Executive staff of a large corporation settled down in the board room for a planning meeting for a major program that the company was about to kick start. The program they were about to embark on was quiet complex and had several sub-projects which required to be executed by multiple vendor teams in unison for the overall success of the project.
As expected a smart executive at the meeting, possibly from one of the top MBA colleges, stepped up to flaunt his smarts. He brought up a area of concern which any diligent program/project manager would have brought up "This project is complex, high visibility too. It has lots of vendors involved. And to ensure we cross the finish line on the planned timelines, its important that none of the vendors slip on deadlines.". "Excellent point" said the CEO "We need to put a mechanism in place right from the start, so that there is a deterrence for vendors to slip.". The CEO even thumped the desk with his fist as he said the deterrence.
Another executive promptly said, "Lets incentivize early delivery and penalize the delay." "Good Idea!" said the CEO and continued "lets form an executive team to lead our team of vendor managers and lets come up with a detailed rules of the game.".
Soon after the kick off meeting, a taskforce was setup from amongst top minds in the company to oversee the vendor managers to draft the guidelines and calculate the quantum of incentives for vendors for early delivery and penalties for delays. After a couple of intense meetings, debates and discussions. It was determined by the committee that incentivizing the vendors too much would mean higher cost to company and also it might tempt vendors to do shoddy jobs, just to claim bonus for finishing ahead of time. The committee also settled on the fact, that exorbitant penalties should not be levied, or else vendors will shy away from bidding for the project in the first place. In the end a watered down structure of incentives and penalties was finalized.
A few months later, the management team, regrouped to take stock of the project. One by one all the managers responsible for their sub-projects came up and presented the progress of their projects. As with any large program, some projects were on target, while some weren't. Out of all the sub-project, there was a particular project that was clearly going to delay. The vendor employed for the project had already informed his inability to hire the right people for the job. He had communicated the expected delay to the company. The CEO quickly called upon his taskforce to take action.
The taskforce wrote a stern warning letter to the vendor. They warned him of invoking the penalties clause from the contract they had signed with him. The vendor managers called for a meeting to discuss with the vendor how they could possibly seek resolution on the impending issue and possibly avert delays.
The meeting between the taskforce and the vendor convened. Calling what transpired next a classic case of the book smart versus street smart would be a cliché. What it was, was a perfect case study of negotiating to win.
The executives of the taskforce in there pinstriped power suites, with fancy degrees walk into the board room. While at one corner of the board room's table, sat the vendor. An older man in neat and unimposing attire. He had not been to college, but had earned his seat at the table, by working long and hard at his trade. He spoke with clarity and confidence.
Without beating around the bush, the vendor got straight to the point as the meeting started. He explain clearly the reasons for delay. He accepted his inability to mitigate the issue and avoid delay. But he was sure and that all he now needed was an extension by a month to finish. The discussion dragged for sometime, because the taskforce got busy over analyzing this particular situation, rather focusing on the larger project goal. As they say too many cooks spoil the soup, it took for ever for the taskforce to determine what they really wanted to do in this case.
What happened next was amazing. At the first mention of the word penalty, the vendor bent down to reach for his briefcase. He pulled out a cheque book. He calmly wrote a cheque for the amount of penalty. "Here! Now do I get a month" he said as he pushed the leaf towards the taskforce.
The tables were clearly turned on the taskforce. The taskforce was completely disarmed by the actions of the vendor. They had never fathomed that the vendor would pull out his cheque book on them. All the work the taskforce had put in, to prepare for the meeting was to device ways to make the vendor pay. But now that the vendor just offered them what they wanted up front, the taskforce didn't know how to react. The vendor was excused for a while as the taskforce deliberated on what to do next. Finally, everyone regrouped in the boardroom. The decision was communicated to the vendor. The penalty was revoked, the vendor was given an extension and a warning to finish on the next agreed date of delivery (which clearly felt more of a formality at this point).
Now with this anecdote one may sense my slight disdain for snooty executives in organizations and college degrees. But I assure you that I understand, appreciate and value formal education. And also, admit that not all executives are cast in the same mold as the ones depicted earlier. You may consider that I may have taken liberties to exaggerate the contrast between the executives in the taskforce and the vendor.
The point I am trying to drive with the above anecdote, is to have clear objectives and then going for it without a flinch. The taskforce was setup with a simple goal, but the executives convoluted the task to finally came up with a meek structure, that had no substance to meet the goal. No good reward for the vendors to finish job early nor a significant reprimand for the delays. To make matters worse, at the negotiation table the taskforce were indecisive. They swayed between being perceived as good or bad if the penalty was or was not imposed. Their nervousness would have been quiet evident.
On the other hand, the vendor was absolutely clear about he wanted, which was to keep the business with the company. And to do that all he needed was an extra month and he was ready to pay for it if need be. In the end, what will be remembered, is that the vendor completed the job and not the specifics of how he did it. The opportunity cost of loosing the business was far more for the vendor than to pay a small penalty for the extra time. If required to pay a fine, he would make peace with the deal, by simply writing off the penalty as discount to customer.
After all, less profit is always better than no profit!
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