Navigating the intricate pathways of enterprise-level contracts, especially for highly complex systems such as ERP, MRP and finance, is no small feat. An often overlooked key determinant of project success is how your strategic partner behaves before a contract is signed with them. This article aims to outline the psychology and predictive power of pre-contractual behaviours to provide ‘street level’ guidance on how your ERP partner is likely to perform once the contract has been signed and you have entered into the implementation phase.
The Psychology of Pre-Contractual Behaviour
Why should you pay attention to how a strategic partner acts before the contract is signed? When projects have huge and significant impacts on how organisations operate, the goodwill of the staff, overhead costs of running the organisation and how new opportunities for the client organisation might be more effectively optimised, any signs that might help you to make a better supplier choice should be a key focus of your attention.
Our extensive experience of nearly 600 of these types of complex projects, including those with larger suppliers, along with research from behavioural economics, provides insights into some red flag behavioural traits you can look out for in your earliest dealings with these potential suppliers that highlight how they are likely to approach the implementation of your project.
Negative behavioural traits are clear indicators, whereas positive ones can be a little more tricky to gain accurate insights from.
Poor pre-contractual behaviour. First, let’s consider the power dynamics. Some large system integration firms perceive they have leverage, due to their sheer size and reputation, often making them prone to over-assertiveness or even arrogance in pre-contractual negotiations. They may exhibit a tendency to dismiss client concerns or display a lack of accountability, even at this early stage. When some system integrator’s commercial teams operate in this way, it’s often endemic behaviour that has permeated throughout their organisation and should raise concerns with you, as these poor behaviours are likely to continue post-contractually, rather than a change of attitude being a realistic expectation. In other words, an uncooperative or inattentive attitude is usually indicative of future challenges in dealing with them. In turn, we find that this type of behaviour often leads to project scope creep or even contract disputes, with the supplier often putting the client in the firing line in order to avoid its own accountability when it has dropped the ball.
Positive pre-contractual behaviour, but without accountability. The flip side of this is when a strategic partner is being highly cooperative before the contract is signed. Future implementation behaviours from these suppliers can be a little more complicated to predict because some suppliers simply have a slick client relationship team who do a great job of representing their perceived technical skills and care. So, how can you tell whether your friendly, knowledgeable, flexible supplier, full of promises and solutions, may turn non-responsive and unyielding as soon as the contract is signed, particularly when problems arise?
The answer is in their willingness to contract for this good behaviour. Experience tells us that those suppliers who are not willing to contract for good behaviour are often the ones less willing to live up to the expectations they are portraying. By way of example, you may have struck up a really positive relationship with one or more potential suppliers, who assure you not to worry about contracting for good behaviours in the contract terms “as that isn’t how we act. It’s just a legal ‘thing’. We’ll take care of you”. However, we have plenty of experience in situations where clients have instructed us after contracts had been signed where a key personnel change has occurred within the supplier team, and the replacement insists on only what is expressly contracted for. The risk then manifests that they will simply only deliver what they *think* they are contractually obliged to deliver and nothing more. Essentially, although most specialist suppliers are under an implied ‘duty to warn’ if any requirements pre-contractually are ambiguous, it is far better to have that discussion before the contract is signed as it wastes both time and money not to contract for the right behaviours in the first place.
Part I: The Anatomy of an Ideal ERP Strategic Partnership
A high-value partnership is one built on mutual respect, trust and shared objectives. Below, we have listed twelve behaviours to focus upon during market engagement and through contract negotiations with your supplier. Expressly contracting for the right behaviours often evidences that your relationship with them has a greater chance of resulting in a more successful outcome from the implementation of your ERP project.
When we consider the architecture of an exemplary strategic partnership during the market engagement and pre-contractual phases, we typically look for evidence that supports the following elements:
- Objectives Being Met: Mutual understanding and commitment to the key performance indicators (KPIs) and the overall aims of the project.
- Critical Friend Supplier: The willingness of the partner to act as a ‘critical friend’, providing useful critiques and value-added suggestions to refine your processes and outcomes.
