Tag Archives: Collaboration

Collaboration and Reputation

Just One Goat

‘Just One Goat’ – J. Davies (2020)

 

Collaboration and Reputation

“Regard your good name as the richest jewel you can possibly be possessed of, for credit is like fire; when once you have kindled it you may easily preserve it, but if you once extinguish it, you will find it an arduous task to rekindle it again.”  – Socrates (470 – 399 BC)

 Why Is Reputation Important?

Effective collaborative relationships are underpinned by trust, and by extension reputation. The reputation of an organisation is a strategic asset and a significant source of corporate value as observed by Eccles et al:

“…in an economy where 70% to 80% of market value comes from hard-to-assess intangible assets such as brand equity, intellectual capital, and goodwill, organizations are especially vulnerable to anything that damages their reputations.[1]

There are significant examples of organisations who have destroyed corporate value because they did not adequately protect their reputation. These examples include poor risk management practices such as BP with the Deepwater Horizon Disaster,  fraudulent conduct such as Volkswagen’s emissions cheating practices,  and highly imprudent statements about product quality such as the Chairman of a large jewellery retail chain publicly stating that the company’s products are “complete crap”.[2]

Failure to operate your company is a ‘sound and business-like manner’ and with ‘reasonable skill and care’ is not only unlawful in most jurisdictions[3] but also a sure-fire way to erode value and destroy trust.  Doing what you say you are going to do, behaving ethically, and treating your customers with respect are all simple strategies to build up and maintain positive relationships. We also need to consider reputation more broadly between buyers and suppliers, especially with strategic suppliers and customers. 

The current global pandemic is generating extreme volatility and uncertainty in business relationships.  The temptation to retreat into silos with a ‘dog eat dog’ approach may yield very short-term benefits; however, smart companies will play the long game and focus on how the business will operate after the crisis is ended. In other words, these companies will look to preserve or even enhance their reputations

Strategies for Preserving Your Reputation in a Crisis

In a crisis, an organisation may be legally frustrated from delivering what they promised. This can apply to organisations involved from both the buy side and sell side. A black letter law approach would push businesses towards efficient breach of the contract or litigation to resolve the issue (often through legal technicalities) but as we know, such approaches destroy trust and annihilate opportunities for parties to work effectively with each other in the future. Organisations therefore need to explore options for win-win outcomes through the following:

Transparency. Be honest and do not surprise your suppliers or customers.  Early and frank disclosure will more likely preserve trust and allow for joint, mutually agreed solutions.

Demonstrate Leadership. Be a role-model to your teams, customers, and suppliers. Be proactive, be courageous, and do not let issues fester. Problems rarely go away by themselves.

Maintain Flexibility. Two millennia ago, the Roman statesman, Publilius Syrus stated that, ‘it is a poor plan that admits to no modification’. This tenet is especially relevant now. Organisations need to accept that existing Business Cases, Corporate Plans, Profit Forecasts, and Programme Charters are likely to be superseded by events. Stubborn organisations that do not adapt their strategies and plans will likely fail. Successful organisations, that work collaboratively with buyers and suppliers to promote flexibility and agility,  will more likely succeed.

Negotiate to Create Value. Negotiation does not have to be a zero sum game. Adopt a positive approach to negotiation that explores opportunities for both parties and the creation of value.

Fix the Problem and not the Blame. When the proverbial hits the fan, there is an overwhelming temptation to start pointing fingers. We need to resist this temptation and focus our energy on fixing the problem.

Adopting the above strategies will not guarantee preservation of goodwill but will be far more likely to avoid losing a cherished reputation. Organisations may also seek a crisis to enhance their reputation and prove that they can work collaboratively in both good and bad times.

Summary

When a crisis strikes, we naturally focus on short term survival. This is absolutely necessary where cash flow and solvency is at risk and other extreme risks or issues place business viability in jeopardy. Like Maslow’s hierarchy of needs,[4] we should not ignore these critical factors but at the same time we also need to be future focused and explore how the organisation will look and work at the end of the crisis.  Short-term survival does not have to be at the expense of long-term relationship building. Organisations now have a unique opportunity to demonstrate their affinity to collaboration in good times and bad.  Playing the long-game, from a collaboration perspective, should be a strategic priority.

