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Collaboration and the Importance of Leadership

Distorted Pool, Tinderbox Tasmania (Jade Davies 2020).

Collaboration demands effective leadership to drive the right collaborative culture, reinforce collaborative behaviours, and provide effective role models to the team.  The UK NAO makes this point clear:

              “Every case study ranked leadership as the most important factor in developing collaborative relationships.”[1]

A meta-analysis of strategic alliances by Duysters, Kok, and Vaandrager found that the leading causes of strategic alliance failure stemmed from shortcomings in leadership including:

a.           Poor goal/strategic alignment,

b.           Cultural issues,

d.           Personnel issues,

e.           Lack of Commitment.[2]

We know that the right commercial model is crucial to driving collaborative behaviours but we also need to recognise the critical importance of leadership.  In this blog we will explore how leaders can foster a positive culture, drive the right behaviours, and create the best environment to achieve collaborative outcomes.

Leadership Approaches that are Incompatible with Collaborative Ventures

Not all leaders will be immediately equipped to deal with collaboration.  This is particularly true for those leaders that have spent most of their careers engaged in transactional, arms-length commercial dealings.  As we are moving to more complex, fast paced, and emergent environments, leadership models will need to change.  Consider the following comment made to the United Kingdom Parliament by the Director General of the United Kingdom’s ill-fated National Programme for Information Technology (Health):

Managing the National health Service IT suppliers is like running a team of huskies. When one of the dogs goes lame, it is shot. It is then chopped up and fed to the other dogs. The survivors work harder, not only because they have had a meal, but also because they have seen what will happen should they themselves go lame.”[3]

This IT project was highly complex, involved multiple parties, and included an exceptionally diverse range of influential stakeholders, all with divergent needs.  This key message made by the programme Director General unambiguously demonstrated that there was no scope for collaboration and self-interest reigns supreme.  If leaders wish to effectively pursue collaborative ventures, then they must eschew attitudes such as these.

Leadership and Culture

“Leadership sets the ‘tone at the top’, and is absolutely critical to achieving an organisation-wide commitment to good governance.”[4]

Leadership and culture and intricately linked. Leaders set an example to all teams (buyer and supplier) and set the standards of behaviours.  For successful collaboration, this means:

  • Driving enterprise goals and creating a shared vision,
  • Commitment to a no blame environment,
  • Fostering trust between all organisations, and
  • Pursuing a high-performance culture.

Organisation may not immediately have the ‘right’ culture to pursue collaborative ventures and we need to rely upon the leaders of the organisation to shift the organisational culture where necessary.  This can be a significant challenge where ‘business as usual’ approaches typically rely on transactional commercial dealings.  How then should leaders craft the right environment to establishing the right ‘culture and mindset’[5] in the organisation?

Leadership and Change Management

If you want to make enemies, try to change something”. Woodrow Wilson

When organisations need to shift towards a more collaborative approach, it is up to leaders to make this happen.  Leaders need to motivate their teams and sell the benefits of collaboration. This is more easily said than done.  One area leaders need to be aware of in their teams is a ‘sense of identity’. In Kwan’s paper, The Collaborative Blind Spot, she makes the observation that:

Identity provides groups with a center of gravity and meaning in the company, which help build a sense of security or Group legitimacy.[6]

Leaders need to recognise that groups may feel vulnerable when forced to collaborate and therefore leaders may need to adopt a change management approach that steers groups towards enterprise outcomes and create a new high-performing  ‘collaborate’ group.  Whilst being sensitive to group and individual needs, leaders should not allow business units to become their own caliphates and deviate from the organisational vision and desired culture. This is not a ‘one-off’ activity and demands continual attention as observed by the Australian Government’s Guide to Alliance Contracts

The desired culture should align to the behaviours required to enable the key [collaborative] features such as good faith and ‘no disputes’ to operate. Often the desired behaviours are described through establishing an Alliance Charter which documents the alliance values. However, the real culture of a team is demonstrated in how the team behaves and interacts.[7]

