Innovation is at the heart of economic growth, according to the economist and Nobel laureate Robert Solow. It is quintessential for groundbreaking discoveries and disruptive technologies.
Yet, innovation is not always at the core of contracts between enterprises and their IT suppliers. Usually, it is all about delivery, labor, and capital. If the organizations are not aligned on a common vision and roadmap of services, contracts end up being transactional in nature.
Such contracts seldom reap the envisaged benefits. Instead, they get impacted by hold-ups, misaligned interests, poor communication, and oversight. According to McKinsey, poor supplier performance can increase costs by 10-20%, and ineffective contract management can drain 9% off a company’s annual revenues. CEB (Corporate Executive Board) found that poor governance of the enterprise-supplier relationship alone could cost a company 90% of its expected value.
Cultivating healthy, strategic, and sustainable relationships with IT suppliers requires enterprises to go beyond transactions. Vested partnerships, where companies establish associations that produce mutually beneficial outcomes, are the need of the hour. The outcomes of such alliances could include increasing market share, enhancing IT services, boosting revenue, reducing time-to-market, or improving customer service, among others.
Research from the University of Tennessee (UT) shows that some of the best enterprise-supplier relationships had developed a vested interest in each other’s success. Such a symbiotic relationship with a “what’s in it for we” mentality can build an environment that fuels innovation via disruptive technologies, improves the quality of the provided services, reduces costs, and creates value for both parties.
In IT, for instance, rather than focusing on “cost per transaction,” enterprises and their suppliers could map their desired outcomes (which are clearly defined and measurable). For example, instead of paying a supplier for the hours of technical support as part of IT services, enterprises could establish reducing IT expenses while generating revenue as an outcome.
Based on the research and principles outlined by the University of Tennessee (UT), we, at HCL, have outlined key success factors of mutually beneficial relationships. Such partnerships are built upon the shared values of transparency, flexibility, trust, collaboration, and proactivity. In our view, five distinct principles shape these relationships:
1. Always “us,” never “me”
Instead of asking, “what’s in it for me?” enterprises and their suppliers should ask, “what’s in it for us?”
Both parties should agree to hear each other out and understand both perspectives to find a solution that is a win-win for both sides. When both parties work together to define long-term and strategic benefits, they show their commitment to each other’s success. This principle is also about watching each other’s backs in difficult times.
2. Serve first, settle later
Rather than delaying small (but urgent) business changes waiting for administrative procedures, IT suppliers should prioritize business needs and business-critical activities. We strongly believe that fulfilling business demand should take precedence at all times.
3. Manage volume and costs
Both parties should agree to work together to manage costs for IT services transparently, and improve business outcomes by evolving their technology infrastructure. Jointly looking at ways to optimize costs and deploy new technology solutions is a far more rewarding approach, both in terms of the relationship and the outcome(s).
4. Invest in delivering business value
Both parties should look for ways to create shared value with innovative ideas, concepts, and disruptive technologies. Setting up a joint innovation fund that supports efforts to improve the quality, reliability, and usefulness of IT services for both parties is a great way to incorporate this principle. We have also found that this principle helps reduce the time to market (TTM) for many services as there is already a discretionary budget available for proofs of value and proofs of concept.
5. Mitigate major business changes with transparency
As vested partnerships involve taking an active interest in each other’s success, it facilitates sharing additional costs and risks because of unforeseen circumstances.
Furthermore, mitigating changes requires trust, transparency, and commitment to communicate major changes, or provide an early warning when facing events such as mergers or a growth decline due to recessions (sudden pandemic-induced, or otherwise). This helps build trust over time, which in turn facilitates a long and healthy relationship.
Making vested partnerships work
Vested partnerships are not for all enterprise-supplier contracts. Such alliances are valid only when both parties enter a long-term relationship, as initiatives such as innovation take time to bear fruit.
All too often, organizations dive headfirst into relationships without considering the long-term implications. That is why it is critical to understand the drivers of the relationship and both parties' commitment to building a mutually beneficial partnership beforehand.
Secondly, it is essential to evaluate whether there is a cultural fit between both parties, as that lays the foundation for a long-term, mutually beneficial relationship.
For a vested partnership to work, it requires buy-in from the senior management at both organizations. Both parties should also address their expectations from the alliance, clarify obligations, and co-create a shared vision and a set of objectives. Working together to build an environment of trust and transparency is a significant aspect that decides the success of such partnerships.
As vested partnerships require a change in mindset and behaviors, conducting joint workshops to cultivate the principles of transparency, trust, collaboration, flexibility, and proactivity is an excellent approach.
Lastly, it is crucial to evaluate progress against the shared goals and outcomes with quarterly surveys, partnership health checks, and inclusive governance at regular intervals with empowered members from both parties.
Vested partnerships create highly collaborative business relationships with IT suppliers. Such alliances could help build a roadmap to future-proof your investments, prepare your business to keep pace with rapid advancements in emerging technologies, and respond to the ever-alluring question, "what's next?"