- Inherent Commercial Trust: A foundational level of trust where both parties have a high degree of confidence that the other will act in good faith to fulfil contractual obligations.
- Sustained Collaboration and Innovation: A commitment to continually adjust strategies, solve problems, and improve outcomes dynamically.
- Reduced Service Cost: Efforts made to increase efficiency, thereby leading to a reduced cost of service over time without a decrease in quality.
- High Reputation Among Peers: An established reputation for excellence and reliability in the industry.
- Alignment of Internal Teams: Clear and effective communication within both organisations to ensure that everyone is ‘on the same page’.
- Services Aligned to Outcomes: The constant alignment of delivered services to the agreed-upon outcomes and objectives.
- Flexible/Agile Contract Structure: The legal framework of the partnership should be adaptive enough to account for unforeseen challenges and opportunities.
- Evidenced-Based Results: Both parties should commit to a regime of regular reporting and analytics to provide evidence of what is working well and what needs improvement.
- Transparent Communication: A true partner will maintain open channels of communication, even when dealing with setbacks or challenges.
- Accountability: A responsible partner will own their mistakes and take prompt corrective action, instead of deflecting blame.
Armed with this understanding of what a great partnership might look like, how can you apply this knowledge to navigate the complexities of engaging with a new strategic partner?
The Psychology Behind Good Behaviour
When a strategic partner exhibits these traits, it is often a reflection of their healthy organisational culture, typically instilled by their senior management team and permeating all levels of the company. Trust is both cognitive, based on sound judgement and proven competencies – and emotional, rooted in mutual respect and transparency. While not all of the above traits might be present in every great ERP supplier, a strategic partner worth their salt will strive, at the very least, for a relationship that transcends transactional interactions, aiming for a collaboration that yields innovative solutions, cost-saving opportunities and mutually beneficial growth.
Part II: Red Flags – Poor Pre-Contractual Behaviours
The Warning Signs
The following are some additional behaviours that are likely to indicate material pitfalls or risks that lie ahead.
- Disinterest in Project Success: Resistance to Due Diligence: If the supplier refuses to gain a thorough understanding of the nuances of your organisation – even when you offer to cover the costs of this exercise – this should signal a clear disinterest in achieving optimal alignment.
- Context: While every client should do their homework, a strategic partner has an implied responsibility to deeply understand your operations, processes and goals to be able to offer an appropriate solution. Unfortunately, some strategic partners don’t realise there is now plenty of case law that categorises them as ‘experts’ in their field, which often implies a legal ‘duty to warn’ their clients of not only where their solution is likely to help support the project’s objectives, but also where it will not and further diligence and/or cost/time to configure will be required, and what consequential impact will result from the solution not being able to meet the client’s objectives.Most importantly, this case law indicates that if the supplier represents itself as a specialist in implementing these types of solutions, it is highly unlikely that it will be able to contract out of that responsibility in practical terms, even if the client agrees to the terms. If the specialist supplier’s legal team thinks it has been successful in drafting contract wording that achieves the task of getting the supplier off the hook from having to provide the right advice, then it’s probably time the supplier changes its legal team.
- Financial Indifference: Poor Guidance on Costs and Timelines: A focus on closing the deal without providing an appropriately detailed analysis of potential cost escalations (through their undertaking of detailed technical due diligence) or implementation timelines, is an alarming signal.
- Context: Transparency in project costs and timelines is fundamental for building trust and generating long-term success. A good strategic partner will undertake detailed due diligence on how its client operates and what the ‘future’ operating model looks like, in order to align its solution accordingly. It should be willing to delve into the financial and operational aspects of the proposed project in detail.
- Superficial Product Knowledge Sharing: High-Level Outlines and Workshops: A strategic partner offering only superficial and high-level workshops to ‘evaluate’ client requirements, thus resulting in high-level demonstrations of their proposed solution and without undertaking appropriate due diligence to empower it to truly understand the nuances of your future operating model and why that is important, is setting the stage for a challenging and much more costly relationship.
