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Vendors Should Be Rewarded When They Deliver Positive Client Results

By:  Mark Ryall, Principal Consultant, Hewlett Packard Company

 

Two people thinking about money.jpgIn the world of telecommuting, IM’ing and conference calling, it’s tough to use traditional “people skills” like observing/reacting to non-verbal gestures during a meeting; to really ‘read’ a person.  In our virtual world, most of us can still agree that insights into each party’s values and compensation all come into play with the vendor-client relationship.  When both parties understand, appreciate and align with financial and other qualitative benefits, a mutually beneficial outcome has a better chance to happen.

 

As a program manager and Chief Information Officer for close to two decades, I have learned that when dealing with vendors, it is important to be direct, clear and consistent about the client’s goals, objectives, requirements, selection criteria, success factors and forecasted financial payback for IT related investments.  In addition, I have always believed the vendor must understand the client’s professional and personal risk/rewards system for a particular project or service. To get to this level of awareness, there must be open, respectful discussions and solid trust between the vendor and the client stakeholders.

 

I recommend that clients explore the vendor’s reward system related to their initiative.  For vendors who traditionally avoid this discussion, they may need to ‘go off script’ to share their own motivators to see how they align with their clients.  As the trust level grows and both parties begin to share methods of ‘compensation’, the go-forward contract should contain language around results-oriented payment themes. I base this approach upon a belief “people will behave as they are paid.”

 

Have you even participated in an effective vendor/client meeting?  The client articulates the facts, requirements and desires about the initiative and the vendor keenly addresses those needs matching them with the proposed product and/or service.  Traditional proof points may include a product’s functions and features, the vendor’s competitive advantage and client success stories sprinkled along the way.

 

At the end of the meeting, everyone thought the meeting went great!  The vendor concludes that there is a ‘green light’ to a positive buy decision yet there is no contract signing party. Why? It may depend on a number of reasons. The client may be evaluating other vendors, might still be securing funding or needs time developing the business benefits to her or his own organization. To deal with this ‘wait’ period, the vendor should spend more time understand the progress with these client activities and offer to help by aligning their solution to how the client will be ‘paid’ and vice versa. (Note that ‘payment’ for the client refers to the benefits to their organization inherent in the products and/or services purchased.)

 

When a contract includes language around these mutually beneficial ‘compensation’ plans for both the vendor and the client, it usually results in the best outcome not only for this particular deal, but for the overall solution over the next few years – and an effective relationship for life.  

 

For example, a product vendor may share that sales gets a commission payment upon receipt of a signed client contract.  There is a disconnect, though, when the client  doesn’t ‘get paid’ until after the solution is successfully working as intended in a production state – well down the road from the vendor’s ‘close’ date, revenue recognition and the sales commission payment.  In this example, the vendor is happy and the client is in a much longer and frustrating ‘wait’ period.  

 

Good vendors consider this ‘disconnect with value timing’ and manage through it until the client is also happy with the outcome based upon the positive results that the vendors’ product or service offerings deliver. The client and vendor should try to reach an agreement that includes terms such as:

  • payment for a percentage of completion of interim service deliverables
  • payment due at the ‘go live’ date for on-going product maintenance
  • a vendor performance bonus 

These contracting techniques will align the vendor’s and the client’s “how we get paid” reward systems more closely than with just a traditional order.

 

In summary, there are ‘order takers’ and ‘presenters’ that are wildly successful as vendors and clients who implement solutions without ever disclosing how they ‘get paid’.  My viewpoint is that the best contracts not only match the client requirements with the vendor solution, but also align vendor payments with the demonstrated delivery of client benefits.  When each party knows how the other party ‘is paid’, and there is alignment of the timing of payments before they sign a services contract or place a product order, it will usually lead to the best outcome for both.

 

Previous blogs by Mark Ryall:

Related links: 

About the author

 

mark ryall.jpgMark Ryall, Principal Consultant, Hewlett Packard Company

Mark is a Principal Consultant in HP’s Transformation Services practice. His current responsibilities include adding value from strategy through delivery for our Government clients.  After seven years at Andersen Consulting, Ryder System, Inc. and two publicly traded companies as CIO, Mr. Ryall joined HP in 2005 and has led a number of initiatives with clients to modernize applications, decrease costs/risks, and increase productivity. 

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