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Why Do Deals Go Wrong?

March 1, 2010

There are, of course, many reasons why business relationships fail. And failure is itself relative. For example, if measured in terms of those that end up in court, the proportion is very low. It is more that the percentage where satisfaction is very high is also quite low – meaning that the majority are sandwiched somewhere in the middle – with emotions ranging from  mild disappointment to outright frustration.

Proportionally, services relationships tend to have higher levels of disappointment than those covering products. In part that is because services may be harder to define and measure; they ae also more subject to human interventions and therefore error rates tend to be higher. But during my years at IACCM, there are several characteristics which I have noticed frequently causing problems.

  1. Service users are often remote from the process that defines requirements and drives supplier selection. Indeed, Procurement processes often create deliberate barriers between potential providers and the user community because they fear the ways in which this might compromise the selection process. This places a tremendous burden on Procurement to undertake effective analysis – and when they fail to do so, or overrisde the results for cost reasons or because it does not fit with their preferred sourcing methods, the supplier often bears the brunt of user dissatisfaction.
  2. Too many suppliers and customers display a fundamental lack of trust. Staff groups in particular make assumptions about the other side’s motives or behavior and make few attempts to validate them. These often lead to actions that are adversarial or dishonest and result in each side seeking to gain advantage over the other – for example, through exploiting change procedures or the use of liquidated damages clauses.
  3. Some organizations have a culture that simply does not lend itself to healthy external relationships – and their trading partners either fail to recognize these attributes or decide to ignore them. The key warning sign is when there is internal contention and evident antipathy between departments or functions; if they cannot collaborate with each other, they will certainly not be able to work consistently or cooperatively with their external partners.
  4. A failure to appreciate the impact that operational rules or metrics will have on the relationship. Public procurement rules are one obvious example; sales incentives are another. Trading partners need to explore and assess the effect that such issues will have on the competitive framework, the ability to have open discussion, the extent to which disclosure or behavior may be compromised. It is surprising how rarely bid, negotiation or implementation teams ask the other side to explain their operating rules or measurement systems in detail and use these in their bid / no bid decisions.
  5. Building on issue #3, organizations should be more honest about whether there is good cultural fit between them. This isn’t a case of right or wrong – it is just the need to admit that successful long term service relationships require an empathy and concern for each other that will not be achieved if there is a cultural mismatch.
  6. There is frequent failure by one or other party to allocate resourcves (or the right resources) to on-going oversight and performance. This is particularly true of client organizations. Even if the contract has good governance procedures (which they often do not), there is frequently a failure to use the mechansims it established, to hold reviews, to allocate accountable / empowered contract owners to address problems, dicuss improvements. Contract administration is NOT contract management!
  7. There are many pressures on supplier teams to close the deal and avoid ‘unselling’. Too often, sales organizations are reluctant to avoid the right people, or involve them at the right time, or to enable open discussion of value-add possibulities, because they fear it may delay sign-up or could create bigger questions that would derail the deal – even if the result is actually a bigger deal. So getting a deal is better than getting the right deal.

This list is certainly not exhaustive, but it reflects some common problems that should be on any deal-makers shortlist of things to consider and explore.

What would you add?

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