Relationship Business Models: Vested for Global Account...

A Vested Outsourcing Center of Excellence

Relationship Business Models:

Vested for Global Account Alignment

Health and Personal Care Logistics Conference

September 20, 2016

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• Global Market

• Digital Communication

• Technology Innovation

• Changing Resources

• Increased Dependencies

Today’s Environment – Speed and Risk You are not Special!

If organizations are going to compete ‘supply chain to supply chain,’ shouldn’t supply chain partners work together?


Modern Thinking in Procurement PracticesHow do you incorporate more modern thinking into your procurement practices?

• Rethink your strategic sourcing processes to actively promote more modern approaches.

• Incorporate the best thinking of leading economist and strategic thinkers.

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Source: STRATEGIC SOURCING IN THE NEW ECONOMY: HARNESSING THE POTENTIAL OF SOURCING BUSINESS MODELS FOR MODERN PROCUREMENT, Keith, Vitasek Manrodt & Kling, Palgrave 2015


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Research: Collaboration Generates Value/Reduces Risk

Ian R. MacNeil

Northwestern Univ. of California, Berkeley

Oliver Williamson

John Nash

Robert Axelrod

Kathleen EisenhardtStanfordGrow the

Pie Don’t Fight over it

Ronald CoaseNobel Prize

Robert SolowNobel Prize

Total Cost Not Price

Innovation=Growth

Flexible Relational Contracts

Transaction or Outcome Models

Sourcing is a Continuum not purely Make or Buy

Large playground in the middle of “hybrid” models


Steven Levitt - Freakonomics

Sources: University of Chicago News Office; University of Tennessee research; Vested Outsourcing: Five Rules that Will Transform Outsourcing

Premise:

• “One of the most powerful laws

of the universe is the law of

unintended consequences.”

• “Morality is what people should

do. Economics is what people

do.”

Lesson:

• Consider a business model that

pays suppliers for their

brainpower to add value, solve

real problems and help

achieve your desired outcome

Professor of Economics and

Best Selling Author

10 Ailments

1 Penny Wise and Pound Foolish

2 The Outsourcing Paradox

3 The Activity Trap

4 The Junkyard Dog Factor

5 The Honeymoon Effect

6 Sandbagging

7 The Zero Sum Game

8 Driving Blind Disease

9 Measurement Minutia

10 The Power of Not Doing

Perverse Incentives in Procurement

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Summary of Research

• Total Cost of Ownership

• Innovation is key

• Transaction Cost Economics is valuable

• Contracts should be used as a flexible framework – not a legal weapon

• Win-win thinking

• Aggression with suppliers can cause perverse incentives

• Shift to more strategic output and outcome-based economic models

• Category Management approach is based on Supplier Relationship Model


ME to WEEffective Supplier Relationship Management (SRM)

BE

CO

ME

S

ME WE

It is about managing how a customer works together with their suppliers to enhance the value of the relationships

Getting the supplier to meet my needs

It’s in the contract, now it’s the supplier’s problem

Blame and punish the supplier

Unpleasant surprises

Finding a way to meet both our needs

Work together to achieve the performance and compensation goals

Communicate the issues, jointly find solutions

Integrated planning and communications



Do you have the right contracting approach for the desired business objective?

There are seven Sourcing/Contracting Models with distinct differences for soliciting, selecting and engaging in

supplier support

Definition: Business Model

The rationale for how an organization creates, delivers, and captures value

• Organizations should build their Category Management/Relationship business model as part of their business strategy

• A business model includes an organization’s:

– value proposition

– value architecture

– value finance

– value network

• A Sourcing Business Model is a type of business model that is applied specifically to sourcing

Source: M. M. Al-Debei, R. El-Haddadeh, and D. Avison, “Defining the Business Model in the New World of Digital Business,” Proceedings of the Americas Conference on Information Systems (2008): 1–11. European Journal of Information Systems 19 (3), 359-376.

