The Watermelon Scorecard is a term coined by University of Tennessee researchers to explain how a supplier may be meeting a buyer’s required specifications, but is not really collaborating to drive innovative value over the long term for the buyer. In essence, the scorecard is green on the outside but red on the inside!

The trend over the last decade is for companies that outsource and their service providers to use scorecards or dashboards to measure how the supplier is performing—typically against contractual Service Level Agreements (SLAs).  The “watermelon” situation occurs because suppliers might meet all of their performance targets but business stakeholders still might not be happy because the performance of the overall relationship is not meeting business needs or expectations.

Why is this?  One reason is because many organizations have made the shift to buying “outcomes,” but have failed to properly align their KPIs and shift to outcome-based metrics. Unfortunately, intent and actions do not align when it comes to the metrics involved. A close examination reveals that in most cases the buyers continue to measure supplier controllable “outputs” but fail to measure the true Desired Outcomes.

Although it could impact supplier performance, buy-side performance is partially (or rarely) measured while the successful delivery of Desired Outcomes results from joint efforts. And because penalties are often tied to the supplier’s performance, it is reasonable to expect the supplier to fight to “prove” its performance to avoid the penalty as well as preserve its reputation. Obviously, this creates friction in the relationship.

and affects many outsourcing and business relationships. In short, they are driving blind because they are measuring one thing – and driving towards a different place. To correct this, organizations need to measure all aspects of the relationship.

I love the work that Emmanuel Cambresy from Wezard – a business relationship consultancy in Canada – is doing in this area. Cambresy recommends what he calls a “3D” scorecard which advocates for organizations to measure three aspects of a supplier relationship. First, they should measure operational performance (e.g., the SLAs they likely are already measuring with regard to the “Basic Book of Business,” as Cambresy calls it. But in addition, they should also measure Relational Performance and Transformation Performance.

Relational performance looks at the behavioral aspects of the relationship. Different organizations measure Relational Performance differently, but almost all that do measure Relational Performance to capture some sort of “fit” or “ease of doing business” dimensions.  Ideally, this should be done as a 360-degree view, with the buyer and supplier scoring relationship health from each of their perspectives. Ultimately, relational performance management is incomplete when only one party assesses the other unilaterally, as is usually the case with one-way satisfaction surveys.

Cambresy suggests the third dimension that must be measured is Transformation. This aligns perfectly with those pursuing a Vested relationship because innovation and transformation are fundamental to the design of a Vested business model. Unlike operational performance (focused on today), transformational performance is about delivering the future. Therefore, measuring transformational performance is about assessing how consistently both parties execute the shared vision they’ve committed to.

Even if you are not entering into a Vested agreement, you should . This prevents good ideas from going to the good idea graveyard.

Image: watermelon by Purple Slog via Flickr CC