[1] Robert G. Eccles , Scott C. Newquist and Roland Schatz “Reputation and Its Risks” Harvard Business Review February 2007.

[2] Gerald Ratner, After Dinner Speech to UK Institute of Directors (Apr 1991).

[3] Companies Act 2006 (UK) s174; Delaware General Corporation Law Delaware s145; Canada Business Corporations Act (1975) s122; Corporations Act 2001 (Cth) s180.

[4] Maslow, A. H. (1943). A theory of human motivation. Psychological review,50(4), 370.

Disputes and Issues Resolution – Best Practice for Collaboration (Part 2)

“One is not exposed to danger who, even when in safety is always on their guard.” – Publilius Syrus (circa 60 BC)

ludit lexus

Ludit Lexus  – J.Davies (2020)

Introduction

In part one of our discussion on disputes and issues resolution, we explored strategies for effectively dealing with disputes internally. The key theme here was to resolve issues quickly, fairly and at the lowest possible level.  In some circumstances though internal mechanisms may be insufficient to resolve critical disputes.  In our current volatile and uncertain environment, some aspects of the commercial relationship may not be possible to perform and the contract could be frustrated.[1] Even force majeure can introduce substantial uncertainty to the performance of the contract.  We therefore need to anticipate mechanisms to deal with serious issues that cannot be effectively resolved through internal measures.  We should not rely on litigation or arbitration to seek resolution.  Litigation and arbitration are very time consuming, expensive and uncertain processes that are very unlikely to support future positive relationships. Consequently, we must explore other, less destructive, external resolution mechanisms.

External Disputes Resolution Options

In our first blog we recognised that disputes and issues resolution processes and largely unfettered so long as they do not ‘oust the jurisdiction of the courts’.  This means that we are free to select any form of disputes and issues resolution process so long as the commercial agreement does not fetter any party in pursuing litigation until after the dispute resolution process has run its course. For effective collaborative outcomes we need to adopt the same mantra of disputes and issues resolution principles we explored earlier; that is resolve quickly, fairly and at the lowest level practical.  Once we move to external disputes resolution, solving problems at the lowest level means anything other than arbitration or litigation. Best practice resolution here includes mediation and expert determination

Mediation

The Resolution Institute offers a succinct definition of mediation as follows;

Mediation is a confidential process where an independent and neutral third party assists the disputants to negotiate and reach a decision about their dispute.[2]

The role of the mediator is not to impose a solution or binding outcome, rather the mediator facilities a joint, win-win outcome by exploring issues and positions of the parties collaboratively.

A mediator will only participate in the process if all parties are committed to resolution of issues in good faith.  Mediation is usually the quickest and cheapest of all the external dispute resolution processes and is also more likely to preserve positive business relationships.

Expert determination

For technical disputes, an expert can be employed in a resolution role. Quite often the expert’s ruling is considered binding.  The Australian Institute of Arbitrators and Mediators recommend the following rules apply to expert determination:

  1. The Expert shall determine the Dispute as an expert in accordance with these Rules and according to law.
  2. The parties agree that:
    1. the Expert is not an arbitrator of the matters in dispute and is deemed not to be acting in an arbitral capacity;
    2. the Process is not an arbitration within the meaning of any statute.
  3. The Expert shall adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay and expense, so as to provide an expeditious cost-effective and fair means of determining the Dispute.
  4. The Expert shall be independent of, and act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting its case and dealing with that of any opposing party, and a reasonable opportunity to make submissions on the conduct of the Process. [3]

For more complex and long-term commercial arrangements, parties may pre-select the expert for each discipline area. For example, the parties could pre-select an expert for pricing issues, technical solutions, or for contract interpretation.

There are several permutations in how the expert can decide on an issue. In most cases, the expert is free to come to their own conclusions as to how the dispute should be settled. In other cases, the expert may be bound to select a course of action between the ambit of the parties’ positions.

