The Problem
The client forecasted 30% year-over-year growth of their service business for the next 5 years. I was asked to help the client negotiate a new, performance-based agreement with its main customer who was a primary growth driver for the business. The primary problems we encountered were two-fold:
- Lack of direct control of the outcome: The new metrics required by my client’s customer were largely out of my client’s direct control. My client could influence the metrics, but customer behavior ultimately drove the outcome.
- False confidence: The client had been successful in winning and executing on previous “time and materials”-based service agreements, and this was a new, performance-based agreement. Unfortunately, prior success fueled optimism in my client’s belief that they could meet any service level for which their customer was willing to pay.
Task and Approach
My task included 1) an assessment of my client’s ability to meet the performance levels demanded in this new agreement, 2) recommend services levels for which my client should be willing to commit, and 3) provide real-time negotiation support.
Research I conducted through problem discovery sessions and client stakeholder interviews provided me with a robust understanding of the problem. I then conducted a deep quantitative analysis to assess the client’s ability to perform. This step included analysis of historical performance, statistical and simulation modeling of the client’s service process, and developing a model to translate performance metric outcomes into financial terms including incentives and margin.
From there, I helped the client understand the story that the data was telling. I was ultimately asked by the client to tell the same story to their customer at the negotiation.
Results
My analysis proved critical to the client’s financial performance on the new agreement.
- Expectations grounded in data: During the negotiation preparation phase, my client reset their own expectations (reduced their optimism) with respect to their ability to deliver to the customer demands.
- Data-driven negotiation: During the negotiation and with my real-time support, the client successfully negotiated lower service levels in the agreement.
- Financial success: During contract execution, the client achieved the desired financial outcomes of the contract.