By: David Fleming, Director, TPI
It is undeniable that C-suite sponsors of strategic sourcing initiatives are increasingly focused on the ability of their service providers to deliver outcomes rather than provide input. These same sponsors are tasking transaction teams with creating outcome based agreements, often to the bemusement and confusion of these teams as they cast around trying to create this new paradigm.
A starting point for any team seeking to establish an outcomes based agreement is to consider the idea that all contracts are outcomes based – whether swapping beans for a cow or dollars for improved customer satisfaction. The value in accepting this idea is that it directs the mind away from a focus on how to develop a new contracting model. Instead it allows strategists, performance managers, and C-suite sponsors to consider what management techniques, particularly sourcing techniques (new and old), are most likely to ensure that the transaction being entered into will deliver the outcomes sought.
As simple as it sounds, the first step in delivering an outcomes based agreement is to identify the desired outcomes along with the outputs and inputs needed to achieve them. At this stage, some old-school management tools can be useful, although they may be tested by the complexity of both strategic sourcing agreements and delivering outcomes across a network of organisations. Simplest among these tools is the SMART test.
- SPECIFIC: Are the outcomes being sought specific? If they are inherently complex, which is probable, are there future problems that are likely to result when a commercial relationship is established? Task project teams with anticipating these problems and identifying those management techniques likely to be needed to ensure that problems are dealt with in a manner that preserves the effectiveness of the agreement.
- MEASURABLE: How can the outcome, and more particularly the service providers’ contribution to the outcome’s achievement be measured? This is rarely simple since outcomes are at the least dependent on inputs from the client and service provider. Commonly, multiple service providers contribute to an outcome and each will inevitably have a view on their own contributions and their co-contributors failings.
- Similarly considerations of ACHIEVEABILITY, REASONABLENESS and TIMELINESS need to be made and factored into the design of the agreement.
A project team that understands the SMART dimensions of the outcomes they are seeking is well equipped to establish the obligations of all parties, the means by which achievement of these obligations will be tracked, and the management techniques that will be used to remediate situations where outcomes are not being delivered.
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