3 Elements for 21st Century Relationship Management
I am often asked by senior stakeholders about how best to manage strategic supplier relationships. And this is no doubt a key interest for most of you, too.
Because leadership is asking me this question, I think two things:
First, the way we (contract professionals) have taught stakeholders how to manage strategic relationships is not working for the 21st Century partnership.
And second, the average contract professional doesn’t have the answer leadership wants to hear.
This column will focus on three elements of contract structure for a 21st Century Relationship Management governance protocol. Memorizing this high level list and being able to apply this framework to your organization will take your career to the next level.*
Relationship Focus – Joint Management
The goal of joint relationship management is to emphasize the importance of building a more cooperative, if not downright collaborative, working relationship throughout the duration of the relationship. This goal is opposed to the more traditional relationship management goal of designing agreements that shift risk, and use governance to monitor and penalize.
I suggest you write a Governance Section/Article or Schedule. Too often, I see random clauses scattered throughout the agreement structure. For example, I’ll find “Key Employee” clauses in the employment section, and the "Quarterly Business Review" meetings outlined in the SOW etc. Please, pull governance related provisions outlined below into one document within the agreement, if you can.
3 Elements for 21st Century Relationship Management
Joint relationship management moves from traditional hierarchical communication (one throat to choke) to direct multi-functional communication at three levels within the relationship.
Step #1: Establish a three-tiered management structure
A tiered approach uses a three-layered framework with each tier having specific responsibilities for managing different aspects of the business. This framework creates peer-to-peer alignment among the executive sponsors, middle management, and day-to-day workforce.
Each layer is accountable for examining the relationship and business success from its own point of view. The three tiers are:
- Board of Advisors – executive sponsors who are looking to ensure strategic objectives from the relationship
- Joint Operations Committee – middle management team members who implement the strategy in the form of directions for day-to-day tasks, and
- Management Groups – people who ensure day-to-day tasks get done right and on time.
Once you have designed the three tiers for your strategic relationship, you foster peer-to-peer integration. One way to do this is to map the various individuals into the structure using a reverse bow tie structure.
Mapping to the reverse bow tie structure is easiest for the Board of Advisors and the Management Groups, but is harder for the Joint Operations Committee. In my experience there are fewer people staffed at the “middle management” level at service provider organizations than at the buying organization.
Step #2: Establishing a regular communications framework
A communications framework helps the parties establish a formal mechanism for managing the business and is so critical. Way too many business relationships wait until there is a crisis to actually talk to one another. At the point of crisis, trust has eroded and I’m asked to start rebuilding bridges. But, it’s often too late.
For each tier, outline the high level objectives, associated titles and frequency in a table format. The high level objectives come directly from your Statement of Work, Service Level Agreements and KPI’s. I use titles because people usually move in and out of roles more frequently than titles for roles change. Finally, for frequency, I outline daily, weekly, monthly, quarterly, semi-annually or annually.
Think about it this way. Your senior leader wants to review and review SLA’s and KPI’s quarterly. Column one would include the objective. The objective is to review the SLA’s and KPI’s to get ahead of performance issues. Column two would include the titles. The roles to attend the meetings are A, B, and C. Column C would include the meeting frequency. Those roles meet at a minimum of every three months bringing with them pertinent reporting information.
Step #3: Establish an escalation protocol
Using both the tiered structure and the communications framework, you outline how problems are moved up to the next tier. This is NOT a good faith negotiation clause in the dispute resolution article in the template MSA – it is a provision that outlines the process for the Management Group to move a critical operational issue to the Joint Operations Committee for review. This section answers questions such as: How is the problem categorized? How long can the committee wait to convene to address it? What if they cannot resolve it?
The middle tier will almost always solve the problem. I’ve noticed two reasons for my assertion. First, they sit between the strategic and the tactical. That combination brings with it a broader view of possible resolutions. Two, not a single one of my middle managers wanted to be seen as ineffective at resolving tactical types of problems.
Finally, the Board of Advisors meets annually and would resolve strategic concerns, such as the divestiture of a portion of the customer’s or supplier’s business that affects this relationship, payment of bonuses or ending the relationship prematurely.
* Further details in The Vested Outsourcing Manual, a book Jeanette co-authored with Kate Vitasek, Jacqui Crawford (Archer) and Katherine Kawamoto