Even the best-crafted and well-established contracts and business relationships can suffer from a common but highly dangerous malady known as “strategic drift.”
Strategic drift? In the world of procurement, strategic drift occurs when buyers and suppliers fail to pay proper attention to the relationship; they fall down in their communications. They don’t put in the proper efforts to keep abreast of events and update their strategic priorities as business happens. A contract is not bulletproof, no matter how many terms, conditions, and protective bullet points it might contain.
A big mistake is to expect a tightly-written procurement contract will function efficiently forever on cruise control. Every car needs a tune-up and oil change on a regular basis.
Strategic drift also occurs within highly successful companies when they respond too slowly to changes in the external environment and stick to a strategy or strategies that once may have served them well, even when it becomes obvious they are out of touch with external trends.
A first generation outsourcing deal is especially susceptible to strategic drift. It may have operated successfully for some time, so perhaps a certain amount of complacency sets in as quarterly business reviews begin to slide—or drift!—to bi-annual or even annual events.
When this happens a vicious circle often occurs: suppliers lose sight of current and changing 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 in front of it. The parties just haven’t done enough work and communication to stay on the same page.
How can strategic drift be avoided? It starts with establishing an insightful, flexible and collaborative contract governance structure that aligns the buyer and the supplier in their initial work together to set up the agreement, and then maps a continuous approach to day-to-day relationship management.
Here are some practices that align organizations to avoid strategic drift:
- A tiered management structure will establish 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.
- The procurement 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.
Finally, establish a performance management program that incorporates the above points.
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.
The key point: manage the business at hand, not the supplier—a realistic governance framework will keep everyone aligned for the long haul, with no drifting!