In the previous chapter it was stated that the differences between Supplier Organizations (SO) and Owner Organizations (OO) were such that the SO warranted a lifecycle of their own that addressed just their perspective. Figure 7.1 offers just such a lifecycle and it is further described in this chapter.1
Comparisons and Contrasts of the Lifecycle Models for Owner Organizations and Supplier Organizations
The above lifecycle model is consistent with the models offered in Chapter 5 in that it consists of phases and Decision Gates.
The two are different in terms of the identity of the phases and the phase products, and also that the Decision Gates are not always owned by the organization in question. Whereas the Owner Organization (OO) owns all the decisions made within its lifecycle, it is not the case here where only one is owned outright by the Supplier Organization (SO). This is evidence that, unlike the OO lifecycle, the SO lifecycle cannot exist in isolation. A SO needs an OO but an OO does not necessarily need an SO.
This joint ownership of Decision Gates, and the phase deliverables identified, allow for the very necessary interaction and connection between the Owner and Supplier Organizations to be made. The practicalities of this interaction will be discussed in Chapter 9.
In terms of content, the most obvious difference of the Supplier Organization’s (SO) lifecycle is the early phases of Selling and Marketing, and they warrant the following observation.
Marketing and Selling as Project Management Activities
Selling and marketing are not considered to be part of classic project management. Neither the fifth edition of A Guide to the Body of Knowledge (PMBOK® Guide), by the Project Management Institute, nor the sixth edition of the APM Body of Knowledge include them as standalone topics. Whereas they are referred to in the fifth edition of the APM Body of Knowledge, this is only in the context of them being a soft skill that can be applied to persuade stakeholders of the merits of a project.
In both these publications, the establishment of contracts between Supplier Organizations (SO) and Owner Organizations (OO) is addressed as ‘Procurement’ and is therefore addressed from the point of view of the buyer, i.e. the OO.
In the context of project management, selling and marketing are not something the Owner Organization (OO) need worry about. Indeed if the project is to be delivered using in-house resources only, then there will be no need for the OO to consider the establishment of contracts at all, not even from just the perspective of a buyer.
Clearly this is not an approach that is acceptable to a Supplier Organization (SO). By definition these parties must engage in contracts, and hence markets, and specifically they must do so from the perspective of a seller since it is the receipt of the consideration, the payment that they will secure from a contract, that is their prime pursuit and objective. If the Supplier Organization (SO) does not sell then it will not survive.
Further, whilst divorcing the selling effort from the delivery process is a relatively safe option for those Supplier Organizations (SO) that supply standard off-the-shelf components, this is not the case for the SO delivering bespoke goods or services. In such organizations the selling and marketing disciplines are not minor competences that a project manager should just have some passing knowledge of. To a SO, the skills of selling and marketing become intrinsic to the work of its project manager for the following reasons:
They are a vital link in establishing the continuity between what the OO wants and what the SO is to supply. This continuity is at the heart of the OO-SO relationship.
As discussed in Chapter 4, the early phases of a project have a hugely disproportionate effect on the subsequent project and hence when most influence can be exerted. Accordingly, in the SO project lifecycle the activities within selling and marketing are the time when most influence over their overall performance is exerted. This has particular relevance to the quality of the relationship between the parties.
They tie individual projects to the strategic objectives and commercial predicament of the SO.
Marketing and selling are not practices unique to Supplier Organizations (SO) just within the sphere of projects. All commercial organizations sell something and readers will find many books that address them as standalone disciplines. However, they are not often discussed specifically in the context of projects and project management competences.
In an effort to make up this shortfall, they each have dedicated chapters in Part 4.
The Supplier Organization Lifecycle Phases and Decision Gates
The phases and Decision Gates within the Supplier Organization (SO) lifecycle shown in Figure 7.1 are described as follows.
Marketing can be described best as ensuring one puts ‘the right product in front of the right customer at the right time’.
