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Are We Less Collaborative Today?

March 21, 2011

In my last blog, I observed that today there are frequent calls from business leaders for more collaborative relationships. I asked two questions:

  • In the business world, are we less collaborative today than we used to be?
  • If yes, then why has that happened?

A majority of those who responded feel that business relationships have become less collaborative. Several suggested that trust has declined and that we are far more focused on allocating risks – often with no regard to what is fair or reasonable. There were distinctions made between public and private sector, with some suggesting that the public sector especially suffers from this absence of collaboration. Two of those who commented had a counter-view, stating that absence of trust is innate to human or business relationships and that there has been little change over the years.

The erosion of trust has been widely researched and identified, especially in the US (which, it is pertinent to note,  is the country that has driven many of today’s international contract and negotiation practices). Indeed, for many parts of the world, the widespread use of contracts is still relatively recent. As one observer explained, ‘We form relationships and then transactions follow; but in America, everything seems to be a transaction, and maybe a relationship will emerge’.

But these observations are symptoms of a change, not the cause. When it comes to business relationships, I think trust is part of the issue here; and another is the nature and extent of recourse.

 ‘Collaborative countries’ tend to minimize or do without contracts. In these countries, trust is higher, but to some degree that is because of the broader potential for recourse. Often, this has little to do with the legal system and is based on issues such as reputation and close social and business interconnections. Also, in many of these countries, a system of statute law and a lower propensity to litigate limit the room and purpose for negotiation and in particular the scope of potential damages. Such cultures frequently do business ‘on a handshake’ – or at least, they did before globalization.

So if trust is eroding, and with it a decline in collaboration, what factors lie behind it? I believe there are several fundamental factors – and at their heart lies a collapse of loyalty, driven by ever-increasing competition. Globalization and technology have created new levels of remoteness and impersonaility. Gone are the days when companies feel a bond with their local community, their national suppliers or even their country. Today, many relationships are virtual; they span linguistic, jurisdictional and cultural boundaries. In such an environment, business leaders would say that it was too risky – indeed, foolish – to exhibit trust. And hence the growth of the role of contracts as a substitute for traditional relationships.

Unfortunately, the way we undertake bidding and contracting then adds to the general sense of distrust. As IACCM surveys repetitively reveal, open discussion between the parties is often stifled by today’s price-based and risk-averse procurement practices. And the role of the contract is not generally to enable discussions that might build trust and collaboration; instead, they concentrate on the consequences of failure and the allocation of punishments. They also send a message that price is everything and that loyalty and commitment have no value.

Competition is a good thing, but within limits. If it undermines loyalty, then it ultimately destroys trust. Studies show the importance of trust to economic growth and that its absence adds to the cost of doing business. Amongst these findings, it is interesting to note that “a failure in trust may be forgiven more easily if it is interpreted as a failure of competence rather than a lack of benevolence or honesty”.

So in conclusion:

  • I believe that collaboration in business has declined
  • I think that falling levels of trust are the cause – and that this has resulted from our hunger to win, without regard to the cost in social or economic terms
  • In busines relationships, increased use of technology, growing internationalism and narrow measures of performance  have combined to undermine collaboraton

Are business leaders simply hypocritical or yearning for a by-gone era when they call for increased collaboration? Or should we be identifying ways to either redress current behavior, or introduce new approaches that will support greater trust and collaboration between businesses?

Again, I welcome comments and I will make answering these questions my third and final blog in this series on collaboration.

  1. Florante permalink

    One of the essential elements of a successful Contract is the meeting of minds between parties and a collaborative relationship, although not a legal requirement is an essential implied requisite. When this requisite was frustrated or concluded with the elements of substantially tilted risk allocation and/or onerous clauses during negotiation, you may end up with a binding and enforceable Contract but what will be the scenario during implementation or will it ever reach substantial completion?

    Any relationship based on deceit or there is an element of bad faith is doomed to fail or very costly, it will either end up in arbitration and/or worst litigation before the project completion or the party will allocate an astronomical monetary equivalent to the onerous risk allocation. Therefore, the end- product for parties, a “lose-lose” outcome and erosion of trust.

    I find it very hard to comprehend the logical reasoning of why do company executives or decision makers condoned such (mal) practice. Saving the morality aspect, the benefits are short lived and the monetary savings realized in one project maybe substantially eroded by the next projects and the company’s reputation is at stake.

    Most companies value their reputation as one of their most valuable asset, being known as a non collaborative company make other companies think thrice before working with you or for you (unless you can monopolize the market). It is either they will no longer work for you because of unpleasant experience or they will apportion very high contingencies in their Contract price as a safety net for the onerous risk allocation approach of the company they are dealing with.

    Tim, thanks for providing us interesting and true to life contracting topics that most of the time mingle the fertile minds of the Contracting professional, again kudos to you and the IACCM as a whole.

  2. Ian Heptinstall permalink

    Some interesting observations Tim.

    One aspect of this that still surprises me is that many people involved in contract agreements seem to believe that collaboration and low prices cannot go hand-in-hand.

    For me mutual collaboration can acheive better out-turn prices than selfish competition can, in most complex, longer-term, purchasing scenarios.

    However as I mentioned in my comment to your previous post, I am not sure that many people know how to make collaborative contracts work, and are also hampered by a limited view on how to manage risk and variability – Agree a fixed price contract and all the variability will disapear as if by magic..yeah of course it does….


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