Unit 4 - Copy...role of the customer. It reflects how Fuji Xerox adopted learning practices in its...

Relationship Management

Unit 4

‘relationship is as important as the contract’

1

Introduction

2

There are numerous organisational structures, involving internal and external providers that can fulfil the support service requirements.

However, in reality, the success of any facilities management operation relies not so much on the contractual arrangement and governance but on the quality of relationships.

3

Concepts such as alliances, partnering and trust and are all terms that reflect a growing understanding of the importance of relationships in achieving success in service provision.

There has been a marked shift away from a conventional ‘transaction’ based approach to FM, to one that is more ‘relationship’ based.

Moreover, new forms of procurement that commit providers and clients to a common fate have further reinforced the importance of partnering.

Introduction

Supply-Chain Partnering

• Openness

• Communication

• Mutual Trust

• Sharing of information

• Shared business aims

4

These modes of operation are also supported by shared business aims,

with a focus on business outcomes rather than specific facilities outcomes or

improvements.

One illustration of this shared business approach is in procurement.

In a partnership arrangement an open-book tendered model is adopted, with

shared savings. It supports the idea of a ‘win-win’ situation, where the future

performance of both customer and supplier are entwined.

Four Outsourcing Relationship Types

(FORT)exte

nt

of

substitu

tion

strategic impact5

The FORT model put forward by Kishore et al. (2003) attempts to characterise the type of outsourcing approach being used in an organisation.

In so doing, it provides a system for recommending

necessary competencies to support such an outsourced

operation.

Furthermore it provides a system for tracking how

organisations may evolve from one type of outsourcing

approach to another.

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FORT MODEL

In the FORT model (Four Outsourcing Relationship Types) it

is recognised that service provision differs in two respects:

1) in terms of ownership; and

(2) in terms of strategic impact.

These in turn influence the type of activities, infrastructure

and functions that are used.

The extent of substitution describes the level of ownership

or control possessed by the outsourced provider. (This is reflected in terms of the ownership of assets (e.g. software, hardware)

and decision making responsibility (e.g. use of help-desks).

7

FORT MODEL

Strategic impact refers to the characteristics of the service

itself. Services with a high strategic impact have an influence on competitive position

and long-term strategy.

To determine whether an outsourced provision is ‘high’ or

‘low’ on either of these two dimensions a series of questions

would be asked. To establish the extent of substitution

(ownership) the following questions would be asked:

Reliance AllianceAlliance

SupportSupport AlignmentAlignment

Low High

Strategic Impact of Outsourced PortfolioExte

nt

of

Su

bstitu

tion

by S

erv

ice

Pro

vid

er

Low

High

8

FORT framework for categorising service

provider relationships (based on Kishore et al. 2003)

What is the level of ownership

(substitution)?

9

To establish the extent of substitution (ownership) the

following questions would be asked.

Is it strategic?

A complementary set of questions would be asked to

establish the strategic impact of an outsourced portfolio.

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In the support relationship, the role of the outsourced

provider is limited (compare this to the concept of out-

tasking).

In the alignment relationship the client is able to draw on

the service provider’s technical expertise in a more flexible

manner (e.g. change management or business continuity

planning). However, the extent of service provider

involvement in these two lower quadrants is low. The

relationships between the customer and client tend to be

short-term (e.g. two year contract) with little transfer of skills

to the client firm or training of the client’s personnel.

Opportunistic behaviour in these two types is likely to be low

because the client’s investment in service provider-specific

assets is limited. Thus, the use of incentives and penalties

are limited and do not need to be so detailed in the

contractual relationship.

Significantly, control of the specification, design and

implementation aspects are retained by the client. The

switching and set-up costs in the case of the support

relationship are the lowest of all four.

Reliance AllianceAlliance

SupportSupport AlignmentAlignment

Low High

Strategic Impact of Outsourced PortfolioExte

nt

of

Su

bstitu

tion

by S

erv

ice

Pro

vid

er

Low

High

11

Reliance AllianceAlliance

SupportSupport AlignmentAlignment

Low High

Strategic Impact of Outsourced PortfolioExte

nt

of

Su

bstitu

tion

by S

erv

ice

Pro

vid

er

Low

High

The reliance relationship involves more commitment to the

relationship, since much of the client’s in-house operations

have been transferred to external providers.

In the alliance type of relationship, the client and service

provider work together in a close relationship as strategic

partners. In both relationships, the level of client investment

is high (e.g. commitment to service provider’s equipment,

technology, systems and skills).

This results in a ‘locked-in’ relationship in both cases.

Measuring service provider performance, as service

providers move from simple support or alignment roles

to more strategic roles (reliance and alliance), becomes

markedly more difficult.

At the extreme of the alliance relationship, trust rather than

incentives and penalties become the dominant control

mechanism. Such trust mechanism reduce uncertainty,

increase commitment and facilitate increased investment

involving both parties.

12

Public-Private Partnerships The concept of ‘Public-Private Partnership’ or ‘Private Finance Initiative’ addresses the opportunities for partnering but on a significantly larger scale.

This form of procurement, which was first introduced by the UK Government in 1992, is a design, build, finance and operate (DBFO)procurement method.

More specifically it was designed as a mechanism for securing private finance to support public projects (e.g. hospitals, schools, bridges, housing).

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Public-Private Partnerships

In return, the government pays an annual amount over the life of the project so that the private investors can recoup their money and gain a financial return.

The annual payment covers not only the original capital cost but also covers the cost of all the support services provision which form the basis of the facilities management operation.

The PFI Relationship

• ‘The Government believes that the relationship between the public and private sector in a PFI project must always ultimately be contractual but should be overlaid with partnership working to ensure that operations are effective

14

Trust and Perspective Taking

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We have seen the increased importance of trust between the

supplier and customer.

But what exactly do we mean by trust?

‘In an exchange relationship under conditions of risk and interdependence, trust is the belief that a voluntarily accepted duty will prevail, ensuring that no party exploits the other’s vulnerabilities’ - Icasati-Johanson et

al. (2000 p.5)

Trust and Perspective Taking

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‘Perspective taking’ is another

important partnering concept.

Perspective taking arises from the fact that ‘individuals will have to develop an understanding of ideas and frameworks from their own -Mohrman and Cohen, 1995,

p.381

Technique involves ‘taking the role of the other’, which typically refers to the role of the customer. It reflects how Fuji Xerox adopted learning practices in its own organisation, as documented by Takeuchi (1985)