Red Flags to Watch Out For

How do you know that a relationship with your vendor is going south? Of course if all your partner’s employees just do not show up for work you know that something is rotten in the state of Denmark. That would be somewhat unusual event and probably irreversible. The goal here is to identify early symptoms of a fatal disease of deteriorating partnership. In techno world we call them red flags.

The earlier you identify developing issues with the relationship the higher the chances that you can nip it in a bud and return to a mutually beneficial rewarding relationship. Small companies typically offer a high level of transparency and short communication channels. That makes identifying issues much easier task. In large companies the issues can develop without knowledge of many stakeholders, that’s why watching the relationship dynamics is especially important for those.

Below are a few red flags to watch out for. While these flags in general work from both points of view (the vendor’s and the customer’s), some apply more to one side, some to the other.

o Team Dynamics. The first and the most important indicator of the relationship is the team morale. That is one of the best barometers you can use to forecast the partnership weather so to say. Use a simple rule of thumb – when the team morale is going down expect some rains in your partnership land or maybe worse. It takes a bit of experience to asses the team’s morale though. I suggest you take a simple observational approach – if people communicate a lot, have fun working together, connect at a personal level, and show impressive teamwork that means that spells great morale. You see a lot of finger pointing, team members being distant from each other, and not enjoying the work that is low as far as morale scale. One thing to keep in mind is relative state of morale from team to team / environment to environment. What you consider a high morale in team A could be a very low for a team B. So the key is to look for the changes in the team dynamics. If you see regular fingerprinting and CYA attitude turning to fights and backstabbing that means your barometer is falling…

  • Communication Dynamics. Change in partnership relationships is usually preceded with changes in communications. If your contact suddenly stops returning your calls, if style of the email becomes much more official, if you notice increase frequency in communication gaps, etc. chances are you are facing a brewing partnership problem. It is common to see deteriorating communications, especially if communications are not explicitly managed – people attend fewer meetings, take longer to reply, miss replies, etc. – even when things are going fine. That masks the red flag. There are a couple ways to deal with it – manage communications on an ongoing basis (that’s the best) or revive / bring them back to expected level on a recurring basis. In any case it is exceptionally important to take a stock of the situation to understand whether there are any reasons for more profound concerns.
  • Increase in turn over. That is a very telling indicator. Employees on your partner’s side often have a better knowledge of the relationships and the internal state of affairs even if they are not in the “executive loop”. When things get rough people try to find alternative places in the organization or outside of it. Basically the proverbial rats leaving the sinking ship. People won’t advertise the reasons for leaving and often conceal those behind regular life events “moving to a different city”, “taking care of sick family member”, or they “find an opportunity they could not resist”. No matter what the reasons are if the rate of turn over is going up it’s a serious red flag and time for in-depth analysis of the partner, relationship, and situation.
  • Quality and Productivity. Serious internal issues on the partner side or with the relationship will inevitably find their way to employees and will affect their morale. Market or contract clause can restrict the employees movement, the remote nature of the contract may hide deteriorating team morale and group dynamics. There are couple outlets that will not make you wait long before red flags appear – quality and productivity. When employees’ morale falls and their motivation declines the quality of their deliverables deteriorates, and often their productivity tumbles as well. With some of the contributors quality and productivity fall slightly with some the decline would be substantial. Typically, the decline in quality and productivity averaged across the team is notable. You can see it in simple metrics like escape ratio.
  • Financial Dynamics. The financial dynamics of the partnership typically settle after 3-4 billing cycles. The invoices comes on time / a week ahead / two weeks later; the are perfect / have mistakes; they paid exactly on time / after two past due notices are sent / etc. If that pace suddenly changes you need to check whether that is just a change in AP/AR department, new policies or indication of oncoming relationship disaster, unfortunately often that is the case.

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