Introduction
As anyone who has watched TV spectaculars or been to the circus will know, juggling is a skill which some people can do naturally, whilst others cannot do it at all. Those of us who attempt to juggle despair as we hit the dog in the face with a ball or a spinning chainsaw upends a freshly prepared bowl of soup.
In business terms, we are juggling most of the time. Those who are adept at it possess a natural ability to keep multiple priorities in the air simultaneously. However, for most of us, multi-tasking is a source of stress and, in project terms, risk.
Managing multiple suppliers within a portfolio, programme or project adds complexity and risk. There are many good reasons to engage different suppliers with specific skill sets but, in so doing, one must recognise their individual motivations and tightly manage them so that they support your objectives, not merely their own. People who are most adept at this are a rare breed – they possess a skill set which is part programme director, part stakeholder coach, part negotiator and part commercial contract manager. When you are launching a major change initiative, finding one of these ‘gold dust’ characters is invaluable, whereas running a programme without these skills often leads to disaster.
Failing to adequately manage third parties is a key reason that projects, and especially large transformation programmes, encounter delivery challenges. In this blog post we’ll explore some of the particular difficulties these programmes face and provide some advice on what you can do to manage third party suppliers effectively.
What are the challenges?
You may recognise the following two ‘strategic relationship challenges’ and several ‘operational’ ones when employing multiple consulting or service providers’ teams.
At the strategic level, it is important to appreciate that suppliers have their own motivations (often to maximise revenue from any engagement), so you must continually ensure that their objectives are aligned with your own.
Strategic, Behavioural Relationship Challenges
1. Tension of conflicting objectives
Where transformation programmes exist, there will be tension between the client and suppliers and between the suppliers themselves. This tension can create disruption and, when that happens, strong client leadership is required to keep the parties aligned to your objectives. To understand the potential for tension, consider that:
Your organisation requires business outcomes to help you grow, diversify, or transform
Each supplier’s objectives should be to help you deliver your objectives
However, each supplier has their own commercial objectives and they typically have a revenue target to hit beyond that which is in their original contract
It is easier and cheaper for a supplier to generate revenue from an existing customer than to win a new one
Consequently, your business objectives and each supplier’s revenue objectives are likely to conflict
As depicted in Figure 1 above, multiple suppliers can lead to a risk of increased tension as a result of competing objectives
Increased tension means increased risk that the achievement of your objectives will be delayed and will cost more than originally envisaged
1. The Profit Motive
Consulting and services companies are not altruists, their leadership teams and partners have KPIs to meet and measure their performance primarily through the revenues and profit they generate for their company. Consequently, one should not be surprised when profit motives drive their behaviours. As we stated earlier, there is a truism in business – it is cheaper and easier to retain an existing customer and maximise their revenue potential than it is to win a new customer. Consequently, consulting and implementation partners will not always be proactive in bringing risks and issues to your attention and may not work seamlessly with each other, notably where a reason for change or delay can be attributed to you. However, they will happily provide additional services, at a cost, to dig you out of a hole of your, or their, making.
Combining the natural tension created by a model which contains multiple suppliers, with the motivation of each to make money, means that large, complex programmes often spiral out of control if poorly scoped, initiated, governed and managed. Strong contracts with mutual collaboration clauses which obligate different suppliers to work effectively together are only part of the solution. Having the expertise to know how to manage multiple suppliers will reduce risk, avoid issues, minimize cost overruns and help to protect your change leadership team and, as a result, the success of your programme.
Operational challenges
Once you have embraced the strategic, behavioural challenges of supplier complexity, the operational aspects of creating relationships, selecting suppliers and then running and maintaining engagements require a level of focus and diligence from the start of any major project or programme. Some of the key aspects one must consider include:
Selecting suppliers. This doesn’t need to take months, but a robust, transparent process will ensure selection is based on merit and has the support of your stakeholder community
Having clear supplier responsibilities, deliverables and outcomes where ownership does not overlap with other suppliers is crucial – one supplier should be ultimately accountable, even if they need the help of other suppliers to achieve it
Contracts and the timing of their preparation. This must mirror your roadmap, plans and deliverables. Different types of contracts fit best to certain situations, so you should work out whether you need time & materials, a fixed price arrangement, or some form of reward share contract – this may differ from supplier to supplier
Getting the scope right. We always advise that you consider contracting only until a particular milestone or outcome is achieved, as it might be appropriate to change the contracting basis at that point. This needn’t restrict your ability to forecast costs, which is an area accountants often get nervous about – they like the impression of absolute cost certainty, even though no such thing exists when a major change is required
Consulting and service companies are used to having to work together and cope with change on major projects, clients tend not to be as adept, so it is important that all parties agree to a change management process and adhere to it, and that you take responsibility for governing it
Managing one supplier is hard, managing multiple is exponentially harder. Your steering committee and executive board will need a picture painted for them of the complexity created when multiple suppliers require management and coordination, alongside an explanation of how you plan to do it so that they can support you.
