How To Make Your Outsourcing and PPP Initiatives Work
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How To Make Your Outsourcing and PPP Initiatives Work

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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 ...

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.

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How To Make Your Outsourcing and PPP Initiatives Work How To Make Your Outsourcing and PPP Initiatives Work Document Transcript

  • Strategic Relationships Building Relationships That Last SolutionsHow to make your outsourcing & PPPinitiatives successful - By Jon HansenDespite 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-orientedservice delivery methods, over 70% of significant business governance, the relational outsourcing model represents a newrelationships or large projects continue to fail to meet their framework for structuring and managing PPP and Outsourcingobjectives. 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 andprivate sector rely on outsourcing partners who continue to Similar to the principles that define the Six Sigma businessprovide their services based on a static requirement at a specific management strategy, these tenets of success are nothing new. Inpoint in time. Relationships that are structured around these fact the relational outsourcing model is structuredtypes of models inevitably fail because a “single transaction” around the enduring core values that areapproach does not take into account the natural evolution ofneeds and stakeholder capabilities. exemplified by integrity of intent and mutual or shared partner benefit. The main departure from Six SigmaThe challenges are further exacerbated in Public-Private is the primary focus on outsourcing and shared services.Partnerships (PPP) or Futuresourcing™ situations where there isan introduction of a new service requirement or a capability inwhich 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 ManagementDespite promises of a significant up-front reduction in operating Model that promotes collaboration and fosters trust.costs, vendor responses to outsourcing bid requests arespeculative, and often times tied to a let’s win the business first Relating Connecting and linking in a naturally complimentary wayand worry about making it work afterwards mindset. Mutuality Having the same or similar view or output each to theAs EDS discovered with its failed major outsourcing contract otherwith the U.S. Navy, making something work on the fly benefits no Recognizing each other’s needs, requirements, Respectone. 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 Innovationoff speaks to the accuracy of this assessment. improved outcomesOn what was originally a $7 billion multi-year contract to build an Continuous Making necessary adjustments to optimize or improveintranet for the Navy Marine Corps, these mounting losses Alignment outcomes and maximize benefits realizationundermined the entire project. Faced with continuing losses, and Empowerment Introduces joint management structures and processespressure from the markets relating to stock price, EDS’ focus for effective and timely decision making within scopeshifted from service delivery to one of financial recovery. and provided envelopes of authorityThis is hardly the foundation upon which to build a long-term, The model focuses on joint relationship structures as thewin-win relationship. pivotal point at which delivery and contract performance areSadly, 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 beingthe exception. How is it different from what is usually done? Williamson’s 1985 conceptualization of “relational” governanceTo reverse the trend of disappointing results, we have to changethe way we view contracting and contract governance. We have recounted how economic weapons such as hostages and credibleto think in terms of being “relational.” commitments to keep opportunistic behaviour at bay, have long been the order of the day.
  • In essence financial inducements such as penalization for missed parameters as well as effectively manage jointSLAs were considered the only means through which acontractor could ensure vendor performance. resources to achieve expected relationship outcomes.It is not until recent years that this sledge hammer contractmanagement methodology has been gradually usurped by a Specifically the SRS relational model advocates the structuring ofsocially oriented enforcement of obligations, promises, and a relationship that encompasses the following three mainexpectations that according to Poppo and Zenger (2002) promote components:norms of flexibility, solidarity, and information exchange.  Shared Relationship Mission and PurposeWhat is especially encouraging about the socially oriented  Joint Governancerelational approach is that it creates an environment of trust  Open Book Financial Management Frameworkbetween key stakeholders. This means that potential problems (Transparency)can be recognized, acknowledged and dealt with effectively asopposed to remaining either hidden or alternatively justified, How does it address the issues associated with the oldwhich 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 greaterThe SRS Relational Outsourcing Model cooperation within a contract’s framework. It accomplishes thisLong before the mainstream recognition of the viability of the by encouraging stakeholders to actively seek potential problemsocially oriented concept that was championed by Poppo and areas with the intent of coming to a mutually beneficialZenger, Andy Akrouche developed the Strategic Relationship resolution for all concerned. Or to put it another way, theSolutions or SRS outsourcing model. economic levers championed by Williamson inadvertentlyOver a 15 year period, and through the success of many high rewarded the wrong behaviour by punishing disclosure asprofile 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 desiredmeasuring performance and ongoing delivery and service outcomes, the more logical alternative is to not place the solemanagement capabilities. emphasis on said outcomes being missed. Instead the emphasisThe 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 autopsyreliance 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 toThe Relational Contracting Model is about sourcing and managing effectively and successfully address problem areashigh performing business relationships by establishing a as they arise instead of how effectively they can beRelationship 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.
  • 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 studieswith the SRS relational model establish the framework for the on emerging purchasing trends and practices in both the publicRelationship Charter. and private sectors. Funded in part by the Government of Canada’s Scientific Research and Experimental DevelopmentWhat is the Relationship Charter? Program “SR&ED,” the results of his research were captured inUnder the SRS relational model that was developed by Akrouche his seminal paper on the operational differences betweenthe Relationship Charter, in which relationship needs take enterprise solution development under an agent-based modelprecedence 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 inHow can the relational model be implemented in the public point form, the reasons he believes that the relational governancesector? 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 clearlydefined public needs through the appropriate allocation ofresources, 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 relationshipCouncil for Public-Private Partnerships “CCPPP” management firm specializing in achieving results for clientsdefines both the framework and intent of a through innovative and adaptive strategic management services, capacity building and knowledge transfer, and sustainablecollaborative partnership between public and business relationships. SRS works closely with CKM Advisors ofprivate entities. NY. The Firms have established a strategic relationship through which they jointly help clients around the world establish andUnfortunately the majority of public-private manage dynamic business relationships.partnerships are still structured around the “singletransaction” approach with its inherent problems.As a result, and as was referenced earlier in this brief, the failureto take into account the natural evolution of needs andstakeholder capabilities have led to the high rate of relationshipfailures.The SRS relational model has proven to be an effectivealternative for the public sector.What makes it particularly attractive for the public sector is thatthe relational model is in effect injected into a public sectorprocurement regime as a complimentary module. This meansthat it is not a replacement for the existing sourcing orprocurement process, but is instead a relationship and resultsfacilitator. Or to put it another way, the SRS relational modeldoes not radicalize the public sector procurement process, itcompliments and enhances its effectiveness.Conclusions:While a high level briefing such as this is effective for providing asolid foundation for understanding the core elements of therelational governance model, it is through a true collaborativeeffort that the results referenced above can and will be achieved.There is of course a long list of notable case studies from boththe public and private sectors that can be provided upon request.This being said and based upon the successful track record of themodel within this country, the Canadian government is uniquelypositioned to take the lead amongst nations in deliveringmaximum service to its citizens while simultaneously reducingsignificantly the costs associated with the business ofgovernment.