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12/23/2008
Partnering – Part 2 Deeds not Words

In part 1 in this series, John Seddon introduced a model for partnering, but stressed that ATTITUDE was the key. In part 2 he uses a case study from the IT services sector to explore aspects of partnering in practice.

A computer services organization was not delivering the expected financial performance. Large systems services were producing healthy margins; however revenue was declining. Desktop services exhibited strong growth but delivered low margins. Within desktop services, the worst performance was in what was called the mobile services – sending engineers to customer sites.

Roughly half the equipment being serviced in the desktop business related to a small group of major manufacturers and the other half to a multiplicity of ‘other vendors’. The types of equipment being serviced ranged from current top-of-the-range equipment to very old equipment. There was an equally diverse range of customers, from global corporations to individual home users.

The managers of the business decided to outsource services for the maintenance of printers, laptops and ‘multi-vendor’ products – essentially all the products not associated with dominant manufacturers. The decision was based on historic revenue and cost data. The managers modeled projected savings from outsourcing ‘the problem’ and, furthermore, asserted that the result would be better service for customers – for another supplier would surely have a better ‘fit’ with this work. The decision was made to outsource this work in three months.

A program manager was appointed. He established a program office and recruited managers from each of the organization’s functions – logistics, operations, call handling and service delivery. The program manager was to work to the following objectives: the transfer of delivery labor costs to suppliers; the transfer of delivery logistics costs to suppliers and the retention of the customer interface by added value ‘event management’. In effect, this meant removing the costly parts of the operation to a supplier, but keeping contact with the customers.

The program manager had to work to aggressive time-scales. Within three months he had to find a supplier, transfer the work and thus reduce the company’s head-count. To make decisions, the program manager used information about call volumes, the types of equipment on contract and the nature of the contracts with customers. He then reviewed potential suppliers and sent a short list ‘request for information’ to establish their suitability. From those judged as suitable, he invited bids. The potential suppliers were asked to provide a bid against a specification that included anticipated call volumes, equipment types and geographic spread.

Three suppliers who best met the specification were invited to meetings. It was at this time that the company began to use the word ‘partners’. The prospective partners were also visited. In the final stage the program manager agreed to contractual terms (service levels and costs) with the chosen partner and the work and resources (parts and people) were transferred.

In parallel with the outsourcing work was a reporting process, whose purpose was to identify risks, issues and potential problems. Throughout the planning stages this process had been used to query, confirm and second-guess what was going to happen with respect to all aspects of this change – financial, customer, operational and so on. Being a hierarchical process, it was effectively out of touch with what was really happening in the operations and hence what was going to happen.

On the day the outsourcing went live the whole affair ‘fell over’. The supplier could not cope with the demands placed upon their operations and significant customers were quick to complain loudly about their poor service experience. To rectify the situation the company re-hired people who had just been transferred or made redundant and took back some of the work – effectively those customers who they were afraid of upsetting. Things went from bad to worse. One customer who was incensed about the change in service delivery being affected without notice banned the supplier’s engineers from their premises. This engineer was then re-hired by the company and sent back to the same site.

What went wrong?

One could ask, “What went right?” The answer is they made the date. Cynical, perhaps, but indicative of the process being used – it was concerned with ‘making the plan’, not ‘making things work’.

To review what happened I will return to the framework I proposed in part 1 – the four principles of partnering.

The four principles of partnering

Mutuality: A common purpose with mutual benefit.

Commitment: Parties are prepared to commit resources to the mutual Endeavour.

Clarity: Each party is clear about who is doing what.

Openness: Both parties are prepared to raise issues concerning the quality of the working relationship.

Mutuality

While mutuality might have been an avowed intent, there was little mutual behavior. The potential suppliers were treated in entirely contractual terms. The lack of mutuality in planning and execution became apparent when the ‘partner’ was faced with customer demands they could not service. The fault lay in the company’s failure to study demand from the customers’ point of view (why do customers call in?). Data about call volumes ignores this fundamental but important knowledge. The data about potential ‘partners’ sought in the ‘requests for information’ could do nothing other than ignore the nature of the work that was to be done; prospective ‘partners’ were being asked for information that would be entirely irrelevant to the final outcome.

Commitment

Once the contract ‘went live’, it was each to his own. There was no commitment of resources to working together to solve the problems that occurred. In fact the company had to re-hire resources that should have been shed.

Clarity

The ‘partner’ had to work within the company’s processes. By keeping ‘event management’ (customer contact, logging and progress-chasing), the customer demands were first dealt with in the company’s process and then passed to the ‘partner’. The ‘partner’ was unable to use the same systems as the company had used historically, causing much confusion between the different parties’ staff. No one was sure as to who was doing what.

Openness

There were plenty of issues concerning the quality of the working relationship. But they were dealt with in a ‘contractual’ way – ‘you have failed your service levels’ said the company to the supplier, ‘it’s your fault’ said the ‘partner’ and so on.

The problems all started right at the beginning. As I said in part 1 of this series, partnering is all about attitude. The intent of the company was not so much to find a partner as to reduce its costs. It is ironic that their behavior led to a significant increase in costs. The company used the hierarchy to manage the outsourcing – something that can only be a hurdle to working in partnership, for the hierarchy becomes concerned to see its plans executed and hence hinders any attempt to solve the real operational problems. As I said earlier, hierarchies behave as though they are immune to data about what really happens in an organization, let alone what happens between organizations. The data at hand were all about activity and cost, not about demand (why customers call in), value (what matters to customers) and flow (how the work works to fulfill the value work).

Knowledge about the work (demand, value and flow) was the key to rescuing this situation. It led to red faces amongst senior management. For example, it transpired that the business had historically been costly because all demand was treated to the same process – customers who needed simple things had to go through the same processes as customers needing complex things. Furthermore, the extra costs associated with holding inventory bore no relation to the demands being made by the customers whose service was being outsourced. In effect, the ‘waste’ of excessive inventory was being transferred to the ‘partner’, without establishing its causes. Some of the causes continued. For example, because of the way the processes were managed, engineers were often better off when doing things that were not in the best interest of the company – fitting parts that were not really required was just one example.

What simple lesson can we draw from this example? That partnering begins with a thorough understanding of the ‘what and why’ of current performance – and that both parties to the partnership need to go though that process. It is to focus on the causes of costs rather than costs. Mutuality is not just about goals, it is about methods. It is as simple and complex as that.

In part three, I shall explore how well this lesson has been learned in the food sector.

Articles were written by John Seddon (Managing Director) and Vanguard Consulting Ltd.  He is an occupational psychologist, author and consultant.  John describes his work as a combination of systems thinking – how the work works, with intervention theory – how to change it.  This article has been edited by the people of Bryce Harrison Inc. (USA).  The Bryce Harrison website is www.newsystemsthinking.com.