Leaders need to be constantly vigilant to ensure that their teams behave and interact according to the agreed values of the collaborative venture. Where the right behaviours are not demonstrated, leaders should make tough but fair decisions, including the removal of personnel whose behaviours are not compatible with the collaborative venture. Such drastic actions though would be futile if the leaders themselves are not displaying the right behaviours and taking a proactive approach to collaboration.  The cliché that, the fish rots from the head down, is therefore highly relevant to collaborative relationships. Leaders must be acutely aware that their behaviours are being closely watched by their own teams and their supplier or buyer counterparts. As recommended in ISO 44001 Collaborative Business Relationships, a Relationship Management Plan should be agreed that [emphasis added]:

identifies the project sponsors or senior responsible officers and reinforce their commitment to the collaborative contracting arrangements.”[8]

Conclusion

As we have stated in these blogs previously, there is no single factor that will ensure success in collaborative ventures. Similar to having the right commercial model, effective leadership is a must for successful collaboration. Leaders set the tone and culture of the organisation and are ultimately accountable for the success or failure of the organisation. To achieve this, leaders must be effective role models, must be committed to a shared vision, and be adept at change management.  Future blogs will explore joint government structures in collaborative ventures and how leaders operate under such arrangements.


[1] UK NAO Good Governance ‘Measuring Success Through Collaborative Working Relationships’ (2006) p 8

[2] Kok and Wildeman “Crafting Strategic Alliances: Building Effective Relationships” (1998).

[3] http://www.publications.parliament.uk/pa/cm200506/cmselect/cmpubacc/uc1360-i/uc136002.htm

[4] ANAO Better Practice Guide ‘Public Sector Governance’ Vol 1 (2003) p 16.

[5] US Government Accountability Office Defense Programs and Spending US GAO T-NSIAD-95-149 (1995)

[6] Lisa B. Kwan, “The Collaboration Blind Spot” Harvard Business Review March–April (2019).

[7] Australian Government Department of Infrastructure and Transport, “Guide to Alliance Contracting” opcit, p 35.

[8] ISO 44001 Collaborative Business Relationships.

Why We Need the Right Commercial Model to Drive Collaboration

To realise the full benefits of collaborative contracts, we need the right commercial model.  If we rely on transactional ‘boilerplate’ contract terms and conditions, then we are unlikely to achieve the full range of collaborative benefits that we have discussed in earlier blogs.  It is not just the contractual terms that we need to explore but also the market engagement strategy as well.  That is, how do buyers and suppliers interact before contract signature.  This blog subsequently explores strategies for aligning commercial models to best realise collaborative outcomes.

Do We Need a Contract At All?

Businessmen often prefer to rely on “a man’s word” in a brief letter or handshake or “common honesty and decency” – Stewart Macaulay (1963).[1]

In Stewart Macaulay’s seminal paper on non-contractual relationships, he asks the question, “why do businesses use contracts in light of its success without it”.[2] The hypothesis offered by MacCaulay is that contracts and contract law are irrelevant since there are many non-contractual sanctions available to buyers and suppliers to achieve the required business outcomes.  Why then do we need contracts to pursue collaborative contracts where the relationship should be underpinned by trust, a shared vision, and a desire for long term relationships? 

Relying on trust and good-will alone is likely to lead to failure. Contracts are tools to communicate and manage the obligations of parties in concert with the desired collaborative behaviours. We also need contracts to provide a level of certainty to establish insurance requirements, seek financial approvals, and meet statutory obligations (both within the public and private sector).  To pursue a collaborative venture without a contract is a very dangerous proposition and could result in the parties to the relationship accepting significant liabilities, especially with the imposition of the law of equity and quasi-contract obligations.

Commercial Frameworks Designed to Drive Collaboration

Max Abrahamson’s principles can be summarised by the often-used commercial tenet of ‘transfer the risk to the part best able to manage the risk’.[3] For many organisations though, this principle is often ignored.  The temptation to transfer significant risks to suppliers is very alluring, especially where buyers command significant market power.  Such strategies will often erode value for the following reasons:

  1. Suppliers will load their contract prices with substantial contingencies or management reserve to deal with risks. These costs are often passed onto the buyer whether the risk eventuates or not,
  2. Unreasonable risk allocation may result in fewer bids and lessened competition,
  3. Where inappropriate risks are transferred to suppliers, there may be a perverse incentive for suppliers to compromise on quality or behave opportunistically (e.g. bid low and make profit on variations), and
  4. In complex projects, buyers may not have ‘clean hands’ and may not be able to effectively seek remedies under the contract where risks materialise.