What are the risks of poor supplier management practices?
It is imperative that you go into multi-party relationships with a clear picture of the potential risks so that these can be contracted for and managed. Common supplier management risks include:
Suppliers may provide low bids to win a contract with a view to making a profit via subsequent changes (often referred to as change requests/CRs) and additional work. If several suppliers do this there is a risk of tension between them as they battle for revenue.
The dangers of scope creep may not affect just a single project or supplier, particularly on large, complex programmes where change can ripple throughout. Where change affects multiple suppliers, you must effectively manage several impacts, multiple consequences and stakeholder groups, and increased cost. All this extra activity takes time and deflects attention from your primary purpose – when laying out a programme it is crucial that you allow contingency time and budget to absorb changes; budget alone is insufficient.
Various suppliers may possess different contracts, written at different points in time when the programme was at differing levels of maturity. In such a situation, gaps and contradictions between contractual responsibilities can be created – meaning that changes have the potential to create disagreements and ambiguities which need to be resolved before progress can be made.
Many change leaders enter a large change programme expecting that agreed contractual terms will equate to protection in the event something goes wrong. Whilst this is true in principle, in practice this is seldom the case as reluctance to battle with key suppliers and disrupt progress often outweigh the consequences of spending more money to solve a specific problem. In severe cases, the risk of reputational damage to both contracting parties will often lead to compromise and the contract being only partially enforced. Large suppliers face delivery and contractual issues more regularly than they would care to admit and, as a result, carry dedicated commercial and legal experts to manage such issues. They are adept at positioning arguments to defend such situations, whereas a client’s team are often not set up for this – another reason why contractual enforcement is not always easy.
The risk that different suppliers blame each other for a lack of progress, or misunderstandings of expectations, is common. Sometimes it represents a genuine disagreement, in other cases it simply creates tension that you, as the customer, are expected to resolve. This is especially dangerous to success if you to take your eye off the spinning chainsaw elsewhere on a major programme. This is Hobson’s Choice: if you fail to manage the situation, delays and associated costs will result. And, in managing the situation you risk causing delays and costs as you are distracted from your core mission.
Many contracts contain a ‘collaboration clause’ making it incumbent upon suppliers to work effectively together and communicate with each other. However, the ultimate responsibility always falls to the client if you expect this to happen in a proactively manner.
A final consideration to be aware of relates to the different levels of contract that exist when using third party providers. Large suppliers may have previously signed an overarching Framework Agreement (FWA) with your company, using subsequent Statements of Work (SoWs) or Work Orders (WOs) to undertake individual work packages or projects. Where these two levels exist, it is important not to unwittingly overwrite a clause in an FWA with something in a SoW or WO as this can have unintended, and costly, consequences for inflight work and future projects.
How to successfully manage 3rd parties
There are some clear dos and don’ts borne out of experience of managing transformation supplier contracts:
DO…..
Appoint an experienced programme leader to take responsibility for managing supplier and contractual relationships, with their role being a key part of your transformation steering committee
Be prepared to monitor and enforce contractual provisions; a contract is of little value if its obligations are not fulfilled
Break supplier arrangements into bite-sized chunks, particularly where there is uncertainly of plans and outcomes. Only contract for a time period where there is a reasonable degree of certainty, leaving you free to change suppliers, or to recontract on the basis of better understanding for later stages of work
Include a ‘Collaboration Clause’ in every contract which obliges every supplier to work with others. Such a clause protects against any overt unwillingness to collaborate and helps with situations such as unwillingness to share information in a timely manner, attend and actively contribute towards sessions organised by other 3rdparties, and so on.
DO NOT……
Leave suppliers to self-manage
Put one supplier in charge of others without retaining strong, active involvement in the relationships yourself
Be afraid to challenge and disrupt suppliers’ thinking. When you are the client it is your programme, your business outcomes, and your career on the line
Conclusion
The cost of maintaining multiple vendor relationships and contracts can be substantial. Someone on your team needs to deeply understand the legal and commercial implications of the contracts as well as the delivery mechanics of your programme. In practice, a very small percentage of programmes manage this effectively and strong programme directors, managers and PMO managers with this skill set are worth their weight in gold.
Typically, you get what you pay for and a strong contract will afford you some protection in the event that significant conflict arises between you and your suppliers or between the suppliers themselves. All transformations are likely to encounter some conflict (that is the nature of change) however, it is how you deal with this conflict, which in turn will depend significantly on how the programme has been planned and formulated into the respective supplier contracts, that will be the major determining factor in the ultimate success of the programme. Enhancing contractual protection with the right skill set to juggle the legal, commercial and delivery aspects of such a programme is a proactive way to improve your chances of success through the effective management of third parties, preventing risks from becoming issues and issues from turning into showstoppers.
If you would like to discuss any of the points covered in this blog in more detail, contact us at info@clavertonconsulting.co.uk or call us on 0117 325 7890.