A variation of the expert determination decision making process is final offer arbitration or baseball arbitration.[4] In this situation, an expert is only permitted to select one course of action provided by one of the parties. There is no scope to select within the middle ground. Consider the following example:

A supplier is seeking additional sums related to a substantial contract change proposal initiated by the customer.  The customer is expecting a $100,000 increase in costs associated with the change, whereas the supplier expects the change to incur an additional $500,000 in costs. If the parties wish to resolve this issue via baseball arbitration, then they will need to submit a best and final offer to the arbitrator. Each party does not get to see the final offer from their counterparts.  The arbitrator will estimate the cost of the contract change proposal and will select the best and final offer that is closest to their expert estimate.  In this example, the expert may decide that the additional costs are $250,000. If the customer digs in their heels and sticks to the $100,000 additional sum, but the supplier is more reasonable and adjusts their escalation fee to $300,000 then the arbitrator will select the $300,000 escalation fee since this figure is closest to the arbitrator’s estimate.

Baseball arbitration prevents any one party making outrageous or unfair claims for fear that their claim will be considered less equitable or fair when compared to the other party’s claim. This can be implemented relatively quickly and cheaply provided there is an arbitrator with the necessary skills available.  By design, this approach nudges parties to provide reasonable offers and will likely preserve business relationships.

Conclusions

For resolving disputes and issues, we must first craft a commercial strategy that minimises the likelihood of disputes and issues arising in the first place. Fair and equitable risk allocation, early engagement, and transparency are all tools we can adopt to achieve this. Nonetheless, we need to anticipate disputes arising and ensure our contract has effective internal disputes and issues resolution processes.  With an effective collaborative culture, we should not expert disputes and issues to require external resolution processes, but we should not create a situation where arbitration and litigation is the only step available to us.  Mediation and expert determination should be considered, especially for longer term, strategic relationships.

[1] J. Curle & C. Allin ‘Coronavirus COVID-19 and frustration: Is your contract at risk? (United Kingdom)’ (Mar 2020)  https://www.dlapiper.com/en/chile/insights/publications/2020/03/coronavirus-covid-19-and-frustration-is-your-contract-at-risk/

[2] Resolution Institute (2017)  https://www.resolution.institute/dispute-resolution/mediation

[3] Resolution Institute (2017) https://www.resolution.institute/dispute-resolution/expert-determination

[4] L. Samples ‘Resolving Construction Disputes through Baseball Arbitration’ American Bar Association (2019)

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). 

When to Use Collaborative Contracts

In this blog we will explore when we should, and should not, pursue collaborative contracts.  We must remind ourselves that collaborative contracts are not binary structures involving either zero collaboration at one of the spectrum, versus an incorporated joint venture or alliance at the other end.  Collaboration can take many forms and is a scalable concept that must be tailored to the activity at hand.

Motivation

“Virtually all of the collaborative projects out-performed most defence projects” – UK NAO Good Governance ‘Measuring Success Through Collaborative Working Relationships’ (2006).

Firstly, we only pursue collaborative relationships where the benefits outweigh the costs.  That is, we have a motive for collaboration.  Cost and benefits though need to be considered in as broad as terms as possible and not just in terms of contract price.  Collaborative benefits may include:

  • improved prospects for repeat business
  • continuous improvement and innovation opportunities
  • increased likelihood for supplier participation
  • enhanced satisfaction for all employees
  • improved flexibility
  • less time wasted on disputes and issues management

Similarly, we also need to explore the ‘hidden costs’ associated with collaboration, which may include:

  • increased time and effort in tender evaluation and tender development
  • increased efforts in relationship monitoring and cultural alignment
  • supplier lock-in
  • increased likelihood of opportunistic behaviours.[1]

In summary, we first need to craft a robust business case when considering collaborative endeavours and ensure this business case is continually evaluated.

Means

Where collaboration is able to realise superior benefits,  then we should explore whether we have the means to engage in collaborative ventures.  We should ask ourselves if we have the right culture, appetite to risk, and internal capabilities to realise collaborative benefits.  The United Kingdom National Audit Office offers the following ‘gold standard’ for enabling positive working relationships. 

