Take a moment to contemplate your own organization’s structure, processes and policies…
Now, picture yourself in a situation where you would not only be in charge of fulfilling your role-specific responsibilities, but also accountable for the delivery of enterprise-wide outcomes achieved through the engagement of a similarly complex organization (with its very own version of 'complex'). This certainly feels like a challenge.
Strategic business relationships are sophisticated and interconnected ecosystems governed by unique talents, social norms and economics.
At the heart of any business relationship lies strategic alignment, powered by a hands-on process that positions human beings as the main engine of the whole ecosystem. This process is called 'relationship governance'. Sadly, there is no such thing as a 'standard governance recipe' since every relationship is subject to very unique dynamics and interactions.
Often, bowtie governance structures (and the reverse thereof) are presented as ideal frameworks for the build of joint governance ecosystems. Bowtie structures can be defined as distributive setups used to map a company’s structure against another organizations' people, functions and processes in order to foster strategic alignment.
Below infographic provides an overview of the bowtie framework (on the left) and its reversed equivalent, also referred to as 'diamond' (on the right). In this article, commercial functions (i.e. sales and procurement) are referred to as 'trading team' or 'traders'.
To get a better understanding of what traditional bowtie governance and inclusive collaboration feel like in real life, let's consider both through the lens of three critical actors of the business relationship ecosystem: Legal, Quality Assurance (QA) and 'the Business' (aka stakeholders, whoever they are). In this article, commercial functions (i.e. sales and procurement) are referred to as 'trading team' or 'traders'.
. . .
The case of Legal
In a bowtie setup, Legal Counsels have become familiar with the many 'hot potatoes' that are tossed to them from time to time: a selected bunch of IP, liability & indemnification provisions which have cautiously been left on the side of the plate by the trading team.
Legal Counsels end up in charge of the delicate exercise of rebalancing all risks and rewards that result from prior commercial arrangements that they have, most often, never been privy to. This 'can of worms' triggers the risk to reopen all prior negotiations and the probability to see a much broader (and senior) audience back to the table for a painful round of discussions.
In contrast, business collaboration requires legal experts to be jointly and proactively engaged in the build of the relationship’s foundation. Their contribution is focused on grasping the intent of the parties, understanding the scope of work (and how it translates into subsequent legal obligations) and support everyone’s awareness of the complex correlations that subsist between risks and rewards across all facets of the relationship.
In short, their goal is to enable fair and balanced exchanges and maximize chances to reach consensus, with the relationship's interest in mind.
. . .
The case of Quality Assurance
In a bowtie setup, QA Managers are typically engaged 'as a service', accustomed to late invitations to audit processes, facilities or technologies at the last minute, and therefore armed with the power to reset the whole game in one single unsatisfactory move.
At a time where full visibility on detailed processes, activities and operations is required for quality scoping purposes, it is also fair to assume that a scope of work that has been sliced and diced into an itemized price list will just not help.
In business collaboration, though, quality experts act jointly and in concert with both parties' governance members, starting with their early contribution to the identification of system-wide quality outcomes for the relationship. Indeed, it is expected that companies who 'put quality at the core of what they do' will catch any opportunity to embed some systemic quality improvement plan into their joint roadmap rather than 'just' settling for compliance with external standards.
In short, QA's mission is to reposition quality at the heart of the relationship by championing improvements within and outside the scope of work.
. . .
The case of ‘the business’
In a bowtie setup and too often, the business acts on-demand (either by choice or not), and is usually involved ad-hoc in the trading exercise going on between their sales and procurement colleagues.
Let’s be honest for a second: how would you use your authority if you were a global budget owner vested with the power to make or break a deal? In bowtie governance, veto holders are granted the privilege to play their cards at the 11th hour.
With corporate politics put aside, one could argue that the Business has valid reasons to be detached in situations where the core components of the relationship (safety, operations, accountability, IP, innovation, risks, rewards, business continuity, quality…) are addressed through the narrow lens of transactions, with little consideration for current and future business priorities. Furthermore, if a specific deal serves the interests of a few at some point in time, it certainly doesn’t represent any guarantee of relevance on the long run, as business happens.
Yet, at the risk of being redundant, we (including the business) should all remember that the raison d’être of business relationships is to serve… yes, the business. If this certainly creates new rights for our stakeholders, it also comes with a number of critical responsibilities.
As the main catalyst of the relationship, the business is the legitimate owner of both parties' shared vision and therefore responsible for providing all governance members with optimal visibility and transparency on past performance, current priorities and future strategic orientations.
Accordingly, collaborative governance should be structured in a way that brings the business back to the only place it ever belonged: the driving seat.
