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12 pitfalls in business relationships

Does the following scenario sound familiar to you? You started a very nice cooperation, but after a while you notice that the original intention of the strategic cooperation does not match with what is contractually agreed? Organizations are finding themselves with a new set of challenges, often created by gaps between the intent of the relationship and the actual contract. This usually results in friction between the parties involved, which can disrupt, derail, or even destroy the best-intentioned strategic relationship.
 
Unfortunately, this is often caused by one or more pitfalls. And often we don't even realize we ran into one or more of these pitfalls, until it is too late. When we become aware of these pitfalls, we can identify them, and learn what their effect is on our relationships so we can cure them. Below we share the 12 most common pitfalls and indicate how they can best be resolved.
Vested Rule 4 Penny wise and pound foolish The term "penny wise, pound foolish" assumes that if you pay little for something, it can still be expensive in the long term. This applies specifically when you are particularly careful and cost-conscious with small matters, but are unconscious, or even wasting money, on larger or long-term matters. This is more common than you might think, and it happens a lot, especially at multinationals. This pitfall is particularly common when a company only focuses on costs and not on long-term goals. This pitfall can be resolved by looking critically at the way in which the payments (financial settlement) are structured (Vested rule 4). Vested Rule 4
Vested Rule 2 The outsourcing paradox The "outsourcing paradox" occurs when an organization selects a partner as the "expert" and then tells them in detail how the work should be done. The organization describes all tasks, frequencies and measures in detail. Strangely enough, no input is requested from the partner who is hired as the expert. In this scenario, an extensive statement of work (SOW), written by the client, works as a kind of cage that limits the innovative capacities of a partner. This pitfall can be resolved by focusing on "what" you want to achieve in the collaboration and not on "how" this should be achieved (Vested rule 2). Vested Rule 2
Vested Rule 1 The activity trap The "activity trap" mainly occurs in service contracts where the purchasing organizations pay per hour, per day, per shipment, per order, per kilometer, per call, etc. Transaction-based prices lead to a perverse incentive through which the partner is encouraged to make many transactions, whether it is necessary or not, just because they get paid for it. There is no reason to reduce the number of non-value adding transactions, as this reduces turnover. This pitfall can be resolved by focusing on outputs or outcomes rather than on transactions (Vested rule 1). Vested Rule 1
Vested Rule 2 The junkyard dog factor The "junkyard dog factor" mainly occurs when an organization outsources its services to another party, creating uncertainty among employees about their jobs. Employees will often put a lot of effort into maintaining their current job and position, and it is therefore very important for them to keep the services 'in-house'. This situation, however, leads to duplication of work if the customer retains the employees who previously did the work to (micro) manage the new partner. This pitfall can be resolved by focusing on "what" you want to achieve in the collaboration rather than "how" this should be achieved (Vested rule 2). Vested Rule 2
Vested Rule 4 and 5 The honeymoon effect
All new business relationships go through a "honeymoon" phase. The research firm Gartner, Inc., studied the "Honeymoon effect" and found that experiences between parties at the start of the collaboration are usually very positive, but satisfaction decreases over time. Often there is more focus and attention to the objectives at the start of the collaboration, but over time the "A" team that sold the deal is replaced by the "B" team or even the "C" team. Ultimately, this leads to a dissatisfied organization and a partner who cannot perform, after which it is often decided to look for a new partner. This pitfall can be prevented by rewarding the right objectives and establishing a long-term governance structure (Vested rules 4 and 5).
Vested Rule 4 and 5
Vested Rule 4 Sandbagging To prevent the "honeymoon effect", some companies have decided to contractually oblige the partner to improve their performance over time, thereby reducing costs. In turn they are rewarded for this. Rewards can certainly work if they are arranged in the right way. If they are not used properly, they can also result in "sandbagging", with potential improvements being deliberately withheld and spread over a longer period of time in order for the supplier to optimally benefit from the rewards. This is especially common with performance contracts, but can be resolved by properly linking the desired outcomes to the KPIs and the rewards (Vested rule 4). Vested Rule 4
Vested Rule 4 The zero-sum game Business partners play the "zero-sum game" when they mistakenly believe that if something is good for one party, then it is automatically bad for the other party. The parties then do not understand that the sum of the parts can be better when combined effectively; one plus one can equal more than two! This is about the power of trust and cooperation: when individuals or organizations work together to solve a problem, the results are always better than when they had done it separately. This pitfall can be resolved by creating the right "win-win" mindset and starting points, and by focusing on joint rewards (Vested rule 4). Vested Rule 4
Vested Rule 3 Driving blind disease You may suffer from the "driving blind disease" if you have not set up a formal governance process to monitor the overall relationship and its performance. Unfortunately, this occurs within many organizations. The focus lies on wanting to quickly start the collaboration (and conclude the contract), but forgets to agree on how to measure its success. Many companies focus on monitoring costs, but do not measure the essential aspects of performance. Because it is not clear when the collaboration is successful, and there is no (or insufficient measurement), many collaborations derail. This pitfall can be resolved by establishing clear and measurable desired results in advance (Vested rule 3). Vested Rule 3
Vested Rule 3 and 5 Measurement minutiae The characteristic of "measurement minutiae" is that parties try to measure everything. As the saying goes, too much of a good thing can be
bad for you. This applies to binging on Halloween candy as well as to the exhaustive measurement of your supplier’s performance. It is remarkable to see which long lists of measurements parties sometimes find necessary to manage their collaboration. When the critical success factors of the collaboration are fully understood, the ideal number of measured values is around 5 to 10 KPIs. By limiting the number of KPIs, parties can focus on what is important for the collaboration. This pitfall can be resolved by establishing clear and measurable desired results in advance (Vested rule 3) and setting up an appropriate governance structure based on insight instead of oversight (Vested rule 5).
Vested Rule 3 and 5
Vested Rule 1 The power of not doing The "power of not doing" is perhaps the saddest of all pitfalls. Many companies fall into the trap of investing a lot in attractive software and fancy scorecards, but then fail to follow through and actually use them to manage the business. The adage, “You can’t manage what you don’t measure” holds true, but if the metrics compiled are not used to initiate corrective actions to adjust and improve performance, then don’t expect positive results. This pitfall can be resolved by focusing on outcomes rather than on transactions (Vested rule 1). Vested Rule 1
Vested Rule 5 New sheriff in town You have probably heard of this pitfall. The new “sheriff” rides into town, wanting to clean things up and make a name for himself. In the business world, this often also means that existing (sometimes long-term) relationships with good-standing partners are suddenly stopped for the name of 'lower costs' or 'a new strategic direction'. The result? Once-loyal partners lose confidence and results deteriorate rapidly. This pitfall can be resolved by setting up an appropriate governance structure that takes this potential pitfall into account in advance (Vested rule 5). Vested Rule 5
Vested Rule 5 Strategic drift Even the seemingly most well-crafted contracts and business relationships can suffer from the common but dangerous pitfall of "strategic drift". This pitfall 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 evolves. In short, what was once a very successful relationship has drifted to a place that is no longer desirable - or at least not realizing its potential. This pitfall can be resolved by continuing to pay attention to the relationship and keeping the established governance structure alive (Vested rule 5). Vested Rule 5