that it creates an environment of trust  Open Book Financial Management Framework
between key stakeholders. This means that potential problems (Transparency)
can be recognized, acknowledged and dealt with effectively as
opposed to remaining either hidden or alternatively justified, How does it address the issues associated with the old
which ultimately results in little if any meaningful action being model?
taken to remedy the pressing problems of a given situation. The SRS relational model eschews what IACCM’s Tim Cummins
referred to as “the blame game,” in that it leads to greater
The SRS Relational Outsourcing Model cooperation within a contract’s framework. It accomplishes this
Long before the mainstream recognition of the viability of the by encouraging stakeholders to actively seek potential problem
socially oriented concept that was championed by Poppo and areas with the intent of coming to a mutually beneficial
Zenger, Andy Akrouche developed the Strategic Relationship resolution for all concerned. Or to put it another way, the
Solutions or SRS outsourcing model. economic levers championed by Williamson inadvertently
Over a 15 year period, and through the success of many high rewarded the wrong behaviour by punishing disclosure as
profile client relationships, Akrouche’s relational model focused opposed to rewarding it.
on stakeholder relationships as the pivotal point in terms of Therefore and as it relates to the establishment of desired
measuring performance and ongoing delivery and service outcomes, the more logical alternative is to not place the sole
management capabilities. emphasis on said outcomes being missed. Instead the emphasis
The key tenet of the SRS relational model is a is placed on the importance of full disclosure of the delivery
process capability under the umbrella of a Jim Collins autopsy
reliance on joint governance and management without blame approach.
structures to process and facilitate collaboration,
gain meaningful insight into relationship the SRS relational
In this regard, vendor selection with
model is based on the ability of the parties to
The Relational Contracting Model is about sourcing and managing effectively and successfully address problem areas
high performing business relationships by establishing a as they arise instead of how effectively they can be
Relationship Charter founded on the following three (3) avoided. In other words, and in a complex global marketplace,
architectural pillars: problems or challenges are a given. How we deal with them as
 Why are we in this opposed to denying them is a key tenet of the SRS relational
relationship? model.
 Stakeholders Fit (Alignment About vendor selection
Shared of Client Relationship Purpose
Mission & Establishing such a collaborative high performing relationship
with Vendor business strategy
Vision requires a different sourcing process, as one cannot use the
– Product/Market focus, Value
to clients, Core Activities and
prescriptive or familiar procurement mechanisms to source a
R&D) dynamic business relationship.
This becomes particularly important as it relates to
 Deliverable Generation/ Futuresourcing™ projects. With Futuresourcing™
Delivery
 Continuous Alignment projects, where neither the client nor the vendor
 Problem Solving has constructed, built or delivered the required
 Decision Making capability, past work experience cannot be used as
Relationship Joint  Escalation
Charter Governance  Conflict Resolution an effective selection criteria.
Pillars  Change Management
 Harmonization of review & a closer
In the absence of a proven track record,
approval process examination of the vendor’s strategy and core
 Innovation Management
 Performance Management
capabilities are paramount to determining the
 Joint Relationship Score Card likelihood of the ultimate success of the
SRS  Reciprocal Evaluation relationship.
Relationship
Charter  Financial Accountability, Beyond these needed checks and balances, the SRS relational
 Transparency model sourcing process advocates an intense industry analysis
Open Book
 Pricing Model and engagement both before and during the actual procurement.
Framework
 Financial Management This involves the application of advanced analytical tools to
 Earned Value Management objectively assess and evaluate the fit between a vendor’s strategy,
core capabilities and the initiatives expected outcome.

3. Used to determine the veracity of the “collaborative fit” between About The Author:
the client and vendor, the advanced analytical tools associated Jon Hansen is the author of more than 2,000 articles and studies
with the SRS relational model establish the framework for the on emerging purchasing trends and practices in both the public
Relationship Charter. and private sectors. Funded in part by the Government of
Canada’s Scientific Research and Experimental Development
What is the Relationship Charter? Program “SR&ED,” the results of his research were captured in
Under the SRS relational model that was developed by Akrouche his seminal paper on the operational differences between
the Relationship Charter, in which relationship needs take enterprise solution development under an agent-based model
precedence over the contract itself, becomes the platform for: versus an equation-based model and the corresponding merits of
 Relationship analysis and strategic management structuring the procurement process on an adaptive capability as
 Delivery and performance management opposed to a static compliance framework.
 Issues management and resolution.
As the author of this Executive Brief Hansen has provided in
How can the relational model be implemented in the public point form, the reasons he believes that the relational governance
sector? model is essential in terms of reversing the trend relative to the
“A cooperative venture between the public and private sectors, continuing failure of outsourcing and shared services initiatives.
built on the expertise of each partner, that best meets clearly
defined public needs through the appropriate allocation of
resources, risks and rewards.” About Strategic Relationships Solutions Inc. (SRS)
Strategic Relationships Solutions Inc. (“SRS”) is a knowledge-
The above paragraph is how The Canadian based, customer-focused, strategic services and relationship
Council for Public-Private Partnerships “CCPPP” management firm specializing in achieving results for clients
defines both the framework and intent of a through innovative and adaptive strategic management services,
capacity building and knowledge transfer, and sustainable
collaborative partnership between public and business relationships. SRS works closely with CKM Advisors of
private entities. NY. The Firms have established a strategic relationship through
which they jointly help clients around the world establish and
Unfortunately the majority of public-private manage dynamic business relationships.
partnerships are still structured around the “single
transaction” approach with its inherent problems.
As a result, and as was referenced earlier in this brief, the failure
to take into account the natural evolution of needs and
stakeholder capabilities have led to the high rate of relationship
failures.
The SRS relational model has proven to be an effective
alternative for the public sector.
What makes it particularly attractive for the public sector is that
the relational model is in effect injected into a public sector
procurement regime as a complimentary module. This means
that it is not a replacement for the existing sourcing or
procurement process, but is instead a relationship and results
facilitator. Or to put it another way, the SRS relational model
does not radicalize the public sector procurement process, it
compliments and enhances its effectiveness.
Conclusions:
While a high level briefing such as this is effective for providing a
solid foundation for understanding the core elements of the
relational governance model, it is through a true collaborative
effort that the results referenced above can and will be achieved.
There is of course a long list of notable case studies from both
the public and private sectors that can be provided upon request.
This being said and based upon the successful track record of the
model within this country, the Canadian government is uniquely
positioned to take the lead amongst nations in delivering
maximum service to its citizens while simultaneously reducing
significantly the costs associated with the business of
government.