Even the seemingly most well-crafted contracts and business relationships can suffer from a common but dangerous ailment that I call Strategic Drift.
Strategic drift occurs when buyers and suppliers don’t work to maintain their relationship, or put in the work needed to keep abreast and update their strategic priorities as business happens.
Strategic Drift typically occurs after a first generation outsourcing deal has operated successfully: perhaps a certain amount of complacency sets in as quarterly business reviews begin to slip—or drift!—to bi-annual or even annual events.
When this happens a vicious circle is often the result: suppliers can lose sight of priorities and thus can become less proactive in driving solutions to problems or connecting the dots to arrive at new solutions to new priorities.
The buying company then thinks the supplier is not proactive enough and starts looking for new suppliers—when in reality it already has a good supplier right in front of it. The parties just haven’t done enough work and communication to stay on the same page with each other.
It comes down to a matter of insightful governance based on a flexible framework that aligns the parties through their initial work together to set up the agreement, and maps a continuous approach to day-to-day relationship management. In the University of Tennessee’s Vested Certified Deal Architect program, we focus on how a properly architected governance structure can help prevent strategic drift.
There are six practices that are used to align organizations and avoid strategic drift:
- A tiered management structure establishes an organizational framework that ensures vertical alignment between the executives and the employees in the organizations that are tasked with getting the work done. This helps ensure that not only day-to-day priorities are executed efficiently, but also that neither party loses sight of strategic goals.
- Through separate service delivery, transformation and commercial management roles, a Vested agreement by design is meant to drive transformation. The governance structure should promote and drive transformational efforts. The governance organization must support three primary governance roles: service delivery management, transformation management, and agreement compliance.
- Establish peer-to-peer communications protocols by “mapping” the various individuals into the structure using a peer-to-peer alignment approach commonly known as “reverse bow tie.”
- Develop a communications cadence or rhythm—a regular cadence is an important aspect of the governance structure; formal and regular reporting and measurement processes should include metrics that align performance to strategy.
- Develop a process to maintain continuity of resources; an agreement is managed by people, so personnel management is an important component of the governance framework.
- Set a performance management program.
If an agreement lacks a jointly documented governance structure—and sadly, many do!—this is a weakness that should be addressed to eliminate the potential for strategic drift.
There will always be the danger of strategic drift. That’s why a flexible governance structure that embraces changes as they happen can prevent buyer-seller frustration.
An essential key is to manage the business, not the supplier. This is done by taking care to manage the business through a realistic and flexible governance arrangement that keeps everyone aligned for the long haul.
(Read more about effective governance in The Vested Outsourcing Manual and in our white paper, “Unpacking Outsourcing Governance- How to Build a Sound Governance Structure to Drive Insight Versus Oversight.”)
Author, educator and business consultant Kate Vitasek is an internationally recognized innovator in outsourcing. Vitasek’s approaches and insights have been published in more than 200 articles and five books, including “Vested Outsourcing: Five Rules That Will Transform Outsourcing” and “Vested: How P&G, McDonald’s and Microsoft are Redefining Winning in Business Relationships.”
A version of this post was originally published on the Vested blog.