By Simon Thompson, Acquire
Watch the video here: http://acquireprocure.com/procurement-parable/buying-the-outcome-lawn-mowing-contract/
Business leaders are often heard saying “buy the outcome, not the inputs”, but what do they really mean? To explain, let me tell you a little story about two men named Pete and Tom…
Pete and Tom lived in different cities and each managed a lawn mowing contract for their respective city councils. These contracts covered the lawn mowing requirements for the cricket ovals in each individual city.
One year, these two men met at a conference and started up a conversation about their lawn mowing contracts.
“I’ve been doing this for years,” Pete said, “and I know every trick in the book.”
“What do you mean?” asked Tom. “What tricks?”
“The tricks that all lawn mowing suppliers use to screw us into paying more money,” said Pete. “But I don’t fall for them, because I know lawn mowing better than them. In fact, my contract has the best hourly rates for people who do the mowing, the best hourly rates for using the lawn mowers, we have contracted the best lawn mowing machines available and we tell the supplier exactly when they need to be mow the fields. Furthermore, we have 20 performance metrics that they need to hit each month otherwise they have to pay us penalties.” He looked very proud of this plan and Tom nodded, impressed.
“That sounds great,” he said, “though, I took a slightly different approach.”
“How so?” asked Pete, curiously.
“Well, I’ve just started this job and, unlike you, I not an expert on lawn mowing cricket ovals,” he explained, “so I went down to the fields to talk to the cricket players and asked the players how short they needed their grass to be.”
“Oh? And what did they say?” asked Pete.
“Well, they didn’t give me any specifics—not at first—but they explained to me that the grass shouldn’t be too long or too short, because they need the balls to move at a specific speed, you see?” Pete nodded in understanding. “So using a ball and a bat we created a few simple test to easily determine if the grass was too long or too short.” Tom went on “I then spoke to a few lawn mowing suppliers about what I was trying to achieve and the test I had worked out with the cricket players. I then got the suppliers to provide me a few proposals. We chose the best one which was a fixed monthly fee where they would make sure the cricketers were happy based on this test as long as they had flexibility on how they achieved it. We said sure.”
“But how do you know that they’re actually doing their job?” asked Pete. “For all you know, they could be only cutting the grass once a month!”
“Well,” replied Tom, “we perform the test ourselves every other week and talk to the cricket players. If they’re satisfied with the length of the grass, then so are we. If the supplier can reduce their costs but ensure the cricketers are happy then well done to them.”
“That seems like it would cost a lot, though,” Pete commented.
Tom shook his head. “It costs less than you’d think,” he informed Pete. “We compared how much we were spending when we paying for all inputs like you explained in your contract. We were actually surprised with how much less it would cost.”
Pete shook his head. “I don’t believe that,” he says. “I’ve been doing this for many years and I haven’t heard of anybody doing something like what you’re doing. I wish you all the luck, though.”
“You as well,” Tom replied and the two parted ways.
One year later, they met again at the same annual conference. They greeted each other with warm handshakes and polite smiles.
“How is that lawn mowing contract working for you, Pete?” Tom asked.
“Very well,” Pete replied, “though we are looking for another supplier.”
“How come?” Tom asked, frowning in concern.
“Well,” said Pete, “they haven’t been meeting their performance metrics, as of late, so they’ve been paying a lot of penalties. And they keep arguing to increase their hourly rates, but our contract is thankfully airtight, so they don’t get a penny more than agreed. Still, they are a pain to manage and complain about nearly everything we ask them to do. It’s gotten to be too much, especially with the wet year we’ve had. The grass grew much quicker than we anticipated and the cricket players began to complain as well, so we had to do some emergency mowing and ended up going over budget.”
“Oh no,” gasped Tom. “Well, if you want, I could give you the number of our lawn mowing supplier.”
“Are they any good?” asked Pete.
“They’re wonderful!” Tom replied, smiling. “They kept an open communication with the cricket players so they knew exactly when they would need to mow the fields for games. Because of all the rain we got, many games were cancelled so they didn’t have to mow any more than usual. And they actually helped us come up with other ways to reduce costs elsewhere. For example, we didn’t realize that we were over watering and over fertilizing the grass on the cricketing ovals and they pointed out that this was costing both of us money for no gain; it was costing us more for the extra water and fertilizer and they needed to mow it more which was costing them more. Furthermore, the cricketers weren’t happy because the extra water caused wet patches in the fields which affected their game.”
“The lawn mowing supplier did all that?” Pete asked, astonished.
Tom nodded. “They did. And we saved a lot of money because of it,” he said proudly.
“Amazing,” Pete sighed. “Well now I must have their number.”
“Of course,” Tom agreed. “I’ll email you all their information on Monday, once I’m back at work.”
“Thank you,” Pete said. “I’d greatly appreciate that.”
Monday morning came and Pete was back at his desk, filling out paperwork and checking emails. He smiled when he saw one from Tom and clicked on it.
The details for the lawn mowing supplier popped up on the screen and Pete’s eyes immediately began to scan the page, his smile fading from his face as the realization hit him.
Pete and Tom had been using the same lawn mowing supplier.
In this story, Tom bought the outcome. He spoke to the people who relied on the job being done well, “his customers”, and asked what they wanted and then organized someone to supply just that. He let didn’t know about the best way to run a lawn mowing company so he created a situation where the lawn mowing company had the flexibility to use their experience and expertise to achieve the outcome his customers most desired for a competitive price.
Pete, on the other hand, bought the inputs. Pete thought that he knew better than the supplier and how they should be running their business. He tried to limit the supplier and control how they should execute the work without understanding exactly what his customers, the cricket players, most needed. This eventually cost him more money and his customers were not happy.
Acquire Procurement Services is a specialist procurement consultancy firm based in Brisbane.
Acquire specialises in establishing and renegotiating supply contracts for Australia’s leading organisations, and has extensive experience within the mining, oil and gas, manufacturing and utilities industries in both private and public sectors.
Together, business partners Simon Thompson and Greer Long have $7 billion worth of global supply experience and met working together at Portland Group’s Queensland’s operations.
For more information contact Simon Thompson at email@example.com.