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Outsource magazine: thought-leadership and outsourcing strategy | June 29, 2017

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Opportunism: the other side of trust (Part 2)

Opportunism: the other side of trust (Part 2)
Outsource Magazine

To read Part 1 of this article, click here.


Social Norms To Do Business By

Reciprocity obligates businesspeople to make fair and balanced exchanges. If one company accepts a business risk, the other must be prepared to do the same. If one company commits to invest time and money in an important project, the other must be prepared to reciprocate. They decide what is fair and balanced through the negotiation conversation and by applying the rest of the guiding principles.

Autonomy means abstaining from using power to promote one party’s self-interest at the expense of the other. At the individual level, autonomy refers to the ability to act based on reasons and motives reflecting the individual’s own values and convictions. The same applies to business relationships. Businesses want to make their own decisions, free from the power of another; they want to work as equals and they want to be part of a process that allows them to make decisions in sync with each other.

Honesty: healthy relationships require honesty as the only policy with accuracy and authenticity as the cornerstones. Accurate or fact-based conversations separate the facts from the explanations that interpret or colour those facts. A fact is something that is observable. An explanation accounts for the fact. Authentic conversations take accurate conversations to the next level and leverage multiple points of view to gain new insights and opportunities for improvement, growth, or change. When conversations are authentic, each person’s point of view is genuine while that person also recognises that an individual point of view is not the whole story.

Loyalty obliges both companies to be loyal to the relationship. Loyalty to the relationship will come when both companies’ interests are treated as equally important. Loyalty is not being loyal under all circumstances to one company. It is not about sticking together no matter what. Loyalty is about loyalty to the relationship as a single entity.

Equity has two equally important components: proportionality and remedies. Proportionality means one company may get a larger distribution of rewards (remedy) than the other to compensate that company for taking greater risks or making investments (proportionality). An equitable remedy allows the companies to come to a fair resolution when the contract itself may otherwise limit the result or be silent on the matter. For example, the contract might inadequately address the service provider’s performance requirements during a catastrophic natural disaster, such as a Category 4 hurricane. Any resulting ambiguity should be discussed with the principle of equity in mind.

Integrity: simply stated, integrity means consistency in decision-making and in actions. Intuitively, people understand this principle. People want to be able to rely on each other and know that they will get the same result from the same set of actions.

Stop and Ask Yourself These Five Questions

Before you consider implementing these social norms, stop and ask yourself these five questions. Answering them will help you understand the nature of an existing relationship.

  • How do you (your organisation) define being trustworthy?
  • Is the other party’s definition of trustworthiness the same as your definition and that of your organisation?
  • Are there challenges to acting in a trustworthy manner? For example, do you or does your organisation make excuses for not being trustworthy?
  • What challenges does the other person or organisation face in acting in a trustworthy manner? For example, does that person or that organisation make excuses for not being trustworthy?
  • Have each of you acted in an opportunistic way? If so, how will you repair the lost trust?

If you feel that there is a common enough definition of trustworthiness, then consider implementing the six principles as part of the relationship governance structure. And, if you have acted opportunistically, then by all means, have a conversation about the principles to repair any lost trust.

There is such a documented financial upside to working more collaboratively, that it makes little financial sense to continue with opportunistic behaviours. Here is just one small example from my white paper entitled Unpacking Collaboration Theory.

The Financial Benefits of Reduced Opportunism

When companies trust each other by having a common set of social norms in place, they place a check on opportunistic tendencies within both companies. For example, a customer who has the right norms in place may choose not send work out for a competitive bid and instead enter negotiations with the incumbent supplier. The cost to go to market to get a better deal – referred to as bargaining costs – is one facet of transaction costs.

Reducing bargaining costs frees up much needed time and money, which can be re-invested by both companies to achieve shared goals for the relationship. But, this can only happen when there is enough trust and little chance for opportunism to thrive.

Conclusion

Research conducted in sociology, game theory, economics and other social sciences shows that relationships based on trust, reciprocity and other social norms outperform more traditional relationships.

While social scientists have proven time and again that a collaborative approach to working together outperforms a more traditionally transactional approach, organisations still enter into conventional transactions which tend to foster opportunistic actions by both the buyer and the supplier.

These same organisations who engage in opportunistic behaviours lament the lack of innovation, inflexibility to meet market challenges, unrealised profit potential – and more importantly fail to establish sustainable supply chain relationships.

Many individuals and businesses fail to realise they have a choice between being trustworthy and being opportunistic to reach their goals. Too often business leaders do what those before them did without evaluating the effectiveness of their choice.

You are now more informed about opportunism. What will you do to pursue your goals?


 

About the Author

Jeanette Nyden 150Jeanette Nyden is the author of three books including Getting to We: Negotiating Agreements for Highly Collaborative Relationships and Negotiation Rules! A Practical Guide to Big Deal Negotiations. Ms. Nyden works with executives to maximise key customer-supplier relationships by providing tactical, customised contract negotiation training and coaching from the planning phase through to execution.

Comments

  1. Liz Ditchburn, Head of Outsourcing at Kimberly-Clark

    Good article. Outsourcing is about partnership and not a one-off deal so there should be different rules to contracting, and must be a Win:Win and not a Win at any cost to the other party. The contract must exist as a safety net only and the relationship should be run in the spirit of the agreement.

    Of the norms above, Honesty stands out a mile. To be successful in an outsourcing relationship it is critical to always put the facts on the table. This is the only way to achieve the Trust required to work together as a single team which can survive for the long term.

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