TECHNOLOGY, OUTSOURCING, AND COMMERCIAL TRANSACTIONS
NEWS FOR LAWYERS AND SOURCING PROFESSIONALS

Have you ever noticed how many professional biographies mention complexity? It seems like everyone is handling “complex” litigation or “complex” commercial transactions or helping clients drive home “complex” projects.

In the sourcing world, most of us think of ourselves as handling “complex” sourcing. A fair question to ask then is, what does “complex” mean in this context? And, does it matter?

The short answer to whether the term “complex” matters in sourcing is that it should, and it is worth taking a few minutes to think about.

The University of Tennessee has adopted a model for sourcing that puts projects on a continuum from simple to complex. Adopting that model for our purposes, it is helpful to think of “noncomplex” as something that can be completely described in a contract and is supplier agnostic. The go-to product for illustrating this is the unassuming number 2 pencil. As long as you can describe the pencil completely (lead hardness and consistency, color, length, diameter, and size, etc.), it doesn’t matter where you get the pencil. All that really matters is the cost. Once you sign your supply contract, as a buyer, you can just sit back and check the boxes of pencils when they arrive to make sure they comply with their specifications.

A common concept in outsourcing called “watermelon” service levels refers to service levels that a vendor is meeting but a customer is unhappy with (green on the outside, but red on the inside, like a watermelon). In other words, the vendor is complying with the contract, but that is not enough to satisfy the customer. This is not limited to customers. Often, vendors aren’t happy either.

This condition, in which the parties are in compliance with the contract but are unhappy with their deal, can permeate throughout the relationship and have grave consequences. These include destroying the morale of both parties’ employees, tanking a perfectly good change-management program, and making it difficult for the customer or the provider to realize the deal’s benefit.

Watermelon service levels occur for many reasons, but one common one is failing to understand and take into account the difference between deal financials and deal economics. Deal financials are about money, plain and simple—which is very important, but incomplete. Deal economics, on the other hand, are about motivating behavior and allocating scarce resources (in this case, time constrained personnel on both sides). So, although having good financials may be a powerful motivator, it is only part of the picture.