Maslow’s old wisdom can teach us lessons about contemporary procurement

OVUM VIEW

Summary

Ovum recently engaged in some discussions about the ongoing challenges for enterprise procurement. The Maslow model might provide a useful way of looking at some of these problems in a new light. For more than 60 years, Maslow’s “hierarchy of needs” has been a basic part of teaching of staff motivation and change management. At times, Maslow’s writings have been picked over and debated, but still they remain an important piece of contemporary management theory and present a strong message for today’s procurement managers.

Putting first things first in smarter people management

Maslow’s hierarchy of needs is typically represented as a triangle. At its base are the essential ingredients necessary for survival, such as food and shelter. At the top of the triangle are the more esoteric issues such as innovation and creativity. Maslow reasoned that it was extremely difficult for anybody to work at the upper levels of the triangle without having first dealt with the issues located at the lower levels. The logic is powerful and simple, but is so often ignored.

Some time ago we were asked to deliver a series of management workshops for a tier-1 IT services company. These workshops were aimed at improving customer service and contract delivery. The workshops were proceeding very well until the attendees were unexpectedly called away to hear an unrelated announcement about immediate staff cutbacks and redundancies. As if a switch had been flicked, any interest in contract delivery immediately evaporated. This is a common, human response, but one that is so often forgotten in real-life situations.

How often do we contract a company to undertake an ambitious business change program and expect that the most significant challenges will only be technical?

According to Maslow’s theory, “bread and butter” issues need be dealt with and quickly settled at least at some basic level before people can pay attention to anything more abstract.

Putting first things first in smarter contract management

There are clear similarities found in enterprise procurement. Contemporary contracts often look for innovative partnerships as part of their supplier arrangements. Unfortunately, many of these contracts are then managed as if they were a simple commodity deal.

Outcomes-based contracts are increasingly popular vehicles for encouraging innovation. However, they need a very different governance model, operating as they do at the top of Maslow’s triangle. Vendors, for example, may request a seat on the business steering committee as well as IT steering committees, so that higher-level business outcomes can be discussed and negotiated. This sort of discussion requires a much more mature conversation. Under outcomes-based arrangements, detailed business requirements as well as IT solutions might become contestable. These “top of the triangle” discussions require a level of trust and respect that is quite impossible if base-level contractual issues are not already agreed and settled.

There is nothing wrong with a commodity contract

Commodity contracts still have an important place in enterprise procurement. Not all business relationships need to focus on “top of the triangle” issues. Sometimes it is good enough just to have a project that delivers on time and on budget, without any frills. Of course, the big management challenge is to recognize the difference.

We were once asked to review a business process outsourcing (BPO) contract. The customer was concerned that even though the contract contained significant encouragement for the supplier to provide increased productivity and innovation, and contained generous profit-sharing arrangements, the supplier showed absolutely no interest in doing anything innovative. The BPO contract covered basic corporate services such as mail delivery and the provision of office supplies. The contract had been vigorously negotiated down to wafer-thin pricing, and there were significant penalties if pre-defined performance standards were not met. The vendor managed to deliver a cheap and cheerful service that met all performance standards. The vendor’s staff were largely made up of students and people returning to the workforce who were quite happy to perform basic, repetitive tasks. The vendor had optimized its own business model to deliver a good quality, but it was a basic service at a cheap price. While a lot more money could have been earned by taking a more innovative approach, the vendor considered that it was simply not worth the financial risk. Indeed, the vendor had optimized its business model to operate very effectively at the bottom of Maslow’s triangle, and had no interest whatsoever in taking on the risk associated with moving to the top of the triangle. In the end, the customer was getting a good deal, but a different deal from the one it was hoping for.

The key challenges for contract management are all about relationships, expectations, and creating the right structures to make it all happen. Management author Peter Senge once noted that management structures generally preform exactly the way they were designed to perform. The problem is that we do not always understand the subtle implications of what we have designed. Indeed, there is sometimes no design at all. Good intentions alone are not sufficient to ensure contract success.

APPENDIX

Author

Kevin Noonan, Research Director, Public Sector

kevin.noonan@ovum.com

Further reading

“Mobile service innovation is vital to tomorrow’s public sector” EI007-000002 (September 2012)

“Technology is changing faster than the methods of procuring it” EI007-000001 (September 2012)

“CIO, tear down this wall!” IT007-000592 (March 2012)

“IT really does matter” IT007-000591 (March 2012)

“Delivering big IT projects: inspiration or perspiration?” IT007-000478 (January 2012)

Bridging the Gap Between IT Cost-Cutting and Agency Productivity, IT007-000599 (March 2012)

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