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The Seven Sourcing Business Models

“Market” “Hierarchy”“Hybrid”

TRANSACTIONAL RELATIONAL INVESTMENT

BasicProviderModel

ApprovedProviderModel

PreferredProviderModel

PerformanceBased/ManagedServices Model

VestedBusinessModel

SharedServicesModel

EquityPartnerships

BUY MAKE


Strategic Account

Management

Fully Collaborative


Sourcing Business Models

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Relationship Models Sourcing Business Models Economic Models

Transactional Contract (Market)

Basic Provider Model

Transaction-BasedApproved Provider Model

Relational Contract (Hybrid)

Preferred Provider Model

Performance Based/Managed Services Model Output-Based

Vested Business Model

Outcome-BasedInvestment / Vertical Integration (Hierarchy)

Shared Services Model

Equity Partnerships

A Sourcing Business Model is a combination of an organization’s Relationship Model and it’s Economic Model.



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Supplier Relationship Defines Contract Type

The business model selected can give some guidance on the type of contract and associated terms that should be negotiated

Sourcing Model

Transactional Relational Investment

Basic ProviderApproved Provider

Preferred Provider

Performance Based Provider

Vested Relationship

Equity Partner/ Shared Services

FocusSupply at

lowest cost

Recurring Commodities

at fir or lowest cost

Value added capabilities at

best value

Performance to SLA – Process

efficiencies

Desired outcomes –Value based

Sustainable Value

RFx/Solicitation eAuction RFI/RFPrice RFProposalRFProposal/RFSo

lutionRFSolution/RFPartner

Business Case

Supplier Relationship Management

NoneAd-Hoc

OversightMetric based

Oversight

PerformanceMonitoring /

SLA’s

Governance / Perpetual

Governance

Contract Type None POBlanket

Agreement or Contract

Performance Based

Contract

Vested Agreement

Subsidiary

Pricing Model Market PriceCompetitive

Bid

Price list-volume based +

Value Add

Gain Sharing w/ Incentives or

Penalties

Price Model w/ value based incentives

P&L - Open Book



• Moving from the traditional hierarchical communication to

direct functional communication improves the flow of

information

– This should be established in the beginning with the Supplier

– Resist the temptation (and/or supplier pressure) to revert at the

first “breakdown”

– It is essential that the managers hear about problems from their

teams FIRST!

Relationship Management Governance Structure



The Vested governance structure is tiered… each layer is accountable for examining the relationship and business success


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Sourcing Business ModelTransaction

BasedOutputBased

OutcomeBased

InvestmentBased

Simple Transaction

Provider

Approved Provider

Preferred Provider

Performance Relationship

VestedRelationship

Equitable Partner

Performance to SLA

Relationship Management

Formal Escalation Body

Strategic Direction

Buyer - Performance to Terms

Op

erat

ion

al

Leve

lM

anag

emen

t Le

vel

Exec

uti

ve

Leve

l

Outcomes

Continuous Improvement

Innovation

Investment

Leve

l of

Dep

end

ence

Value


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Performance Management

Sourcing Model

Transactional Relational Investment

Basic ProviderApproved Provider

Preferred Provider

Performance Based Provider

Vested Relationship

Equity Partner/ Shared Services

Sup

plie

r P

erfo

rman

ce M

anag

emen

t

PerformanceManagement

Track to PO terms (quantity, price and damage free) – As needed

Oversight of performance to PO -Annual

Oversight of activity-based service-level agreement -Semiannual

Oversight of output-based service-level agreement -Quarterly

Joint review of outcome-based success measures -Quarterly

Organizationally defined performance objectives –Quarterly

Continuous Improvement

Identify ways to improve administration or category standards where possible

Capture and assess improvement opportunities

Contracted requirement for the supplier to proactively identify and implement improvements

Contractual clause for supplier performance guarantees fromcontinuous cost improvements

Formal transformation/innovation management framework

Business unit develops a formal capture and assessment process for improvement opportunities

Supplier RelationshipManagement

No specified SRM plan—“market” governs the relationship

Supplier meetings are held periodically to include early warnings on shifting performance trends

Scaled SRM framework and formal operational scorecard , periodic supplier interaction at various levels

Scaled SRM framework. Jointly developed balanced scorecard of KPI’s and supplier managedoperational metrics

SRM framework.Balanced business scorecard jointly managed including operational, relational, and transformational KPI’s

Relationships reflect organizational structure and cross-functional integration behaviors and decision making