UK National Audit Office Gold Standard for Sustaining the right Cultural Environment[2]

The Australian Department of Defence Capability Acquisition Sustainment Group, in their Collaborative Contracting Better Practice Guide, also provides guidance to help ‘buy-side’ organisations gain insight into their ability to pursue collaborative outcomes through the use of a contract maturity model, which asks the following questions:

  1. Suppliers favour your organisation because it “always keeps its promises”, treats suppliers fairly, promotes trust, and minimises the cost of doing business.
  2. Both parties openly discuss “interests and desired outcomes” throughout the procurement lifecycle commensurate with the strategic importance of the relationship.
  3. Each contracting party understands the other’s goals and how to help achieve and quantify them
  4. The contract is viewed as a tool to plan and track business relationships
  5. Procurement practitioners are viewed as valued facilitators and integrators of stakeholder interests

Asking yourself, ‘do I have the capacity and capability to achieve these gold standard or contract maturity model outcomes’ will help you understand whether collaboration is the right step for your organisation.  If the answer is no, then leaders can take remedial action. Future blogs in this series will explore strategies to shift organisation capabilities and culture to better enable collaborative outcomes.

Opportunity

With the means and motive for collaboration established we now explore whether the right opportunities exist for collaboration.  The opportunities for collaboration will be driven by the commercial model, geography, and market power of buyers and suppliers.  Collaboration will only work where both buyers and suppliers are committed.  Opportunities for collaboration may be limited in the following circumstances:

  • A transactional environment where buyers and suppliers operate on a ‘take it or leave it basis’.
  • Inflexible governance arrangements exist (especially in the public sector) which inhibit the full range of relational outcomes. This is especially the case where compulsory competitive tendering rules are too onerous.
  • Key leaders and managers are unavailable to support collaborative outcomes.
  • Pre-existing and inflexible contract structures prevent the full range of collaboration outcomes. An example of this would be ‘government to government’ contracts such as Foreign Military Sales.

Even where some of these adverse features exist, there still may be opportunities to engage in some level of collaboration. 

When not to use collaborative contracts

Collaborative contracts should never be used where an organisation lacks the means to effectively implement them.  This may stem from an inappropriate organisational culture or lack of commercial maturity.  If an organisation is mostly ‘transactionally’ based, where disputes and issues are normally resolved by resorting to ‘lawyers at twenty paces’, then that organisation will be unlikely to engage in effective collaborative relationships. 

As we previously discussed, we therefore need to ask ourselves some very hard questions about our internal capabilities and the means to engage in collaborative ventures.  This could involve benchmarking the commercial maturity of the organisation through tools such as the International Association of Contract and Commercial Management  (IACCM) Capability Maturity Model or undertake a collaborative contract skills assessment under Supplier Relationship Management processes.  Organisations may also rely on performance scorecards to benchmark their relationships and skills in collaboration.

There is also an overwhelming temptation to pursue collaborative contracts to mask systemic failures in an organisation. When facing failure, the allure of collaboration may be seen as a quick fix.  Simply sticking a partnering charter on an existing contract and hoping for the best will unlikely create value.  Positive relationships and collaboration are necessary but not sufficient for success. That is, organisations must still make sure they address the key hygiene factors before they attempt collaborative contracts. This includes ensuring the following are addressed:

  • A clear and shared organisational vision
  • Leadership commitment
  • robust commercial skills
  • A mature Project Management framework

The evidence is clear that collaboration can deliver fantastic benefits both between and within organisations.  We need to ensure we implement collaborative contracts for the right reasons and understand what barriers exist to successful implementation. Future blogs will explore collaborative contract case studies of where things have gone well and where things have failed.


[1] Hikan Hakansson and Ivan Snehota, ‘The burden of relationships or who’s next?’, (11th IMP Conference Proceedings, Manchester, 7-9 September 1995), 522-36.

[2] UK NAO “Driving the Successful Delivery of Major Defence Projects: Effective Project Control is a Key Factor in Successful Projects” HC 30 Session 2005-2006 p7.

Collaboration? Why it’s elementary my dear Watson!