As discussed earlier, the Supplier Organization (SO) retains permanent ownership of, or access to, specialist resources and expertise. Owner Organizations (OO), by contrast, have a demand for such resources and expertise only when a suitable project has been commissioned. Typically, this demand is significant but infrequent.
With such spasmodic demand, it is unlikely that SO and OO have an ongoing relationship, indeed they may well be unknown to each other prior to the project, and putting them in contact with each other in the first instance is not straightforward.
For a successful relationship there must be an overlap between what is required by the Owner Organization (OO) and what the Supplier Organization (SO) is happy to supply but, at the outset, it is often very difficult to recognize such an overlap exists. Firstly, the OO may not understand precisely what it wants. Secondly, by necessity for those addressing bespoke requirements, there is flexibility about what a SO is prepared to offer.
This vagueness and uncertainty often characterizes these early exchanges and just like that of the Owner Organization’s (OO) project, the exact starting point of the Supplier Organization’s (SO) project lifecycle is often indistinct.
Also, at this early point in the SO lifecycle, the ability to exert influence is at its highest. Much SO effort is directed at influencing the OO such that it is persuaded to specify its requirements in such a way that it suits what the SO can offer and also, preferably, such that it can put the SO’s competitors at a disadvantage.
In some instances a particular Supplier Organization (SO) will be the only party capable of satisfying the Owner Organization’s (OO) requirements. Alternatively, the SO will be able to establish such a strong relationship with the OO that the latter elects not to involve any other competing SO. Such instances, when no competition is involved, are sometimes known as ‘single tender actions’ and can be very favourable to the SO (and also the OO).
However, in most instances there is more than one Supplier Organization (SO) in competition for the work and so, to ensure fairness, a formal and publicized procurement process is adopted. This process can vary in its complexity but will involve each interested SO submitting a bid that details the technical and commercial package that it is offering in response to the stated requirement of the Owner Organization (OO). This brings the SO to the first Decision Gate.
‘Bid/No Bid’ Decision Gate
The logic of the Decision Gate, as described in Chapter 4, applies here and for the Supplier Organization (SO) this early decision is the most important.
If the SO submits to the selection process by putting together a bid, it will incur the considerable financial and opportunity cost. It is only appropriate to do this if there is a very real prospect of successfully securing profitable work. If a SO gets into the habit of preparing expensive bids for work which it stands no chance of winning, or alternatively, for work that is not sufficiently profitable, then it will not be in business for very long.
However, unless the SO submits bids it cannot secure work and so will not survive.
As with the OO, selection of the correct project is more important than how well it is managed and the ability to make the correct decision at this gate is a major determinant of how commercially successful the Supplier Organization (SO) will be.
Selling is the process of persuading a prospective customer to buy your product from you, for the maximum price and on the most favourable terms.
Having decided to submit a bid, the Supplier Organization (SO) must go about preparing the same and simultaneously persuading the Owner Organization (OO) of the superiority of its offer such that the OO will be prepared to pay a premium to secure it.
The significant amounts of work and expense required to prepare such a bid are justified by the need to mitigate the inherent risk. This is especially the case when the commercial terms on offer relate to a ‘Firm Price’ (see Chapter 10) since if the offered price is too high it is unlikely the work will be won in the face of cheaper competitors; if it is too low it increases the risk that it will be exceeded by the actual costs.
To avoid either of these outcomes, activity within this phase seeks to precisely understand (and maximize) the price the Owner Organization (OO) would be prepared to pay and also to precisely understand (and minimize) what the actual cost of the work is likely to be.
The former of these involves the SO seeking to influence the OO. Inevitably this will involve the arts, sometimes the darker arts, of salesmanship. The latter involves the SO undertaking estimating; a difficult, expensive but crucial activity for every SO.
‘Make or Accept/Reject Offer’ Decision Gate
This Decision Gate leads to the creation of a contract or else, if not favoured by the Owner Organization (OO), the termination of the Supplier Organization’s (SO) involvement. There is a legal requirement whereby, for a contract to come into being, one party must make an offer and the other must unconditionally accept it. This process needs the consent of both the OO and SO and so, inevitably, it is a jointly owned Decision Gate.
