The Critical Success Factor of Suppliers and Supplier Management in Delivering Digital Innovation

A major program I ran many years ago had a crucial decision to make regarding a go-live. Every element of the project was ready to go. Technology rollout was done, solution was tested and accepted, data migration trialed, and ready, cutover trials proven and cutover checklist on track, business transition and change management all ready to go, and confirmed across ten departments…. except one part of one department. They weren’t ready. They wanted a delay. They were influential. But had also always been somewhat recalcitrant and combative, despite so many attempts by many to bring them along.

This is not uncommon to have one or two strident opposers to most change. Sometimes they are passive in their opposition and can remain hidden to many, sometimes more vocal. This group oscillated between the two and quietly behind the scenes campaigned for delays but had to become vocal when nobody else supported their cause.

As Program Manager, a delay wasn’t my choice to make. We had a committed date to make, and we were on-track by all measures, apart from one objector. But we had to assess the request and prompt a decision from our Steering Committee and Sponsor. We were burning around $1/2M per week in costs and while only a one-week delay was asked for, we could not delay by one week. Other cyclical processing meant that we would have to delay by two weeks. This would be a ~$1M cost impact. We had the money, our contingency was largely in place, and we had no external reason or other obligation to stick to the original date. But the Chair of the Steering Committee didn’t see how a delay could be justified in the circumstances. So, request denied, and we pushed ahead. This part of the organisation just needed to get ready, which they did. We went live as planned, very successfully, and the rest is history.

But along the way, myself and a number of my leadership team came in for a bunch of allegations of professional misbehavior by this group for pushing ahead to meet a committed timeframe due to a bonus on offer. We were getting huge bonuses for hitting those dates, we were told. Now nothing wrong with that, that would have been great, but it just wasn’t true. Given several of us were contracted resources, on daily rates, the opposite was the truth. Any delay would extend our contracts and increase fees charged.

It gave us a lot of things to have fun with at the tail end of that project…how we were all going to spend our bonuses, and how some of the leadership team, which were full time client staff, were going to receive theirs, and will their peers get jealous. The jokes provided us with a welcome relief from the daily and at times, hourly pressure we placed on ourselves, to get the go-live, cutover and transition process to where we wanted it.

Supporting the change agenda’s objectives

The point here is that, as I previously talked about, it is critical to align the LT to the culture, risk management effectiveness, and mission accomplishment requirements of the work. And the suppliers you choose and the way they are engaged is an extension and representation of that leadership.

I am happy we weren’t bonused for hitting our deadlines. We probably would have done well from it, but I don’t think it would have increased our success rate. It just would have rewarded us more. It may also have made us open to more attacks and more objections. Allegations that we were driving towards

deadlines based on personal rewards rather than professional integrity would have been rife from change opponents. It may have added to the pressure on us, but we could handle it. It may have added to the pressure on the executives that appointed and supported us. And that may have been harder for them to stay the course on the change agenda being pursued, and not helped achieve the overall objectives.

Supplier Structures

Getting incentives and commercial structures with suppliers right are a critical element of a successful major change and transformation initiative. This is part of a bigger consideration, which is the sourcing and resourcing design for the work. This includes three main choices as to what parts of the initiative, Program or Project will utilise:

· Existing or newly hired staff, or

· Short-term contract or temporary resources, or

· Services companies.

Clear definitions and structures help, and this is a big subject of critical importance and one that I will cover separately in a later article.

The bottom line is that even a simple time and materials agreement with pre-defined daily rates may seem simple and risk free. But there are always risks that need to be considered and managed in every structure.

And sometimes these risks can be hidden, until they are not. I was overseeing a major systems integration procurement process some years ago for a major transformation program. We wanted to create a commercial agreement with the chosen supplier that represented the outcomes we aimed for as a program. And we asked for some options on how suppliers would do this with us.

We effectively defined a balanced scorecard of metrics we were achieving, covering costs, schedule, financial benefits, knowledge creation, automation, and simplification of processes. We welcomed supplier proposals for how we could do this with them, and we got proposals back providing us with options.

They were all generally sound options that we received from the market, which resulted in a selection being made and final commercial arrangements agreed, and contracts formed. The overall program was a success and this agreement and the partnership that it underpinned was essential to that success.