It seems that collaboration is everywhere nowadays.  Whether it is Ed Sheeran and Justin Bieber producing a number 1 single, designer Tommy Hilfiger and Formula 1 driver Lewis Hamilton delivering exclusive clothing lines to Apple putting CarPlay into a variety of cars.  Everyone seems to be doing collaborations.  But are they all as successful?

Recently, I put on my detective cap like the famous fictional British detective Sherlock Holmes to find out whether individuals and organizations are achieving success including whether they are using updated methods to improve collaboration.

The short answer is no, unfortunately, and a change is long past due!

It seems that most practitioners are forgetting that collaboration really is ‘elementary’ but are omitting a couple of important details.  They are still focusing only on both the financial and non-financial benefits. Not much is written in detail about the best ways to collaborate to get desired results.

Isn’t that what we all want?  If we prioritize financial gains only, haven’t we blindsided ourselves?  I made a similar point in my recent article published in the International Association of Contract and Commercial Management (IACCM) Contracting Excellence Journal.

It’s discouraging that although ISO44001:2001 Collaborative Business Relationships Standard offers an extremely well structured approach for establishing and maintaining collaborative business relationships and provides high level guidance on the process, the standard still does not offer much to help readers design a collaborative contract that gets results for all parties.

My experience is that despite the best intentions of an organization and the individuals within it to collaborate, without the motive, opportunity and means to collaborate, the chance of success is unfortunately very low. This becomes clearer if you take a closer look behind three words: motive, opportunity and means.

Motive (the why)

Prior to any collaboration you need a compelling reason for why either buyer or seller needs to collaborate.  Motive reveals why by highlighting the costs and benefits both on an individual basis (e.g. financial reward such as a bonus) and group basis (e.g. reduced costs and improved profitability).

For example, buyer and seller may want to collaborate to mitigate uncertainty in the scope of the commercial arrangement, or to review constantly changing and evolving technology.  This is then reflected in the commercial terms of the contract to ensure that both buyer and seller end up with a fair distribution of risk and reward with the arrangement being perceived as neither too generous nor too punitive.  Moreover, the benefits of collaboration could be linked to personal financial rewards.

Regardless, both buyer and seller should be clear about the reason why they want to collaborate, because a good motive is the cornerstone to our overall collaborative approach.

Opportunity (the what and the when) provides opportunities for buyers and sellers to collaborate through various events, forums and activities such as formal scheduled meetings, supplier forums, innovation or hackathons, etc.

The opportunity to collaborate needs to be part of the everyday culture for both individuals and organizations, but simply having both the motive and the opportunity is not enough to deliver collaboration.  Unless collaboration meetings are formalized as part of our daily, weekly, or monthly working routines, such opportunities will be first to go when schedule and resource pressures occur — and they almost certainly will.

Means (the who and the how) provides detailed guidance on who and how to collaborate when individuals and organizations are brought together through an opportunity.

The means refers to providing the right tools, including policies, guidance and processes so that people will naturally collaborate — assuming they have been given the right motivation and opportunity.

It could be as simple as ensuring the collaboration meetings have specific terms of reference (scope and limitations of collaboration) and standardized agendas. This should ensureeveryone is clear about the roles and responsibilities of each individual and organization.  This includes whether a meeting is co-chaired, whether either buyer or seller has an ultimate decision right — and, if there are disputes, how are these resolved?

The means can be even more complicated.  Examples could be determining the financial arrangements due to changes in scope, realization of risks, or sharing of cost reductions due to the successful implementation of continuous improvement and innovations.

In my experience, especially in very procedural and hierarchical organizations, if the means are not specified, you will not get the full benefits of a collaborative approach.  I’ve summarised this in Figure 1.

collaboration-diagram-1.jpg

Figure 1 : Motive, Opportunity, and Means of Collaboration

So, where does this leave us?

Successful collaboration continues to deliver benefits for both buyer and seller alike resulting in the need for more effective and efficient collaboration in our commercial arrangements.  We need to understand the fundamentals even though various policies and practices including guidelines and standards help us with this challenge.

Accordingly, I suggest that we think carefully about the commercial arrangements, and their underlying collaborative architectures to ensure there is motive, opportunity and means to collaborate.  After all, at the end of the day, collaboration should be ‘elementary my dear Watson!