Without business insights, other governance members will be deprived from the means to ensure that the relationship ecosystem is supported by the right external capabilities and sufficient levels of flexibility, proactivity and agility, among other critical success enablers.
Said differently, the business' failure to clearly communicate what the future looks like will most likely result in a highly tactical relationship supported by an inflexible deal structure. In this context, it is no surprise that every function ends up driving its own individual agenda while any discussions related to joint projects, innovation and business transformation are doomed before they even start.
In collaborative setups, the business always acts as a future-focused beacon, enabling change and transformation across all aspects of the relationship.
. . .
The INHERENT flaws of bowtie GOVERNANCE SETUPS
While quick and easy on the paper, traditional bowtie governance structures hide five common flaws that prevent them from delivering against expectations, especially when applied to highly collaborative relationships.
1. Centralized issues
Anyone up for the challenge of being exposed to all winds that blow on a strategic business relationship? Well, it looks like the bowtie trading team has already bought in, and it won't take long before they get riddled with the first signs of buyer's and seller's remorse.
If issue resolution is no priority in the transactional world, it is far from being the case in strategic partnerships due to their magnitude, complexity and possible impacts on both organizations.
A jointly agreed resolution process will help both organizations provide clarity around commercial, operational and relational matters, their owners, their very unique solving mechanisms and ultimately, what 'urgent' really means beyond subjective interpretations.
2. Externalized decisions
In their efforts to simplify relationship management by concentrating both parties' interactions in the hands of the trading team, bowtie governance builders often make the risky move of leaving decision-makers behind the scenes, including those holders of compliance, legal and/or business vetoes.
Not only does this result in duplication of efforts, endless reviews and back and forth approvals, but it could ultimately set the trading team on a pathway to frustration, disengagement and exhaustion.
Human nature being what it is, what started as a 'connector' role for the trading team could easily derail to the full subcontracting of all relationship activities for the account of all functions involved.
Unless key decision powers have properly been delegated, decision-makers' late involvement in any process (or just the lack thereof) should be avoided, especially when the clock starts ticking loud.
3. Almighty expertise
If business collaboration is designed to connect 'experts with experts', a traditional bowtie setup is built upon the assumption that trading functions are proficient in translating any business language into the corresponding relationship building block. Should this be accurate, the actual distribution of powers and safeguards tends to prove the exact opposite.
With clearly defined outcomes, a governance structure gets fully equipped with a purpose. This step has to be followed by the inventory of available strengths and those who lead by them.
Next is to ensure that the latter individuals are carefully selected based on their ability to deliver creative ideas, fast decisions and valuable results consistent with the shared vision rather than strict job title or seniority considerations.
4. One-man shows
Due to its individual (vs. collective) focus, the traditional bowtie structure can be used as a 'drama amplifier' in times of crises, particularly when a gang is looking for someone to blame.
On the other hand, the same structure has the power to act as a megaphone that glorifies individuals at the expense of team efforts and achievements, as both parties' governance members keep working in isolation.
To remediate this, business collaboration requires the build of a peered framework where governance members are teamed up with other individuals from the partnering organization based on similar roles and responsibilities. The goal of peered governance is not only to foster collaboration, but also to create a joint and several sense of ownership and accountability for what needs to be achieved.
5. Latent frustrations
Due to its distributive nature, bowtie governance creates 'commitment à la carte' as its members are only attributed with selected relationship building blocks, limited decision powers and little access to the big picture.
On the long run, this setup could become a source of recurring frustrations and ultimately lead to the emergence of passive-aggressive behaviors.
This type of behaviors flourish best in troubled waters where roles are unclear, powers unbalanced and risks unevenly distributed across members of a specific ecosystem. They can be described as indirect (but fully intentional) forms of resentment expressed while simultaneously maintaining the illusion of collaboration.
Examples of such behaviors include procrastination, rigidity, power games, selective listening and self-serving bias (to learn more about how bias can affect procurement and its customers, feel free to follow David Loseby on LinkedIn and Twitter).
. . .
The limitATIONs of DIAMOND GOVERNANCE STRUCTURES
As an alternative to the traditional bowtie model, the reverse bowtie framework supports the reintegration of key functions within governance, as joint orchestrators of the relationship cadence.
In a diamond setup, individuals that belong to similar corporate functions are peered with their counterpart from the other organization in order to improve communication, streamline information flows, eliminate misunderstandings and maintain strategic alignment.
As explained above, this approach is certainly a fundamental step towards efficient business collaboration. That said, 'reverting' the traditional bowtie model is still insufficient to enable the creation of a balanced and inclusive governance structure due to the following shortcomings.
1. Silo persistence
As already mentioned in a previous article, corporate functions have been acting as standalone profit/cost centers for many years, which has contributed to the progressive disconnect of their individual objectives and the overall intent of the organization they belong to.
