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Shipping-to-Partner or Partnership?

| Posted by Henk Woolschot Follow 0 Followers on Feb 11, 2015. Estimated reading time: 10 minutes |

To be successful in the current business world, partnerships are necessary. Due to globalization and supply chain management, a single company cannot operate on its own anymore. But what exactly is a partner or a good relationship with vendors? This article gives good advice on how to get started and can also help you to develop an insight in the current ways that your partnerships are running. By defining models and explaining characteristics of these models you get better insight in the relationships with your partners. More important, you will learn to benefit better from partnerships.

Different ways of collaboration

In this chapter we will have a closer look on how customers and vendors typically collaborate. This collaboration is not always explicitly defined upfront which makes the outcome of the collaboration also hard to predict. Below some situations are described of what can occur if you run this implicitly.

Outsourcing: Customer versus Vendor

When it comes to outsourcing contracts, the discussions often shift focus on the vendor. What criteria should a potential vendor possess? Price, quality, and skills are important factors during decision making. How do we know that we have selected the right vendor? The answer to this question has to come from a tender process, and because a lot of companies do not have much experience in this field, they hire way too expensive consultants to support them. At a certain point, they realize that outsourcing can have a large impact on their own organization, and there is an increased urge to understand this process. This is how demand-supply is created and so a distance between Us and Them.

Outsourcing: Us versus Them

By the introduction of the demand-supply relationship, one automatically understands that the words ‘us’ and ‘them’ must be involved to a large extent. The customer’s versus the vendor’s thought creates a certain distance. We know ‘our’ business, organization, processes, people, and tools, and ‘they’ don’t (not yet). Not only is due diligence needed but also a lot of knowledge sharing sessions. The focus of these sessions is to transfer knowledge from the customer organization to the vendor. How fast are they able to do this? Since we have outsourced this, it has become their task and responsibility. ‘But they are far from being equivalent!’

Outsourcing: Design versus Build and Build versus Test

Every relationship starts with a first project. But who is exactly doing what? How will the work be divided between the customer and the vendor? Typical example is an ICT-project. Thereby, a design-build-test model arises within the ICT organization. The amount of iterations may vary from case to case. ‘Classic waterfall’ or ‘Agile’ methods are being applied around this ‘outsourcing model’. During this first project you can define the Build phase of the project as the outsourced task. ‘The outsourced task’ can be stretched in next projects by letting the partner do (part of) design (technical) and (part of) test (unit). And hence, the shipping-to-partner-model is born.

Models of Partnership

Let’s have a closure look into different models of Partnerships. Based on experience the author defined 2 models and compares them.

A. Outsourcing: Shipping-to-partner

The shipping-to-partner-model is further explored, and is used at the company level for making contracts and Service Level Agreements. Legal and Finance departments review the contract without any intention of ‘true partnership’. Focus for them is on financial benefit and legal aspects. For projects, ‘Workpackages’ as well as ‘Statements of Work’ are drawn. If ‘we’ have to design and test, and ‘they’ have to construct, how can we send good working packages to them, and how can they provide us with ‘great results’? Definition of ‘great results’ can be ‘working software’ and ‘good documentation’. Moreover, along with this model, entry criteria and acceptance criteria are drawn, especially, acceptance criteria, because they are the vendor and ‘we’ need to measure if ‘they’ deliver as per contract.

Characteristics of the Shipping-to-partner-model

A shipping-to-partner-model results in reactive behavior of the vendor. ‘We’ think about how and what ‘they’ have to do. At the point, when a working package is sent to the vendor, a lot of thinking has already been done. The vendor reviews the outcome of the thinking and tries to understand this. But the gap is never bridged.

The output of the vendor in this model is only the code. In best case it is the code that has been asked for in the designs and requirements. But is this really what was needed? Requirements might be changing or not in sync with what is really required.

One downside to this model is sub-optimization. Of course, the ‘handshake’ is being watched, whereas the integral process is not. The customer is responsible for Requirements and Design, the vendor is responsible for Build and the customer again is responsible for Test. Often when a vendor wants to improve the end-to-end process the reply is ‘How we do business with the end-customer is an internal case’.

Risks avoiding behavior can be found in ‘capturing a lot’ in contracts, Statements of Work and Service Level Agreements. Examples are Conditions, (Acceptance) Criteria, and Penalties. Financial risks are being covered by fixed-price-constructions.

Output of the Shipping-to-partner-model

The output of this model is services according to contract / SLA at the company level or deliverable for the SoW / work package at the project level. In a project, this will be code according to certain standards which has probably been tested by a unit test. But after all it's just a code, and nothing more. Plus maybe documentation and training and implementation material.

B. Outsourcing: Partnership

A partnership model is something completely different. Real partners don’t hide behind contracts and processes. Here, partnership can be metaphorically compared with a marriage. You don’t make a contract in your marriage specifying responsibilities; for instance, who is in charge of cooking, and what criteria the food has to fulfill. Real partners enjoy the result of their partnership together.

Characteristics of this Partnership-model

Real partnership starts with trust. Trust can have different features. Trust can be expressed through confidence that your partner will help you, even though the recent status differs from the originally made arrangement in the contract. Partners do not ‘hide behind the contract’. Trust is not being punished for your mistakes. Trust in the relationship itself helps you believe that it will last forever and not only for ‘the period of the contract’.

Another aspect is openness to each other. Being open regarding your qualities is easy, while showing openness about your shortcomings is a completely different story.

