Any successful complex service delivery relationship requires both sides to consistently act in the best interests of the relationship – a collaboration between ‘intelligent clients’ and ‘intelligent suppliers’. However, in our experience, backed up by numerous independent reports on the state of the market, some 56%-87% of all client/supplier relationships for complex projects and services do unfortunately fail to meet the client’s anticipated business outcomes.
We have written many articles on the attributes of an ‘Intelligent Client’. This series of articles is based on the eight core elements to assess whether your supplier is an ‘Intelligent Supplier’; i.e. do they have a supplier-side team that works with their clients – sometimes to support, sometimes to challenge, often to innovate – to ensure that the client’s business outcomes and objectives are more likely to be achieved.
Article #1 in this series focused on ‘Understanding, Supporting (and Challenging) the Client’s Business and Operating Strategy’. This next article will turn its attention to the testing subject of an intelligent supplier’s motivation and responsibility to support a client’s business objectives, even when these turn out to be more fluid than originally expected. Is your ‘Intelligent Supplier’ supporting your objectives?
The reality of changing business objectives
To be an intelligent supplier, they must be able to evidence that it will not only strive to achieve its client’s contracted objectives, but that it will also help the client to enable the more subjective business-alignment objectives, that it may not have contracted for. In other words, an intelligent supplier adds value over and above its contracted relationship.
In our own experience, the most intelligent supplier will take the view that it already knows a client’s business environment will inevitably change over time; sometimes even more rapidly than expected by either supplier or client. Therefore, in view of their sector experience, the most intelligent suppliers recognise this issue of change before they engage with a client and during its ongoing lifecycle of working with them. The ‘intelligent supplier’ prepares and plans for it.
The majority of our work over the years (in excess of 350 of the nearly 600 strategic and complex project delivery relationships we have been involved in), has been to help both supplier and client realign their existing project outcomes and strategic relationships so they can become much more effective, productive and innovative. In doing so, support the client’s goal of achieving its more holistic business outcomes.
And, one (and it’s just one…) of the key reasons why these relationships can go off track, is a supplier’s practical unwillingness to change its operating, governance and contractual model to help support the client in realigning its operational service delivery to meet new, better articulated or realigned business outcome demands.
Why are some suppliers unwilling to be flexible?
In fairness, there are often key business reasons behind the inflexibility exhibited by some suppliers – in particular, larger supplier organisations that are either themselves stock-market listed, or have external financial shareholders. Financial shareholders are not only interested in good returns on their investments; they also want to see those returns growing consistently and on a sustainable basis. Financial investors need as much certainty as possible and this can impact on a supplier’s ability to be flexible.
Such external investors are often pension funds, and, as a recipient of pension income at some point in the future, you would probably not be completely comfortable if your pension fund invested in companies that couldn’t be assured of providing a good return on a consistent and sustainable basis.
If every client of a supplier has heavily fluctuating revenue, profit and cash flow streams, this creates huge uncertainty in its financial results. In these circumstances, external shareholders may well consider the executive and commercial management of the supplier organisation to be poor, resulting eventually, in the executive team’s replacement.
So, the approach by some ‘less intelligent’ suppliers in this position, will be to remain steadfast in their unwillingness to be flexible in either service delivery, service delivery charging mechanisms and/or contract terms. This is despite clear evidence that both flexibility in providing services that constantly align to a client’s changing business outcomes, along with the supplier investing heavily in research and development to improve the effectiveness of its services, provide much greater operating margins and cashflow to ‘intelligent suppliers’.
Additional restrictions on supplier flexibility
There are other issues for the supplier too that impact on its ability or willingness to be flexible in its revenue structure with its client.
A lot of clients, particularly in the public sector, have little idea or visibility about the amount of time and cost supplier organisations go through in order to bid for work through a formal tender process. For larger outsourcing, service commissioning or IT systems integration initiative agreements, it is not unusual for a supplier to have to invest between £500,000 to £2,000,000 in hard cash and resources to bid for a larger service delivery contract. The exact sum being subject to the complexity or range of services being requested by the client and bid for by the supplier.
So, if a supplier loses the bid, that is known as ‘sunk cost’. All of these ‘sunk costs’ have to be paid for in some way. It is usually by way of margin on future contract wins by the supplier. There are then other ‘sunk costs’ that have to be borne by the supplier, such as staff illness, holidays and pension contributions, along with the cost of training to improve staff and team operating skills and management development. Then there are the sales and marketing costs, which are often the largest costs outside of service delivery borne by suppliers in operating their businesses. These are, however, necessary as no larger supplier can live off its referrals from existing and happy clients alone.