When I say that they were all generally sound options, that is true. There was one that was built into the commercial model by one supplier that was bizarre in the extreme, but perhaps could have gone undetected by many. They had defined bonus/penalty arrangements that were driven by formulas. Milestone delivery featured prominently. All of this was fine.

As I and we do, in every one of these situations, we commercially modelled the scenarios with projections based on different project outcomes. I still remember the day that my commercial modeler broke this news to me. He seemed incredulous and insisted that I check his calculations despite having checked them multiple times himself. Having enough of a mathematics background, this was easy enough to do. I confirmed his findings. This formula, which was central to this one proposal, did indeed penalise missed milestones. It penalised the supplier for any missed milestone up to a delay in delivery of two weeks. Once the delay in delivery extended beyond two weeks, the formula created a bonus for that supplier.

We assumed initially it was a mistake, and so we asked them to check all their formulas and calculations and ensure there were no mistakes in them. They confirmed them as accurate. This was a large multi-national supplier with significant depth and breadth of capability.

We never went ahead with that proposal, so never even tried to renegotiate these terms. But it is likely that would have been missed by many. One certainty would have been that no milestone would have been missed by less than two weeks, if the commercial interests of this supplier took precedence.

But the supplier was not in complete control of the project. So, it would have created a conflict between the major leadership and contributors to this program, with a perverse commercial incentive from that supplier in conflict with interests of the Transformation Program and the organisation at large.

Some may say that the local employees of this supplier (and others like it) are professionals and would not allow for this commercial influence to override good program practice. This may be true in some situations at certain times. But thinking this would protect the program is simply being naive of how commercial decision making and performance expectations occur within these supplier organisations. If a Singapore, US, or European based executive team says you will enforce the contract as it is, or delay delivery to avoid contract losses and maximise gains, then this is exactly what will happen. And this direction could come from within Australia as well as overseas and does.

Supplier Representations

Another much more common situation is one that I know many other Program Managers have experienced, and that is getting complaints from powerful suppliers to remove or curtail the leadership of a Program or major initiative when it does not suit the interests of that supplier.

Now I should highlight that just because the supplier is complaining, and wanting the leadership changed, it doesn’t mean that there is no substance. There is no such thing as a perfect leader, in any field, so some concerns may be valid. However, some may not be.

So, there is a need for all decisions to be well made, and to understand the different interests at stake, and particularly any self-interests. I have heard, seen and experienced many scenarios where sourcing, procurement or contract related decisions are made, which will disadvantage a supplier. Where this supplier has powerful connections into the Board, Chief Executive or Executive team, a campaign for removal can take place.

In some situations, what is a Program Manager or Leader to do. Allow the budget to not be achieved, allow poor performance or dysfunction to occur, or turn a blind eye to these issues and keep their job, regardless of the outcomes they are delivering. Coercion, manipulation, and partisan interests that are not aligned to the mission will never be a good thing.

Summary

There are many more topics I could cover here, but we just can’t write forever here on this.

And there is so much capability you need that you will likely need help from the broader marketplace to extend your team and deliver the change required. So, engaging the market is mandatory and beneficial, but there are risks for the unwary in how to appoint and how to manage that help.

References

Reference: Flyvbjerg, Bent. "Decision Making in Major Projects: Lessons from the London Olympics 2012 and Other Mega-Projects." International Journal of Project Management, vol. 36, no. 6, 2018.

"Decision making in complex projects often involves navigating through a myriad of stakeholder interests, tight schedules, and budget constraints. Successful project leaders are those who can balance these competing demands while maintaining project integrity."

Reference: Pinto, Jeffrey K. "Project Management: Achieving Competitive Advantage." 4th ed., Pearson, 2015.

"Opposition to change is a natural part of any major project. Effective project managers anticipate these challenges and develop strategies to engage and integrate diverse stakeholder groups."

Reference: Kerzner, Harold. "Project Management: A Systems Approach to Planning, Scheduling, and Controlling." 12th ed., Wiley, 2017.

"Supplier relationships and contract management are critical aspects of project management. It requires not only careful planning but also continuous monitoring to ensure alignment with project goals and risk mitigation."

Reference: Shenhar, Aaron J., and Dov Dvir. "Reinventing Project Management: The Diamond Approach to Successful Growth and Innovation." Harvard Business School Press, 2007.

"The realm of project management is not devoid of organizational politics. Successful project leaders are those who can adeptly navigate these waters, balancing project needs with organizational dynamics."