Governance Framework

Buyer manages all aspects ofgovernance -Oversight

Buyer through periodic supplier meetings -Oversight

Buyer facilitates governance with key internal stakeholders -Cooperative

Buyer and account manager, escalation body –Collaborative

Tiered structure with operational, management and executive – Highly Collaborative

Traditional hierarchy business structure



The “Right” Business Model for the “Right” Relationship


High Level Architecture Guidelines

• Each Sourcing Business Model is mapped to Contracting and management “rules”

• When properly structured, the “rules” create a self-correcting system

• Not following the “rules” creates misalignment – often creating inherent perverse incentives

Systems Thinking Key to Successful Relationships

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• A system is an interconnected set of elements, sub-elements and components that are coherently structured in a way that achieves a defined purpose

• This interconnectivity between the elements forms a feedback loop in which information is derived

Architecting a supplier agreement using the Sourcing Business Model rules creates the most appropriate “system” for your situation

Slinky image by Lucho Molina via Flickr CC


“Cherry Picking” the Rules Creates Chaos

• Mix and matching “best practices” without understanding the system implications creates a Business Model mismatch

• It is like creating a Doberhuahua; it sounds good but doesn’t work well

• Instead architect the “best fit” solution for your solution using a well structured agreement following the Sourcing Business Model rules

Audi 2014 Super Bowl Commercial - "Doberhuahua" by Tony Mack is available on YouTube. Photo is a screen shot from publically available YouTube video. https://www.youtube.com/watch?v=2nrbF21Ybo0



https://www.youtube.com/watch?v=2nrbF21Ybo0

The Vested Model Structure

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A Vested Business Model: SAMP

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4 GAMP Components

Getting to We: Strategic Account Management

• Any organization can adopt for negotiating Relational Sourcing Business Models.

• Get to We before you Get to Yes on the deal specifics.• The Getting to We process helps buyers and supplier create

a solid foundation for the overall relationship. – Buyers and suppliers jointly embrace a What’s-in-it-for-We

(WIIFWe) mindset– WIIFWe builds understanding, comfort, and trust– Together, buyers and suppliers lay the foundation for a more

collaborative relationship

WIIFWe is the philosophical mantra forming the architecture for a collaborative and trusting relationship.

Source: Getting To We ©2013 Nyden, Vitasek & Frydlinger

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StrategicAccount

ManagementProgram

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Our Research Found..…

WIIFWe


….It’s Easier to Get to the Top with a Sherpa!27

Photo by Alison Levine

Culture &Mindset


TransformationManagement

Governance& Sponsorship

SharedVision

1

2

3

4

5

Structure of the SAMP


The SAMP is a great way for organizations to adopt the “What’s in it for We” mindset - which is is essential for any Vested relationship.

The Genesis of the SAMP


How Does the SAMP Relate to Vested?

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The SAMP will help you implement 4 of the 10 Vested Elements. These 4 elements are essential for ANY large, global, complex relationship.


What is needed for successful Account Management?

Culture &Mindset




SharedVision

1

2

3

4

5

... in order to create a favorable and collaborative partnership climate through clearlydefined Guiding Principles, supported by the right Behaviors.

... in order to build perspectives and allow both parties to focus and align on jointly agreeddesired outcomes that will benefit both organizations.

... in order to monitor operational excellence against agreed targets, assess the overallperformance of the partnership, proactively bridge gaps and solve issues.

... in order to document the process used to transform ideas into business value, clarify theway value is recognized by both parties and how value gets shared.

... in order to engage key stakeholders, receive executive sponsorship, obtain commitmentfrom all associates involved and maintain continuity of resources.

Who owns Account Management?

Account Management is co-owned by all functions involved at every stage of the partnership lifecycle, which act aspermanent or ad-hoc members of the Strategic Account Governance Board, including:

