When I joined itica last year, I spent a fair amount of time immersing myself (as you do) in the company’s management consultancy portfolio. I was immediately drawn to itica’s work in the area of relationship governance and optimisation. I was fascinated by the case studies and stories on this subject and started to reflect on the customer relationships that I had been involved in over the years.
In my previous role with one of the major IT players in the housing sector, I had overall responsibility for customer relationship management. On the whole, my previous company had some excellent relationships with its customers measured by both longevity and the level of ongoing investment in products and services. They also had a relationship management team that extended beyond the account manager and included the allocation of a member of the executive team to each account to act as a sponsor.
However, as in any business, there were always relationships that didn’t quite work out in the way that either the customer or supplier had hoped, and my review suggested to me that both customers and suppliers could do a lot more at the outset of these relationships to prevent problems occurring further down the track, and perhaps agree a way of dealing with relationship problems when they do arise.
Successful relationships between customers and suppliers are paramount in driving mutually-beneficial business outcomes for both parties. Unfortunately, not all supplier relationships are ‘sweetness and light’ and often fail to match the early promise of the honeymoon period immediately after contract signature.
Most if not all housing providers rely heavily on third-parties for business-critical systems, IT infrastructure and services. Some of these relationships will represent a significant proportion of their annual IT spending; getting the best from these key relationships is therefore a vital ingredient in ensuring that business outcomes are delivered. Importantly, we shouldn’t forget that there are two sides to every relationship and it needs to work for the supplier too.
itica’s experience of helping clients develop and improve supplier relationships shows that simply relying on a contract rarely produces the desired outcomes, so here are some ideas that can be applied as needed to fit the size and scale of your IT organisation and your supplier contracts (these ideas can be applied to both new and existing supplier agreements).
Defining your expectations
IT suppliers segment their customers so why not segment your suppliers? Start by categorising your relationships into, say, ‘strategic’, ‘key’, ‘critical’ and ‘important’. Don’t assume that all high-revenue contracts are strategic, instead build a simple scoring matrix with additional criteria such as linkage to core business processes or plans, business or financial impact of non-performance, and ease of substitution. A ‘strategic supplier’ is one that your business could not survive without or is crucial to achieving your business strategy and only applies to a limited number of suppliers. Also, be impartial; don’t let a great personal relationship influence your assessment of a supplier’s ranking.
The rankings will identify where an enhanced relationship model is needed; this should have a degree of formality because it requires commitment from both parties. Document what you expect from the relationship: for example, who needs to be involved from executive to operational levels; the sharing of business and account plans; the supplier’s capabilities beyond technical expertise; how the teams will work together; how both parties will manage risk; the resolution of relationship issues; and, lastly, regular relationship reviews outside the operational service review structure.
Once the model has been established for strategic or key relationships, the next step is to articulate the outputs and measures that will demonstrate whether performance is improving business efficiency. Alignment to business outcomes means going beyond technical or service performance measures, although these are important and in some instances all that is available or appropriate.
The business measures to add to technical metrics might include: improving satisfaction ratings from internal users and external users of your systems or services; system use or take-up (e.g. increased levels of digital interaction or engagement); financial performance improvement, such as revenue per employee or a reduction in voids or arrears; faster end-of-year processing; shorter call centre resolution times; real-time availability of business-relevant information; and continuous improvement, such as a reduction in costs over the life of the contract or incremental improvements in service levels.
Once these are agreed, contracts or sourcing processes can be structured to suit, to include the commercial and service-level requirements as well as the ability to change the measures as business needs evolve. Potential suppliers will respond better to being measured, and paid, on business outcomes if the revenue triggers are clear and the benefits and risks shared. These commercial structures need agreement within the business because they could lead to paying more for the benefits delivered or improved service.
Changing your existing IT supplier contracts may not be possible but that shouldn’t prevent engaging your top suppliers in a conversation about applying some of the relationship principles and having a greater focus on achieving business outcomes.
Importance of the account management function
Aside from technical capability, a major influence on a supplier’s performance is the account manager and their team. ‘Account manager’ is one of those terms that can mean different things depending on the organisation you are talking to, so it’s important to understand what kind of account management service is being offered, paying particular attention to the level of sales focus expected by your account manager. Some key questions to ask include:
- What are the supporting components of the service in terms of internal structures?
- What proportion of time is allocated between relationship building, dealing with issues and selling?
- How many accounts does the individual manage and how complex are they? The number of units owned and managed in the housing sector is still a good guide, overlaid with the extent of the supplier’s portfolio that they have implemented.
- Does the account manager have any responsibility for securing new customers and if so, how much time is allocated to that activity?
- What sales target does the individual typically carry, how much of the target is allocated to your account and how is the individual incentivised?
- Importantly, what is the account manager expected to deliver from your account in terms of follow-on sales during the life of the contract?
The trick is to align these measures to your own needs; use the relationship model to define the account manager role and have the final say on who is appointed, and do likewise for critical account team roles. Share the relationship model during appropriate sourcing projects and ask the supplier to commit to the permanent account team being part of the ITT process and continue all the way through to operational service. The benefits can be initial joint team development, an ability to fix issues, and early performance ownership to those responsible for delivering the ‘live’ service.
Other questions you might want to ask
In addition to asking for certificates and accreditations, ask to be shown how the supplier applies internal quality controls. Maintaining high performance is a function of an embedded approach to continuous improvement of processes and services. Ask them to share the measures that they apply to themselves with example reports, and to provide evidence of how their internal controls have identified problems and then verified that changes have created and maintained improvement. Remember too that suppliers not only face similar business challenges to their customers but they can also identify opportunities that could lead to mutual benefit.
Defining these follows on from setting the performance measures and metrics, with the additional step of agreeing the trigger points for payments. The trigger points will usually be milestones (end of a project stage or x% complete), governed by a quantitative (‘n’ users, sites, customers) or qualitative (systems and services operating at specified performance) and making them simple and unambiguous will help foster trust and easy agreement.
The trigger points can also be used to build penalties into the agreement, such as non-achievement of the trigger point by a certain date. In this case, suppliers will want to ensure that the risk is shared if they are dependent on the customer completing activities, and there will also be a need to consider tiered payments for interim or variable achievement of the metrics. Rather like performance-related pay, suppliers will often agree to link a proportion of their revenues to the measures.
I mentioned earlier that successful relationships and performance requires commitment from both sides. Once the contract is in place, many organisations underestimate the effort involved in proactively managing their top suppliers.
The effort required is reduced by doing the work up-front in terms of the relationship model and the metrics, both of which can be used to track performance at regular intervals. There will also be a need to stand back from day-to-day ups and downs and review the status of the overall relationship. Some suppliers call this stewardship, others ‘total account management’ or governance – whatever it’s called, it is the mechanism to review the wider picture and confirm that the relationship remains aligned to its original purpose, that the right people and capabilities are engaged, and an opportunity to modify the model as appropriate.
Engagements start and end with a contract, but it’s the bit in the middle that really determines how good the relationship is. In the new world of non-perpetual IT contracts, an upfront investment in relationship governance is even more critical for anyone providing an IT service, so start as you mean to go on.
John Doughty is a director of itica.