To illustrate the significant problems with inappropriate risk allocation, a research report by the Construction Industry Institute identified that:

Inappropriate allocation of risk resulted in a 14 percent increase in costs to projects. Of this amount, the customer was liable for 78 percent of the cost increase.[4] 

The other key problem we face with risk transfer in contracts is that the contract may only effectively deal with known risks. That is, uncertainty[5] may not be adequately addressed. If we want to pursue collaborative outcomes, then we naturally need to adopt a more collaborative approach towards risk management.

Commercial Strategies That Encourage Collaboration

We know that transactional boilerplate contracts that aim to shift the maximum amount of risk to suppliers will thwart collaboration, but what strategies can we adopt to maximise collaborative outcomes? Whilst not exhaustive, the following themes emerge in successful collaborative ventures.

Early industry engagement. Early and holistic identification of risks and opportunities will foster collaboration and ensure subsequent risk allocation and sharing strategies are fair and equitable.

Prudent and Equitable Risk allocation. To encourage collaboration, we should not place too much risk on suppliers.  Where substantial contract value is at risk then suppliers will be more likely to be risk averse and will not effectively pursue innovation and ‘best for project’ outcomes. Consistent with a shared vision, all parties should have reasonable ‘skin in the game’.

Joint Management and Ownership.  Joint management and ownership does not mean that the parties should embark upon an incorporated joint venture or alliance agreement. Joint management means that the parties work collaboratively on a ‘best for program basis’ to deliver joint outcomes. This may involve joint decision making for key areas, joint risk management, co-location of key team members, and shared systems (which ensure there is a single source of truth).

Transparency. Collaboration is far more likely when parties have full visibility of risk, issues, and opportunities throughout the contract lifecycle. Open book financial reporting, and shared risk logs all support the development and maintenance of trust.  Transparency also supports the collaborative contracting aim of no surprises.

Effective Disputes and Issues management. A commercial framework is needed that ensures disputes and issues are resolved at; the lowest level, quickly, and equitably. 

If we want to sabotage our efforts to drive collaborative outcomes and erode value then I would recommend the following commercial strategy:

  • Do not engage with industry at any stage. Ignore industry’s wealth of knowledge and their understanding of the risks in their core business.
  • Insist upon ‘unlimited liability’ for all risks and place as much of the contract value at risk as possible.
  • Insist upon unilateral, unfettered rights such as; ownership of all supplier background Intellectual Property, step-in /subrogation rights for minor breaches, and an on-demand performance guarantees.
  • In the tendering stage, apply onerous conditions of tender on suppliers (with sanctions for breach) but at the same time claim that the customer is not bound by this same ‘tender process’.
  • Make sure the tender evaluation criteria places a very high weighting on price and ensure that the contract duration is for as short a term as possible.
  • Ensure all issues and disputes are resolved through litigation.

Summary

If we wish to pursue effective collaboration and reap the known benefits of collaborative contracts, then we must select an appropriate commercial model.  Having the right culture, motivation, leadership and commitment to collaboration alone is insufficient. Trying to apply a collaborative framework with a transactional, arms-length commercial model is akin to putting ‘lipstick on a pig’.


[1] Stewart Macaulay, “Non-Contractual Relations in Business: A Preliminary Study American Sociological Review” 1 February 1963, Vol.28(1), p55.

[2] Ibid., p 62.

[3] Max Abrahamson, “Risk Management” (1984) 1 (3) International Construction Law Review 241, 244. 

[4] CCI Research Report RR210-11 “Contracting to Appropriately Allocate Risk” (2007) summarised in Altman R., Cruz J., Halls, P “One-sided Contracts: Do They Pay Off?” ACCL Vol 11 1 (2017) p 169.

[5] This includes both ontological uncertainty (the unknown unknowns) and epistemic uncertainty (risks are known but likelihood and consequence cannot be quantified).