SUPPLIERBUYER

CatMan

SP&I

Operations

QA

Legal

Finance

Sales & KAM

Solutions

Operations

QA

Legal

Finance

SAMP Key Components


Overview of Deliverables and Tools

SharedVision

2 P03.SharedVision

P05.PartnershipCommitments


3 P06.GovernanceStructure & Roles

P07.CommunicationProtocol

P08.ResourceContinuity Plan

P09.Issue ResolutionProcess


4 P10.PerformanceFramework


5 P11.BusinessValue Chips

P12.InnovationPlayground

T02.Joint InnovationPortfolioT03.Transformation Pipeline

T04.IdeaSubmission FormT05.JointProject Charter

Culture& Mindset

1 P01.Compatibility & Trust (CaT) Assessment

P04.StatementOf Intent

P02.NegotiationChecklist

T01.AccountManagement Roadmap

Tools

Packages

P02.NegotiationChecklist


SectionNumber

SectionTitle

ModuleNumber

ModuleTitle

ModuleDuration

F2F WorkshopsDeliverable(s)

WorkshopDuration

IINTRODUCTIONTO SP&I

01“DeliveringValue Together”

25 min - -

IICULTURE& MINDSET

02“Gettingto We”

40 min

01. CaT Assessment02. Negotiations Checklist03. Shared Vision 04. Statement of Intent05. Partnership Commitments

2 days

03“Getting Readyfor WIIFWe”

40 min

04“Negotiatingas We”

25 min

IIISHARED VISION& PRINCIPLES

05“Creating aShared Vision”

15 min

06“BuildingPartnership Principles”

45 min

IVGOVERNANCE& SPONSORSHIP

07“Livingas We”

60 min 06. Governance Structure and Roles07. Communication Protocols08. Resource Continuity Plan09. Issue Resolution Process10. Performance Framework11. Innovation Playground12. Business Value Framework

3 daysVPERFORMANCEMANAGEMENT

08“Monitoring PartnershipPerformance”

35 min

VITRANSFORMATION MANAGEMENT

09“Driving BusinessTransformation”

40 min

VIITRANSITIONPLAN

10“Transitioningto We”

35 min - -

TOTAL 6 Hours TOTAL 5 days

Statement of Intent

SAMP will be completed jointly over 10 “modules” and 2 F2F WorkshopsThe SAMP Implementation Structure


ConfusionLack of

alignment

MyopiaLack of

perspectives

AbsenteeismLack of

ownership

ComplacenceLack of

oversight

FrustrationLack of

innovation

SharedVision

Governance & Sponsorship


TransformationManagement =

Culture& Mindset




Culture& Mindset

SharedVision



Culture& Mindset

SharedVision



Culture& Mindset

SharedVision


PerformanceManagement =

Culture& Mindset

SharedVision



Drive ChangePartner

& Succeed =Transformation

Management

Why Does Every Feature Count?

5 Step Process-Leads to Good Strategic Account Management

The Getting to We process comprises five distinct steps:1. Getting ready for Getting to We2. Jointly agree on the shared vision for the relationship3. Collaboratively negotiate the guiding principles for the

relationship: Rules for how you will work together4. Negotiate as We: Establish Performance Objectives5. Living as We: Create a sound Governance Process

Source: Getting To We ©2013 Nyden, Vitasek & Frydlinger

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Getting Ready for We (Cultural Fit)

Establish a Shared Vision

Establish Guiding Principals

Negotiate as We

(Objectives )

Live as We

(Governance)


Examples in Action:

• 16th DHL LSH Global Conference

GETTING TO WE

• 16th DHL Global LSH Conference

• Emmanuel Cambresy – Chief Knowledge Officer, Old St Labs

• Boris Finselberg – Director CSI LSH EMEA , DHL

• DHL Customer Solutions & Innovation

VESTED/ PARTNERSHIP STRATEGIES IN LOGISTICS

3816th DHL Global LSH Conference | Miami | June 2016

SP&I (Supplier Performance & Innovation):An end-to-end value creation system

* measured at the service delivery point (i.e. country, site, plant, distribution center, division...) ** Source: “Getting to We”, by Jeanette Nyden, Kate Vitasek and David Frydlinger.