- Context: A strategic partner is the expert on their product and, therefore, should not underestimate the importance of undertaking detailed due diligence at the early stages of the project, in order to inform the client of the appropriate pros and cons of the degree to which their solution will assist them to improve their operational effectiveness.
The Psychology Behind Poor Pre-Contractual Behaviour and its Predictive Value for Project Success
Such red flag behaviours usually stem from a supplier leadership team more focused on quickly closing deals than on the long-term success and satisfaction of their clients. This corporate mindset influences attitudes and practices at every level. Understanding this, it is pertinent to ask what kind of behaviour can we anticipate post-contract if a strategic partner is unwilling to exhibit traits of understanding its client’s business and comprehensive details of its operating functions, future operating model, accountability, transparency and flexibility before a contract is even signed.
Key Poor Pre-Contractual Behaviours to Watch Out For
- Absence of Accountability: If a strategic partner demonstrates an unwillingness to take responsibility for their recommendations or actions during the pre-contract phase, this behaviour is likely to continue and often gets worse post-contract. They may attempt to sidestep responsibility for errors, delays or cost overruns, putting the burden on the client.
- Resistance to Adaptation: An inability to adapt or modify their approach during negotiations or due diligence is a tell-tale sign that the strategic partner is likely to be rigid when unforeseen challenges inevitably arise during project execution. Such inflexibility will often lead to delays, increased costs and dissatisfaction.
- Inadequate Problem-Solving Skills: A lackadaisical attitude by the supplier towards solving challenges or meeting the client’s needs during the negotiation stage often indicates a supplier organisational culture that prioritises quick fixes over sustainable solutions. This usually results in a snowball effect of mounting problems as the project progresses.
- Legal Escalation: A partner that is dismissive of concerns and quick to indicate a legal approach to dispute resolution, adds an additional layer of financial and reputational risk to the project. This approach is not only unhelpful but ties up essential client resources and focus, diverting you from achieving project goals.
- Poor Communication: A lack of clear, timely, and transparent communication during the pre-contractual stage usually suggests similar issues may exist during implementation. This can lead to misunderstandings, faulty assumptions and, ultimately, project failure.
- Negligent Risk Management: A strategic partner who does not proactively discuss and plan for potential implementation and commercial risks during the negotiation or pre-contractual phase is often likely to continue this reckless approach post-contract. This lack of foresight and planning increases the likelihood of unmanaged issues sabotaging project success.
- Low-Level of Client Involvement: If a supplier shows little interest in involving the client in key decisions or stages during the pre-contract phase, this exclusionary approach often persists, leading to decisions that may not align with client needs or expectations.
The Predictive Value of Pre-Contract Behaviour
When you consider the above, a supplier’s behaviour during the tendering or pre-contractual phase often provides good and valuable insights into predicting what behaviour is likely to follow from them once the contract is signed. By carefully observing these early behaviours and understanding their origins in organisational culture, client companies can make more informed decisions about entering into long-term partnerships. Remember, if negative tones are set during the contract negotiation phase, these often reverberate and usually only become worse, throughout the life cycle of the project. Choose wisely.
The Underlying Psychology
Just like good behaviours, poor behaviours are often endemic, originating from the ERP supplier’s senior management team and trickling down. This can manifest as a culture of complacency, a lack of accountability, or even an unspoken policy of doing the bare minimum to secure and maintain contracts.
Part III: Evaluating The Pros and Cons
Should You Proceed?
Having considered both sides of the coin, it’s time to evaluate whether entering into a contract with a less than ideal partner makes sense. Here are some frameworks for making that judgement:
- Alignment with Objectives: How well does the partner’s offering align with the strategic objectives of your project?
- Cost-Benefit Analysis: Beyond the face value of the contract, what are the long-term financial implications, including potential cost overruns and the risk of project failure?