In his book "Breaking the Fear Barrier, How Fear Destroys Companies From the Inside Out and What to Do About It", Tom Rieger (2011, p.24) describes them as "functional silos […] defining success by focusing on only what happens in their own little world, and losing sight of the ultimate outcome".
Collaborative business relationships are not immune to silos: chances are to see similar functional towers (originating from both parties, this time) reproduced within the joint governance structure.
By encouraging the binary mapping of operations with operations, quality with quality and commercial functions, for example, a diamond approach could contribute to rebuild the barriers that already prevent cross-functional collaboration in both organizations.
Furthermore, silo persistence cultivates the perception that the relationship agenda will be driven by the legacy expertise of individuals, rather than their collective ability to shape the future together by leveraging the sum of the parts.
2. Closed-loop knowledge
A subsequent risk of silo persistence is the concentration of knowledge owned by individuals of similar type and background, which feeds in-house thinking, homemade jargon and well-rooted beliefs fueled by a good dose of confirmation bias.
A fluid and transverse flow of knowledge and ideas is paramount for the successful delivery of the shared vision. Unlike tactical objectives owned by individuals and/or functions, the fulfillment of strategic outcomes requires an inclusive blend of talents and backgrounds: a sort of 'outcome-based success formula'.
In collaborative relationships, being 'two-in-a-box' should not relieve from thinking outside thereof. As much as a contract should be perceived as a system whose components are closely interconnected, strategic relationship governance should facilitate the build of bridges across functional and professional boundaries.
3. Organizational cloning
When dealing with another organization, the temptation is great to impose one’s own rules and processes on the other party, as those that will drive all interactions and become the 'new normal'.
Buyer and supplier organizations have primarily been designed to enable their individual corporate strategy. That said, there is no guarantee that existing corporate setups will be as effective when applied to a joint ecosystem driven by unique desired outcomes and social norms.
Rather than trying to replicate existing organizational designs as part of their business relationship, both parties should consider governance from the sole perspective of what they wish to achieve together. Once the shared vision and desired outcomes are clear, chances are that the identification of talents, processes and resources required to enable it will prove a more relevant exercise for governance builders.
4. Vertical hierarchies
With the reproduction of silos comes the risk of replicating their lines of command and authority. In vertical hierarchies, decisions, expenditures and sign-offs are handed over to the upper level for review and approval. In contrast, inclusive organizations tend to allocate powers horizontally and evenly across their members.
While diamond structures bring back key actors of the relationship at its core, they remain silent about the way decisions are made in a collaborative setup where all governance members are jointly, equally and collectively responsible for the production of success.
Instead of 'Who reports into whom'?, collaborative governance builders should focus on questions like: 'How are decisions made by the joint governance team'?, 'How to ensure that every voice counts'?, 'What mechanisms are in place to maintain fair and balanced exchanges'?, 'What happens when money must be spent to support joint efforts'?, 'What is expected from relationship sponsors'?, 'Who owns veto powers, if any'?, 'How does value get shared between the parties'?...
5. Reverse inconsistency
As explained above, the traditional bowtie model leaves key players of the ecosystem out of sight. If you had a careful look at the above infographic, you might have already noticed that the diamond model does exactly the same… by leaving the trading team on the side.
The rationale behind this is not totally clear, though. Are they still in charge of leading trading discussions or anything else? Is their role to connect the dots between governance members? Or just energize? Are they managing by oversight or insight? Is there a reason why their position is external? Does this imply some kind of authority over the core governance organs? Is what they do unrelated to the discussions going on in the middle? Do they have some parallel agenda? Are they exempt from being 'two-in-a-box'?
When lots of grey areas subsist in relation to the contribution of externalized commercial functions, the best alternative is simply to bring them back in, like everyone else.
. . .
Five tips for A sound governance
In the business world, the build of collaborative governance ecosystems is a unique discipline that requires a thorough, inclusive and balanced look at all the ramifications of a strategic relationship. Below are five tips that will help you lay a good foundation for your partnership:
1. Think 'shapes' vs. 'lines':
Lines work well for flows, processes and reporting.
Shapes are perfect for purpose, people and teams.
2. Think 'We' vs. 'Me':
‘Me’ feeds opportunism.
‘We’ ignites collaboration.
3. Think 'horizontal' vs. 'vertical':
Vertical design brings hierarchy.
Horizontal design fosters inclusiveness.
4. Think 'aggregation' vs. 'segregation':
5. Think 'clusters' vs. 'silos':
Silos leverage the parts.
Clusters leverage the sum of the parts.
In a future article, we will dive into inclusive governance ecosystems, their fundamentals, their organizational implications as well as the reasons why they form a credible alternative to conventional hierarchical setups.