Output of the partnership-model is joint business development. At the execution front joint responsibility and risk mitigation.

Is True Partnership Possible?

This question is hard to answer. How do you realize and implement a real partnership? If you make a long-term contract that follows the shipping-to-partner-model, how do you communicate this decision / spread the thought within your organization?

Tips for Establishing True Partnership

Some of the things that you can do to establish and sustain true partnership are to create a plan to manage the mixed feelings towards partnership, visualize the benefits at all levels, prepare to deal with the soft factors in partnerships, and assure that management beliefs in partnership and shows their support for it.

Mixed feelings

If you are a part of an outsourced company of a retained organization, you probably won’t have pleasant feelings towards the enforced partner. Outsourcing has been the decision of somebody else, and now are you supposed to go for real partnership?

Mixed feelings will occur within one organization towards the partnership, so you have tro be prepared to deal with them.

Let’s take a closer look at the company. Strategically, it is possible to define a partnership model. But will employees at the operational level really accept this? It feels like an arranged marriage and if this is supposed to become a love marriage one day, there are a lot of parameters that must be considered. In a hierarchical organization, acceptance is more likely but if it will become intrinsic is doubtable. In more flat organizations, plenty of discussions will arise about the definition of partnership and who has to be the one true partner.

Visualize Benefits

Another factor is the ‘what’s in it for me’. Again, we will have different answers on strategic, tactical, and operational levels. It's important that the benefits of true partnership are understood and made visible for all involved.

Soft Factors

Another tip is to create a plan towards ‘Soft Factors’. Partnership should be about having fun together, understand each other. This can be achieved via ‘social events’, ‘cultural sessions’ and ‘jointly celebrating success’.

Management Belief

Also it is important that management believes in the success of the partnership and expresses this in many ways.

Outsourcing: Shipping-to-partner or Partnership

Let’s put things together:

  Shipping-to-partner Partnership
Characteristics Customer comes first
Vendor is reactive
I (customer) demand, you (vendor) provide
You will hear from us
Search for optimal quality / price ratio with vendor
Squeezing vendor / no budget
Independence
Hedging
Decisions by customer given to vendor
Equivalence
Trust
Openness
Joint view on the situation
Collaborate
Create win-win situations
Confederate
Engage each other from the beginning
Joint decisions
Pros Possibly cheap
Easy to swap vendor
Align on roadmap
Real sponsorship
Optimize together
Integrated solution
Decisions and priorities are aligned
Cons Vendor is reactive
Disconnected
No proper alignment
Sub-optimization
All undefined tasks lie with the customer
Time-consuming
Vendor lock-in / dependency of vendor grows
Unclear responsibilities: who do you speak to and who should do what?
Challenges Good commissioning Creating trust
Quotes ‘Our partner isn’t very proactive: they only do what they are told.’
‘You can see this piece, but it is only internal, so please don’t spread it.’
‘Do not put all the eggs in one basket.’
'These are my challenges and risks. Can we discuss how we can mitigate them?'

Finally: Some Considerations

How to Choose?

The aforementioned can be read as a guideline to help you determine what model is most suitable. There is no recipe, cookbook or universal solution. However, it is important to be aware of situational factors which should influence your decision about which model can be used at what time. Besides the mentioned considerations, other aspects such as the number of vendors needed are crucial as well. What other kinds of relationships do I have? Typically in ICT-Outsourcing the customer is an ICT organization which is on it’s turn a vendor towards the business. So ‘Business’ is seen as the end customer. The Business on it’s turn sees end-users as the customer. We see a ‘chain of partnerships’.

Do I Need Multiple Partners or a Single Partner?

Many organizations ask themselves the following question: How many vendors do I need? Choosing multiple vendors or a single vendor is a serious decision. The reason cited most often is the ‘fear for vendor lock-in’. But does something like partner lock-in exist? Just imagine that you marry more than one woman / man simply to prevent a lock-in!

Who Exactly is My Partner?

A classic example is the chain of End User → Business → IT → Vendors. As a Vendor you might work for IT only. Is IT reactive towards the business? Are they the IT partners for the business? From these thoughts of the vendor, the questions ‘Who is my partner?’ and ‘Is that the IT department or the end user?’ are important. Furthermore, will I ever become a business partner if I sign a Shipping-to-partner contract with an IT department? Not even to mention the other vendors who sometimes will be seen as partner but mostly as competitor. To be a true partner suddenly that isn't so obvious anymore.

Summary

In this article we zoomed into the shipping-to-partner-model and the partnership-model and compared them. A good model always depends on the situation and can change anytime. Good relationships are sustainable, and therefore, a process is needed and this takes years. There will be moments in which your consciousness about the model will be high, but also times where this awareness is lesser. This article might help you choose the right model or to pick elements from it and use it in your daily practice.

About the Author

Henk Woolschot has been an IT expert for 25 years with great professional experiences in the field of outsourcing and offshoring. Currently, Henk is working as a Director Mutiple Service Integration for Cognizant. He is specialized in global delivery management, outsourcing, and offshoring of application services and infrastructure services. Since 1995, Henk has gathered a lot of practical experience in setting up centers for Application Services (development, testing, maintenance, renewal, replatforming) / Application Packaging and Infrastructure Services offshore (India, South Africa), as well as nearshore (Romania, Hungary). Henk has worked with many Indian vendors in different business / engagement models. Not only does he know the customer side, but also the ‘back-office factories’.

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