the social architecture of partnering

7/28/2019 The Social Architecture of Partnering

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THE SOCIAL ARCHITECTURE OF PARTNERING

Professor John Carlisle, Chairman of JCP International and JCP South

Africa, and Chair of the Rhodes University J&J Leadership Development

Institute

Preface

In 1997, the Merrill Lynch Forum published a well constructed paper by

Michael Schrage of the MIT, called The Relationship Revolution:

Understanding the Essence of the Digital Age. The author makes the case

for the “soft touch” priority of John Naisbitt’s High Tech- Soft Touch

aphorism. This too has been our experience of working with over 30,000

people in major project implementations world-wide, i.e. that, again andagain, when implementations fail, the basic cause is a relationship failure.

What does Michael Schrage say? We are not in the Information Age. The

world of information may have been transformed completely by Digital

Technology through speed and accessibility (for the First World); but the

real significance is not in the data that are processed and stored. The

biggest impact is in the relationship between people and organisations.

Schrage calls this a relationship revolution, because the digital media

forces us to ask: “What kind of relationships create value?” The common

thinking on this question is always downstream, customer focused, i.e.

CRM, KAM, and service augmentation such as air miles and the like.

However, none of this is possible if the structure is not in place to deliver

it, i.e. the upstream conditions, which comprise organisation of product,

people, processes and, the glue which holds them altogether –

relationships.

Value cannot be created at the user interface if it has not been

implemented at every phase of the delivery chain; be that in projects,

manufacturing or service industry. Thus, if you dig down into why

Schrage contends that it is a relationship revolution then you will find

that it is because, bottom line folk have finally discovered just how“INTERDEPENDENT” the world is. No, it is not the Information Age;

but the Age of Interdependence, especially now that we are truly global.

The question is, therefore, just how do you construct organisations that

operate most effectively in this age?

The paper will look at this very pragmatically, with emphasis on

Outsourcing.

1. When is Outsourcing the answer, using maintenance as a specific

example?2. What is the relationship that is needed in productive outsourcing?



3. How is this social structure designed and constructed?

Outsourcing: the Rationale and the Results

Here I will quote extensively from a colleague who is an expert in thisfield, Mike Levery.

The main reasons for seem to centre on whether the activity is core or

non-core. This is a critical decision, and very often leads to the baby

being thrown out with the bath water. First of all the activity is always

viewed from a certain mindset that makes a judgement as to whether it is

a cost, or adds value; whether it is a risk or not. If it is seen as a cost and

“not risky” then why not outsource, is the conclusion? The classic here is

the staff catering, followed by FM. The next is IT services, followed by,

for example, financial services and engineering maintenance. The reasonis usually given as cost effectiveness.

In municipalities they have also outsourced (privatised) garbage

collection and housing, again for cost reasons; quoted as better use of the

tax payers’ money.

Now, in all of these, especially maintenance outsourcing, the jury is still

out. It simply is not proven economically that it always works. Railtrack

is a classic. So, to quote Mike Levery, “why do companies who already have the

necessary skills for maintaining their facilities look to the marketplace for potential

outsourcing. In a world where productivity is king then the perception of the maintenance

function is invariably that they are a cost and overhead, adding little value to the productionor operational processes. Moreover, the perceived “maintenance culture” of engineers doing

what they want to do without regard to production/operational needs, or involving other key

stakeholders has proved difficult to break, creating the illusion that an external provider is

bound to perform better than an in-house maintenance department. “If only the maintenance

‘problem’ could be outsourced then we can get on and deal with our core business” is the cry

of many organisations.

There will always be “quick wins” through any outsourcing activity, but with the drive to

establish procurement processes through contracting and benchmarking being inexorable,

then the maintenance activities gets swallowed up in this whirlpool of efficiency and cost

saving. Time and again organisations grasp the short-term benefit of outsourcing to find very

quickly that asset performance and availability is reducing, failures are increasing and yet thesupplier is meeting all his contractual obligations. But once the outsourcing decision is made

there is invariably no going back. There will never be an admission that the outsourcing

decision was flawed, so if things aren’t working out then it must be the fault of the supplier.

The solution? Try to get the supplier to perform, and if this fails, re-tender and get the right

supplier next time. Yet the reality is that nothing really changes.”

In South Africa, in 2001 there were country-wide strikes against

privatisation – an extreme form of outsourcing – for this very reason.

The real questions have to be: If it is a cost, is it exceptionally high?

If it does not add value, why not? (Remember that, until Schonberger,

Abernathy, Hayes and Wheelwright, and then Womack and Jones with



their Lean Manufacturing came along, manufacturing was seen as only a

cost.) There is a real Pygmalion effect here. If you perceive something or

someone as a cost, and treat them as such, they will behave as such. It is a

mindset again. What you think is what you get. Here are some classic

reasons for outsourcing, adapted from Mike Levery’s paper, Asset Based Performance Contract s (2001).The following are typical of some of the reasons given by both client and supplier for looking

to establish contractual arrangements for maintenance.

Client

• Other organisations are outsourcing; therefore it must be right for me.

• Managing by contract is a mechanism for controlling the activity.

• The contractor will always respond to client requests, but maintenance departments

don’t.

• Outsourcing follows the 80:20 rule and usually 20% or less of operational costs should

be treated as a supplied service!!!!!

• We can control and reduce cost through competitive tendering.

• Outsourcing can yield immediate financial benefits – we can deal with the long-term

later.

• With procurement specialists and tightly defined contracts we can make the supplier

perform; the more we specify the more control we have.

• We can give the supplier our departmental budget and they will reduce the cost if the

contract says they must.

• A maintenance supplier will provide cost effective solutions to failures because that’s

what we want.

Supplier

• Our overheads are always lower so the service will cost less if we provide it.

• This specialised service is best looked after by experts.

• We are better equipped to ensure people work productively.

• Our negotiated arrangements for spares supply mean we can effect repairs much more

quickly.

• Discount deals with spares suppliers can be passed on to the client, saving considerable

cost.

• We will supply information about every job we carry out.

• We have the range of skills and expertise to deal with any eventuality.



The Reality

• Asset performance is invariably the client’s responsibility and therefore failures carry

no risk to the supplier.

• Most outsource suppliers (maintenance contractors in particular) are financially risk

free from the supplier’s perspective because the financial risk sits with the client even

where there is a budget reduction contract. In this situation the supplier will ensure that

their company makes a reasonable return, meets their contractual obligations and hits

the financial target – and if this means doing the minimum, then that’s what will

happen.

• Contracts carry no quality or work effectiveness measures resulting in no incentive for

the supplier to adopt a “right first time” approach.

• Contracts invariably require some form of policing to satisfy the client that the supplier is performing.

• Where preventative maintenance schedules are competitively bid on a fixed price, there

is little incentive for the suppliers to execute the work effectively as their greatest

return comes from responding to failures. Increased failures results in greater turnover

and hence more profit for the supplier.

• The supplier’s focus is on the contractual service measures and their own volumes and

returns. He has little interest in overall performance.

Bottom line: be very sure exactly why you are outsourcing, and never,

never outsource something just because it is a problem. Always ask

how integral it really is to profit performance and customer perceptions.

If you can’t sort it out when it is inside the tent, you are highly unlikely to

get it sorted by someone outside the tent!

the social architecture of partnering

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