- Cultural Fit: Do the organisational cultures align in a way that will promote long-term success, or are there glaring differences that could be disruptive?
Is it Possible to Improve a Strategic Partner’s Behaviour?
Can a leopard change its spots? Well, in the corporate world, sometimes it can, provided there’s enough incentive to do so. Behavioural change strategies can include:
- Performance-based Incentives: Tie a part of the payment or other incentives to specific performance metrics.
- Governance Frameworks: Establish governance bodies that include representatives from both parties to ensure accountability and collaborative problem-solving.
Strategies for Risk Mitigation
To help inform the pros and cons of going ahead if red flags are fluttering even before the contract is signed, it is crucial to put in place robust risk mitigation strategies. Here’s how:
- Revisit your early market engagement strategy: During your early market engagement phase, it is important to be really, really clear with potential suppliers about the outcomes you expect from them and that you will be contracting explicitly for their ‘expert’ support in achieving them.
In this way, suppliers will often ‘self-select’ whether they want to be contracted as a strategic partner or not. Being clear from the very beginning about the support and reliance you expect from the ERP supplier will usually mean that once you reach the contract negotiation stage, you will be dealing with like-minded partners. They will have their own commercial objectives and imperatives to achieve, but they should now be focused on prioritising a successful outcome from your implementation. - Walk away and seek alternative partners. Yes – I know. This option is not ideal. You’ve undertaken early market engagement, mobilised various internal teams at significant reputational and internal cost, assessed the respective bids often against very stringent selection criteria and compliance requirements, and potentially had many supplier/ERP solution workshops covering (albeit at a superficial level) what the ERP solution does and how it might meet your requirements, taken up references sites (which in themselves may not have added much value to the ambiguity you are facing) and you’ve selected what you all consider to be the nearest and best solution provider. Then the contract negotiations start and you find out that all of the really helpful support the ERP partner has consistently implied it was going to undertake, is something it now refuses to actually contract for. Does it mean they cannot achieve a successful implementation after all? Not necessarily. But if they aren’t going to contract as a supportive critical friend and partner to assure your ERP solution implementation is a success (on the premise that you as the client also resource up your internal team to what the supplier has been advising you during the procurement phase), then you need to decide to either ‘suck it up’ and rely on your internal team much more heavily, or consider whether it is time to go back to the market to find a supplier that will be a supportive critical friend and partner. Wishful thinking is not an assured implementation strategy. It’s often a path to significantly increased costs, hugely extended timelines and worse still, but also – more common than anyone would prefer – an abandoned project that undermine reputations. If, on balance, your responsible, accountable, consulted and informed legal team and department heads are unable to offer clear evidence-based assurance that the contractual arrangements you have are structured to assure a successful implementation, it is important you revisit the market, again.
- Independent facilitation. Sometimes (only sometimes), it’s not all bad news. There are times when simple misunderstandings have arisen over a client’s expectation to contract for a strategic relationship with their ERP supplier. By engaging with the most senior executives within your ERP supplier and outlining a detailed (paid for) due diligence process that provides the ERP supplier with a much clearer understanding of what benefits you are anticipating to achieve and co-developing what your ‘future operating state’ looks like with them – there is a greater likelihood of them understanding this approach and that you want to work more closely with them. It will also allow them to understand the benefits and risks of the degree to which their solution is likely to meet the future operating state you are aiming for.
Conclusion
Understanding the potential correlation between a strategic partner’s pre-contractual and post-contractual behaviours is not just smart business – it’s vital risk management. So, the next time you’re about to enter into negotiations with a strategic partner, remember, the early bird doesn’t just get the worm, it also gets a vantage point. By observing early behaviour, you can more accurately predict future actions, allowing you to prepare for potential challenges and put in place effective risk mitigating strategies to safeguard your investment and hopefully embark on a mutually beneficial partnership.
This article is more than a cautionary tale – it’s a roadmap for intelligent engagement with your future strategic partners. Because knowing what to expect is half the battle.
Photo credit: Pattanaphong Khuankaew