This is why the making of an offer represents a major legal commitment on behalf of the SO since, after this point, the OO need only accept it and a contract is formed. It represents a significant surrendering of the ability of the SO to influence future events. It may be that, for whatever reason, after compiling the bid, the SO elects to abandon the process without making the formal offer. This, however, is less than ideal since the considerable costs of compiling the bid will have been incurred.
The simplest scenario involves the Owner Organization (OO) receiving bids (offers) from the various potential Supplier Organizations (SO), making a judgement as to its preferred partner, and unconditionally accepting their bid, at which point the contract is formed. In practice it may be more complex. For instance, the OO may ask for a price reduction or some other type of concession from the favoured SO. From a legal perspective, this represents a counter-offer and the effect of this is to put the SO in the position of having to make a decision whether to accept it or not. Accordingly the final decision of the Selling phase may be to either make an offer to the OO, or accept (or reject) an offer from the OO.
Once an unconditional acceptance is made the contract is formed and the existence of a contract has very significant implications for each party.
The Supplier Organization (SO) is obliged to perform the work scope called for in the contract. This will involve the provision of some service or the creation of some goods.
In return, the Owner Organization (OO) is obliged to fulfil its duties specified under the contract. This may involve providing access to facilities or information or providing equipment or resources. It will also, ultimately, involve the payment of the contractual consideration, i.e. money.
Although represented diagrammatically in Figure 7.1 as a simple rectangle, in practice this phase may include separate tranches of work that may be arranged sequentially or in parallel. An example of the former would be a ‘design and build’ contract whereby the SO must first design the products and secure acceptance of the design before proceeding to build. An example of the latter would be a haulage contractor transporting a number of different loads whereby the tranches of work are performed at the same time and each subject to a separate acceptance.
‘Accept Deliverable’ Decision Gate
In a very simple scenario, the completed goods are assessed by the Owner Organization (OO). If it deems them to be acceptable and in accordance with the requirements of the contract, formal acceptance of them is conveyed, ownership of the goods is transferred, and final payment is made.
In a strict legal sense the contract has jurisdiction over this activity (the OO is entitled only to that specified therein) but in a practical sense the Decision Gate is owned by the OO and the SO is at its behest.
In addition to the division of work into tranches, other practicalities may ensure that this Decision Gate is not so much a one-off event, but a series of events. For the reasons discussed in Chapter 18, this gate is far harder to define than the others.
After ‘Accept Deliverable’, most likely there will be ongoing obligations to the Owner Organization (OO) such as delivery of the accepted product or documentation; demobilizing of contract facilities; settling of claims and counter-claims; closing of accounts; receipt of final payment, etc.
There is also much work to be done that is not for the benefit of the project in question, but for future projects that the Supplier Organization (SO) may embark upon. ‘Lessons learned’ activities are an example of such work. Other examples include recording of customer details so as to secure any future ‘Spares and Service’ contracts.
The end of the phase, and hence the end of the SO lifecycle (though not necessarily its legal obligations to the OO2 ) occurs on the conclusion of this work, or else the expiry of the ‘Warranty Period’ (often known as a ‘Defects Liability Period’), whichever is the later (usually the Warranty Period).
The Warranty Period starts immediately after the goods are accepted and put into operation by the OO, and any failures occurring within this time not directly attributable to misuse are to be made good by the SO, at its cost.
Uses and Benefits of the Supplier Organization Project Lifecycle
As described in Chapter 4, the project lifecycle, with its attendant Decision Gates, forms a strategic plan for a project. As such it provides a framework for both the strategic and tactical control of a project and, if appropriate, can form the basis of a project method for the organization involved.
Further, the drawing up of a lifecycle requires the participants to engage in the act of planning and, as discussed in Chapter 14, this conveys very many advantages.