Then you have all of the many insurances that suppliers must keep up to date with, including product liability, health and safety, employment disputes, professional indemnity, legal expenses and so forth. In addition, you have offices, cars, train and plane fares, hotels and subsistence expenses. A supplier has to bear all of these ongoing costs before they have won a single piece of chargeable work from the client.
Despite the importance for them to do so, can suppliers actually offer any flexibility?
One of the key differences between ‘suppliers’ and ‘intelligent suppliers’ is their ability to innovate for both themselves and their clients. Some suppliers, while being good at their contracted service delivery, can fall short when it comes to intellectual effort in innovation. But, both our research and our experience indicates that when a client complains that a supplier is not being innovative, this is rarely solely the fault of the supplier. Clients can often benefit from assessing whether they themselves are living up to ‘intelligent client’ standards.
We outlined earlier the practical and commercial challenges a supplier faces with when it has external investors in its business. This is where both innovation and courage must come in.
Flexibility from these suppliers often requires that the management team take a stand when dealing with their own group executives and/or external shareholders. Having external shareholders to satisfy for consistent and sustainable revenues, doesn’t mean they can’t be flexible as a supplier. Over the course of a long strategic project relationship, there are occasions when a client will need to change its business objectives and outcomes. In turn, the client will likely need to reduce the supplier services it receives, potentially reducing the supplier’s revenues, profits and cash flow as a result. This reduction in the client needing the higher level of existing supplier services doesn’t need to be terminal; it just means some hard thinking from the supplier is required (and in fairness, it is hard for most suppliers to do this) about how the supplier will not only make up any lost revenue as a result of changing a specific aspect of a client’s service delivery contract, but also how to continue to grow revenues, profits and cash flow as a result.
The most intelligent suppliers we have seen not only adapt to this change and collaboration model, but in fact thrive on it. They work with intelligent clients to look how they can either widen their service delivery offerings into other client areas, at the same time as reducing the scope and cost of the existing BAU services, and/or obtaining referrals from these existing clients to help open new doors to new prospects. In turn, this helps to significantly reduce marketing and sales costs for getting in front of new prospects to discuss new business opportunities.
In the public sector, client referrals can present challenges for winning future work, as work of any material size is subject to (currently, but soon to be updated) European Procurement Legislation. However, intelligent suppliers working with intelligent clients will produce a much more effective and balanced scorecard of holistic supplier assessment criteria so that added value can be evidenced from their existing client base. In this way, provided that evidenced added value takes appropriate weighting in any procurement process, intelligent suppliers are more likely to win the work from intelligent clients.
So, as a client, the next time you rush to put together a ‘requirements specification’ and supplier selection criteria for a service you want delivering, think about this; the more effective a client is at clearly articulating its expectations and aspirations, the more likely a supplier will understand not only what the client wants, but why it wants it. It can then provide a much more evidenced-based, value-driven answer and be able to ask the client the ‘right’ questions to ensure (a) it can provide the value in its service delivery that the client expects, but more importantly, (b) where, or whether, it can provide much greater added value to support the client in its business outcomes far faster than originally anticipated.
Conclusion: Evidence of an Intelligent Supplier Supporting Your Objectives
An intelligent supplier will often insist on a balanced score of performance measurements from its intelligent client to be able to demonstrate that it is delivering added value. These performance measurements will demonstrate not only where the supplier has achieved what it said it would in the contracted service delivery, but will also include added value such as:
- Where the supplier has assisted the client in areas outside of the contract and what the results of this assistance has been in terms of improvements achieved
- Where the supplier’s attitude and approach has been more flexible than the contract would usually allow or where their contract has been silent or ambiguous. And, again, how this has assisted the client in a quantified way
- Where the client has provided support to the supplier that contractually it was under no obligation to do so, but did so to operate in a collaborative manner with the supplier. What impact this had for the supplier on the relationship and how it assisted the supplier’s business in increasing its revenues, profit and/or cash flow
- Where the supplier and client have collaborated to experiment on innovation between them outside of the contracted service delivery parameters, and what has been learned that can be applied to existing and future service delivery initiatives.
So, an intelligent supplier will be able to provide evidence to its prospective clients of where these value-added behaviours have been applied to its other clients. It’s this evidence of these value-added behaviours, where a supplier has gone above and beyond the call of duty, that sets ‘intelligent suppliers’ apart from those that merely provide good intentions or rhetoric rather than on-the-ground behaviours that demonstrate flexibility and added-value to their clients.
This is just the second article of nine in this series on the ‘Intelligent Supplier’. To view the first article in the series, click the following link ‘Understanding, Supporting (and Challenging) the Client’s Business and Operating Strategy’. And watch out for our next article on the subject of ‘Evidencing Commercial Trust’, coming soon.
Photo credit: iStock, masterzphotois
