Scrap the Purchase Order Mentality

Credit: Making Collaboration Work

Don’t mistake a transaction, even a friendly and efficient transaction, as true collaboration.

If someone arranges to purchase widgets from a widget-maker that’s the essence of the make-buy decision but it’s not the crowning achievement of a real partnership.

Or as Ben Gomes-Casseres puts it, “a partnership is not a purchase order.” Writing this week in the Harvard Business Review’s Insight Center Making Collaboration Work, Gomes-Casseres has a thoughtful, spot-on response to this recent tweet from Scott McNealy, the ex-CEO of Sun Microsystems: “Most over used phrase in business is ‘strategic partner.’ Favorite partnership for me is a purchase order. Defined charter, beginning, end.”

Gomes-Casseres, who specializes in alliance strategy at Brandeis International Business School and is writing a book for Harvard Business Press, says that mind-set is “precisely why many external partnerships fail.”

True collaboration, he continues, “is much more than a purchase order. Setting up an external partnership as if it were a PO, at best, leaves value on the table. At worst, it leads to conflict and value destruction.”

Gomes-Casseres says McNealy doesn’t quite get the difference between a partner and a vendor. In a 2006 paper, “Vendor or Partner: Know the difference and manage accordingly,” Gomes-Casseres put that issue pretty much to rest.

In the HBR post, he writes, “Most true collaborations cannot be controlled with fixed terms that are defined in advance — they must be managed through relational contracts that allow you to respond flexibly to new information.

“McNealy is right about the need for a charter and time frame for any relationship. But he is wrong in expecting these specs to be as well-defined and as stable as they would be in a typical PO. True collaboration always has open-ended elements — ranging from precisely how new innovations will be implemented, to how products will fare in the market, and even to what priorities partners will pursue in the face of changes in the environment. A true partnership creates ways to manage these uncertainties, and does not default to executing against a predefined contract, as one would with a classic purchase order.

“Sun’s own experience is a case in point. Under McNealy, Sun ran its ‘partnerships’ in the spirit of purchase orders. In its heyday, when Sun sold servers running its proprietary architecture and software, the company bought semiconductors from major vendors, such as Fujitsu in Japan. But for many years it took a hands-off approach to new product development — dictating needs, but letting vendors bid for a slot on the Sun server and sink or swim after that. One of the results of this approach was that vendors failed to invest sufficiently to produce advanced products for Sun. “This kind of approach is common for firms that are in dominant positions in their industries. They tend to play vendors off against each other and shy away from partnerships that require some sharing of power.”

I’ve quoted Gomes-Casseres at length because his thinking so closely aligns with the Vested Outsourcing approach to structuring outsource relationships and the Five Rules, especially the Vested focus on shared value, outcomes, not transactions and laying the foundation for mutual success—the win-win.

The Vested model avoids the purchase order, transaction-based approach to business relationships in favor of long-term outcome-based relationships between companies and service providers based on collaboration and achievement of mutually beneficial outcomes.

A Vested framework is an alliance that still allows for a defined and flexible outsource structure without the trappings and complications of an equity or joint venture type of arrangement.

If you think a simple purchase order is example of collaboration, think again.

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