Last week, I set the scene by examining the importance of critical intangibles in maintaining sourcing relationships. In the next few weeks, I would like to consider some of these critical intangibles in more detail, and explain why they can have such a dramatic impact on a sourcing relationship and its success.
The first point of discussion is whether one should adopt a cooperative or competitive style in working with the supplier market. Looking across some of the organisations with mature sourcing arrangements, we can see they vary the style they use according to their requirement. For instance, if you are outsourcing a basic service, such as a desktop, one can adopt a competitive style. This is because with this type of service, price matters – there are plenty of suppliers that can provide much the same service, and so the cheaper the deal, the more likely the supplier is to win more business. If you are outsourcing something that is commodity, a competitive style is key, because you as a client have the power: The power to choose your supplier, and therefore the power to go somewhere else.
However, if one is outsourcing a strategic service, such as a major finance transformation, adopting a cooperative style is critical to success. Indeed, success will depend on sharing – equal sharing of the risk, upside and downside. Success will depend on ensuring that there is a joint understanding of the key deliverables and the key drivers. Success will depend on an understanding - of the culture of the supplier and of what is driving the team.
When it comes to choosing one style over the other, many clients aren’t necessarily adopting the correct strategy to fit the situation. For a desktop deal, adopting a cooperative style wouldn’t be disastrous, but you could waste a considerable amount of management effort. Conversely, by being more competitive in that same situation, you would be saving both time and energy. If however, you were to adopt a competitive style in a strategic situation, you could be risking the success of your sourcing relationship.
