when the provider loses money and the customer balks at a
proposed price increase.
It can make good business sense—and great relationship
sense—to begin a contract with a cost-plus arrangement
for a defined period, during which the service provider can
learn enough to be able to develop a fair price quote and
commit to cost improvement targets, performance objectives, and the like. That way, “everybody knows” that the
ultimate cost and performance targets will be based on
solid experience, and “everybody knows” that all targets
and objectives will be changing, and maybe changing often,
over time.
▪ Any contract over 20 pages long is only a collection of loopholes. It is tempting to try to put everything that everyone
can think of in a service provider’s contract, especially
when the buyer’s legal department gets involved. Look,
they’re only doing what they think their responsibilities are:
1) to safeguard the company against any possible event in
which the service provider might have a hand, and 2) to
nail the service provider to the wall with no hope of escape
in every imaginable dimension of price and performance.
That level of adversarial contest amounts to trying to
determine, on paper, which party has the most power—
who can crush the other. Not a great way to reinforce the
idea of a high-trust relationship, we would contend. A few
years ago, we facilitated a workshop for a mixed group of
customers and service providers that dealt with what relationship ingredients were most important. The two groups
spontaneously expressed a stunning level of agreement.
The telling “aha!” moment was the further agreement that
very few of the relationship-critical elements could be
reduced to effective contractual language.
So, we are all in favor of brief contracts with frequently changing addenda regarding price, cost, metrics, and
performance.
▪ Learn your prospective partner’s deep secrets. The nature
of the service provider business has been changing for the
past several years. We have long ago left behind the idea of
service companies with a few focused product offerings.
Today, the scope and range of services (and genuine capabilities) available from a service provider are staggering.
There has been a huge shift from small family-owned and
-operated companies to larger and larger merged operations, which also grow through functional expansion. The
really major players have become, or have been acquired by,
massive global corporations.
The logical questions include those related to the possibility that a behemoth will swallow up the candidate. Or
whether the candidate will over-reach and make an acquisition that strains its resources during the integration
process.
Perhaps even more ominous would be a recent infusion
of cash to support growth by a private equity firm. Those
are generally accompanied by an infusion of board-level
participation by representatives of the ostensibly “
hands-off” new ownership. Soon to follow? Strong suggestions—
even ham-handed demands—for top-line improvements,
soon, and at double-digit levels. That can lead to detrimental behaviors in both the selling and execution processes.
Of course, general investigation of a candidate’s overall
financial status is only prudent in nearly all cases. Sheer
economic necessity can sometimes lead to an overemphasis
on sales.
AT THE END OF THE DAY
The world has changed and is continuing to change. Being
smart about that is up to you, although in a decent world,
the experienced service provider has a responsibility to give
impartial guidance to the rookie buyer.
The real point is that the demand of sorting out service
provider solutions is more complex and nuanced than following a checklist. And for optimal—and mutually beneficial—outcomes, you’ve got to get beyond and behind the
practices, processes, and perspectives of the past. ;
Art van Bodegraven may be reached at (614) 336-0346 or avan@columbus.rr.com.
You can read his blog at http://blogs.dcvelocity.com/the_art_of_art/. Kenneth B.
Ackerman, president of The Ackerman Company, can be reached at (614) 488-3165
or ken@warehousing-forum.com.
