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It’s the requirements that matter

September 13, 2011

Some readers of this blog will recall that acceptance / delivery is the most frequent source of contractual claim or dispute. (Ref: IACCM survey on ‘The Most Negotiated Terms’, June 2011).

Digging into this finding, we discovered four major reasons – and I list them in order of significance:

  1. Lack of clarity / agreement over the requirements
  2. Undisciplined change management procedures
  3. Failure of the supplier to deliver to specification
  4. Customer changed their mind

Factors 1 and 2 both essentially come down to an inability to ensure clarity on requirements. Both sides have some guilt in this. Many customer organizations are fragmented and do not ensure the right conversations. The supplier may be held at arm’s length from the user community and therefore never has the chance to ask key questions. Requirements are rushed, or distorted by powerful stakeholder interests.

On the supply side, the sales team is often conflicted over the extent to which it wants to be honest about real requirements or real capabilities. They are balancing their need to close business with the extent to which this may be jeopardized if internal groups fully understand needs, or the customer has full insight to capabilities.

On top of this traditional dance, we have a world where the move towards more complex services and solutions is making for greater difficulty in formulating precise requirements, especially where ‘innovation’ is involved. And this is then compounded by the speed of change – new conditions, new technologies, new capabilities etc. – which demand on-going review of the original requirements. Frequently, changes and amendments are agreed informally by project or technical teams, leaving massive room for doubt, confusion and potential disagreement at later points in the project.

As Bill Huber pointed out in an excellent comment on my recent post about Procurement, organizations need to become far more sophisticated in their understanding of contract and relationship types. Specifically, they must organize differently for those things that are ‘strategic’ versus those that are commodity. The capability to define and execute on complicated and volatile requirements demands much greater teaming and collaboration; but it also depends on replicable capability.

I think this issue of segmenting organizations to manage the portfolio of external relationships that they need in order to flourish and adapt is a fascinating topic – and one on which I see growing interest. At its simplest, the idea of ‘first order’ and ‘second order’ activity (ref: Michael Cavanagh) is helpful, though perhaps too simplistic in suggesting there is a black and white divide between ‘the routine’ and ‘complex’.

IACCM has undertaken extensive work in this area and is currently documenting some models which can assist in not only segmenting contracts and relationships, but also understanding the variations in process and resources that are needed to ensure an increased probability of a successful outcome.  Getting requirements right – and keeping them properly updated – will be high on the list of objectives.

 

 

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