Value-Based Supplier Outcomes and the Chicago Teacher's Union Strike

For the past 36 hours in Chicago, there has been little talk of the outside world besides current teacher's union strike. Obama vs. Romney? Who cares! The number of Everest climbs or ultra marathons Ryan has completed in record time? Pssh. That major Al Qaeda leader who was killed? Tell me about it next week! ISM manufacturing numbers still negative? Hold that PMI steady until we have time for a closer look.

Getting teachers back to work is proving an all-consuming topic on both the streets and in the office corridors of the Windy City. It's also causing sleep deprivation for those directly involved, resulting in the head of the school board nodding off on his feet during the mayor's live broadcast at 10:45 PM CT on Sunday night (if you can find the video online, you'll see CPS School Board President, David Vitale, taking a snooze to Rahm's left).

Regardless of where you stand on the issue from a parental, political or union/worker perspective, there are several factors of the strike that we believe also tie to broader issues and lessons focused on procurement and supply risk (both personal and professional). Some are obvious, like the increased risk that comes from union labor with suppliers (be they suppliers to our households, offices, or factories). In fact, we've seen a number of supplier questionnaires and RFIs in the past few years where suppliers with union labor are significantly harmed in checking the organized labor box because of the increased supply risk it can bring.

But beyond the fundamental risk element of organized labor causing supply disruptions, there's actually a more nuanced element to consider in the equation: the notion of value-based outcomes with suppliers and whether organized (or non-union) labor is willing to sign up for it. Think about it. The major reason the Chicago teacher's union is fighting the city, at least according to Mayor Emanuel, is because they're not willing to sign up for greater supplier performance management measurement KPIs with teeth in teacher evaluations, nor are they willing to let principals make localized staffing decisions to improve student outcomes (without requiring new or existing schools to re-hire teachers from failed/closed facilities based on past seniority).

In essence, the city of Chicago wants the unions to agree to a movement to value-based outcomes in exchange for the other concessions granted to CPS. These concessions include pay increases, which already appear to be reasonable according to the language on both sides of the bargaining table. In other words, by tying employment security in large part to meeting certain scorecard standards, the city is suggesting a move that would require its key educational supplier (i.e., the teachers union) to commit to individual outcomes to guarantee continued employment security on a per-teacher basis -- at least until a new system of evaluation, created by working closely with all stakeholders including the union, is phased in.

Buying outcomes is something we're seeing more and more in the world of procurement. In the aerospace and defense industry, the concept of "power by the hour" -- i.e., paying for hourly performance rather than buying and servicing a unit -- is changing how some contractors sell and service components (and even entire defense systems). And in many different areas of business process outsourcing (BPO) including procurement, a major trend in the past decade has been toward alternative fee models (e.g., full or partial outcomes-based payment triggers and/or guarantees, or at least, minimum savings guarantees).

It can be hard to step back from the politics and emotions of work stoppages, especially if your children are home from school or a spouse or close friend is walking the picket line. Yet the strike is a reminder about how the world of contracting is changing overall. We're increasingly moving into a procurement universe where we have greater confidence in buying -- or at least partially assuring -- outcomes, and we're willing to go to bat against our suppliers that are not willing to in whole or in part commit themselves to delivering based on value.

Perhaps eventually this emerging government, private sector, and even personal procurement evolution will lead to new value propositions for organized labor (vs. non). In a sense of the trades (e.g., plumbing, welding, carpentry), one could argue this will be a back-to-the-future moment, given the supply assurance that union credentials once brought over non-union labor, even if this distinction has been all but completely eroded today. In fact, if unions could guarantee the collective quality of their members based on objective, transparent KPIs, they would have a whole new bargaining chip, one worth far more than the threat -- or realization -- of a walkout.

- Jason Busch

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