MGT 254. Contracts and Procurement Assignment 7 XYZ Company’s Customer Relations
ID: 409527 • Letter: M
Question
MGT 254. Contracts and Procurement
Assignment 7
XYZ Company’s Customer Relations Management (CRM) Project
Six months ago, the Executive Committee of XYZ Company made a decision to install a Customer Relations Management (CRM) system to streamline its operations. Specifically, XYZ expected that the CRM project would enable it to integrate its order fulfilling and sales and marketing processes that had always operated as separate functional units. As a result, communication between these units has regrettably been minimal. For example, the order-fulfilling unit did not have any information about the customers whose orders they fulfilled. Similarly, the sales and marketing unit could not answer customer inquiries about the status of their orders because they did not have the information from the order fulfilling people. The Executive Committee assigned responsibility for the project to the IT department, which in turn appointed Steve McMahon as the focal person for the project. The Executive Committee also decided that the project should be outsourced to an outside contractor with a good track record in implementing CRM solutions.
Steve developed the initial requirements for the project. He then called a focus group meeting to review the requirements statement he had developed. The group consisted of middle managers from marketing and sales, IT, operations, finance and engineering. The meeting improved upon Steve’s requirements statement and developed the business requirements for the project from it. The focus group later became the project’s steering committee. A Statement of Work (SOW) and then a Request for Proposal (RFP) were developed based upon the business requirements. At the end of the solicitation process, Computer Software Solution, Inc. won the contract, and started implementation of the project as defined by the SOW.
Two months later, Steve was sitting in his office reviewing the latest status reports on the project the contractor had submitted. He was satisfied with the project’s performance so far. At that moment, Roger Smith, the Vice President (V.P) for marketing and sales phoned Steve and asked for a briefing on the project. At the end of the briefing, the V.P told Steve that he was distressed about the suitability of the final product. He protested that there was by far too much emphasis on order fulfillment instead of customer profiling. He bluntly told Steve “the product, as you have described it, would not be an effective market research tool as I expected it to be”.
He then hung up. Moments later, he was on the phone again, but this time with Francis Gray, the contractor’s project manager. Roger told Francis that what he expected to see at the end of the project was a product that would enable his unit to undertake effective market research. He therefore specifically gave Francis the go ahead to make changes in the product’s features to include customer profiling that would enable him to achieve his goals. Francis politely told Roger that the prototype of the product was 40% completed and that his request would require a major redesign of the product. This would extend the project by another two months and would result in budgetary overruns. Francis also told Roger that before he (that is, Francis) could make any design changes, he needed to consult with Steve and other members of the project’s steering committee. This was more than Roger could take and he quickly shot back: “I am the customer. I demand that the product include the customer profiling features, period”.
When Steve learned of Roger’s demands on the contractor, he grew confused. He didn’t know what to do.
Questions:
1. Marketing Vice President Roger Smith angrily states: “I am the customer”. As such, he expected the contractor to follow his request. What are the merits of Mr. Smith’s assertion? To what extent is the contractor obliged to do what the customer orders?
2. How should Francis handle the unexpected request from Roger Smith?
3. How can effective change control procedures help Steve and Francis deal appropriately with this situation?
4. If Francis accedes to the request of Roger Smith, what would be the possible consequences?
Explanation / Answer
1.
Mr. Smith is correct in one sense that the contractor has to accomplish a particular result (as required by the customer) in certain circumstances known as “obligation of result”.
But here the contract was initially signed between Computer Software Solution, Inc. and the XYZ Company with a certain result in mind. But now the V.P. of Marketing and Sales, Mr. Smith is demanding a major product redesign, which would lead to incurring of extra cost due to an extension of project completion time by another two months. This extra cost was not accounted for in the contract. So the contract has to be amended to take into account this extra cost.
2.
Francis should consult the steering committee of XYZ Company and get the contract amended to take into consideration the extra cost that would be incurred due to the demand made by Mr. Smith. The contractor is not obliged to incur the extra cost due to a sudden request made by the customer when 40% of the project has already been done, and there is no fault of the contractor.
3.
Steve and Francis should make use of different control tools like milestone, budget, project status reports such as Current Period Report, Exception Report and others. These control tools would help them to achieve scope change control, schedule control, cost control, quality control and risk response control.
4.
If Francis agrees to Roger Smith’s request, then there would be time overrun (by around two months) which ultimately would give rise to cost overruns. Further, this extra cost would have to be unnecessarily borne by the contractor, which was not mentioned in the contract.
In an extreme case, the contractor may even stop doing the project and end the contract citing the reason that an unjust demand has been made by the customer without the agreement of the contractor.
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