SP&I Value Chain

Supply Base Segmentation1

Culture & Mindset


Tier 1Identification

Strategic Account Management2

Shared Vision

Performance Management

Transformation Management

Vision & Strategy3

SupplierCorporate Strategy

Voice OfThe Customers

Growth ◄Productivity ◄

Innovation ◄

Shareholders ◄Stakeholders ◄

End-Customers ◄

Business / CategoryStrategy

Local SupplierPerformance Inputs

Operational◄Relational◄

Transformational◄

Supplier Performance *4

CountryOrganizations

Joint Project Execution7

PerformanceImprovements

► Do what we do better

► Exceed targets

ProcessImprovements

BreakthroughProjects

► Change what we do

Value Management **8

Productivity

Value Sourcing

Process Demand

IncreasedBenefits

DecreasedRisks

DecreasedCosts

IncreasedOpportunities

ValueSharing

InvestmentManagement

Innovation Management6

PortfolioManagement

StrategicDirection

► Priority

► Intent

Ideas &Opportunities

Innovation Factory◄Supplier days◄

Ideation forums◄

IdeationEvents

SocialInnovation

Crowdsourcing◄Crowdfunding◄Communities◄

TotalQuality

LEAN◄Value engineering◄

Six Sigma◄

Creativity & Ideation5

SRM StrategicInputs

Strategic AccountManagement

SRM StrategicOutputs

Strategic Account Management Program

The Novartis GAMP is based on the University of Tennessee’s Getting to We® Strategic Account Management Program®

39 | NBS | SP&I | W&D | GAMP | Playbook | Business Use Only

Culture &Mindset




SharedVision

1

2

3

4

5

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Strategic Sourcing Climate Assessment

0

0.2

0.4

0.6

0.8

1

0 0.2 0.4 0.6 0.8 1

Rela

onshipDynam

ics

Compa bilityAlignment

CaTAlignmentMapPercep onofPartner

ServiceProviderPercep onofBuyer BuyerPercep onofServiceProvider

Value Building Value Seeking

Value Holding Value Fading

Getting Ready for We: Compatibility and Trust


0%

20%

40%

60%

80%

100%FOCUS

TEAMORIENTATION

COMMUNICATIONINNOVATION

TRUST

CombinedScores

AverageScore

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Visualizing the Scores – Average Score

The combined relationship scores show that the parties should work on improving…

Trust, Focus, Team Orientation, Communication and Innovation.

©2011 Jerry Ledlow Ph.D. and Karl Manrodt Ph.D.- Used with permission

Looking at the average scores indicates areas the parties need to improve together, in order to have a Vested relationship.

Getting Ready for We: Compatibility and Trust

Create a Shared Vision…



A Shared Vision:

Focuses on the future; Is a source of inspiration; Creates a sense of direction and opportunity.

…And Guiding PricinplesSix Guiding Principles



RECIPROCITY

AUTONOMY

HONESTY

LOYALTY

EQUITY

INTEGRITY

Reciprocity obligates the parties to make fair and balanced exchanges. If one party acceptsa business risk, the other must be prepared to do the same. If one party commits to investtime and money in an important project, the other party must be prepared to reciprocate.

Autonomy means abstaining from using power to promote one party’s self-interest at theexpense of the other.

Honesty obliges the parties to tell the truth, both about facts in the world and about theirintentions and experiences.

Loyalty obliges the parties to be loyal to the relationship. Loyalty to the relationship willcome when the parties’ interests are treated as equally important.

Equity obliges parties to look more critically at the distribution of resources.It might be easy to split things fifty-fifty, but it might not be fair.

Integrity means consistency in decision-making and in actions.

Negotiate as “We”: Performance Objectives

Four Rules



Sit Side by Side,

Face the Issues Together

Let the Principles

Guide Behavior

Develop a Flexible

Framework to Achieve

the Shared Vision

Follow the Principles,

Adapt the Goals

Negotiate as “We”: Performance ObjectivesSeven ‘We” Tactics



1Information is PowerDevelop shared data for accuracy and reliability

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3

4

5

6

7

Reveal AlternativesThey are your leverage and guide creative discussions

Leverage the Six Guiding Principles

Honesty is the Only Policy

Leave Money on the Table

Shared Vision, Shared Agenda

Avoid Opportunism

Governance: “Living as We”

Governance Roles & Responsibilities



CMCCommercial Management Committee

JOCJoint Operations Committee

RMCRelationship Management Committee

TMCTransformation Management Committee

GPSGlobal Partnership Sponsors

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Read the Books…Available on Amazon

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Questions?

Bonnie Keith, President The Forefront [email protected] information at:www.theforefrontgroup.comwww.vestedway.com

mailto:[email protected]

http://www.theforefrontgroup.com/

http://www.vestedway.com/

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