1998 - The Demanding Customer and the Hollow Organization

This article was published in the Public Productivity & Management Review (Vol. 22 No 1 *Sep 1998 pages 107-118) and was written by John Crawford (NR-HQ 1952-1963) and Steve Krahn (NR-HQ 1979-1083). It applies the “demanding customer” model to organizations that rely heavily on contractors—described as “hollow,” “virtual,” or networked organizations. Its central argument is that outsourcing does not reduce the customer’s management responsibility; it makes a strong internal management capability even more important. A contract alone cannot ensure performance. The customer must retain a lean but technically competent staff with the authority, determination, and access needed to evaluate the contractor’s work, identify problems early, and insist on corrective action. A customer that develops a reputation for high standards is also more likely to receive the contractor’s best personnel and attention.

The article organizes the model around three elements: the customer organization, the contractual relationship, and the contractor organization. The customer must understand technical details without taking over the contractor’s work. It should identify deficiencies, require the contractor to analyze and correct them, compare performance across sites, and elevate persistent problems to senior corporate management. The contract should be based on a capable contractor, shared information, clear responsibilities, an appropriate allocation of risk, formal reporting, and unrestricted customer access. The contractor, for its part, must provide competent personnel, maintain accountability, manage subcontractors, address weak performers, and remain responsive without becoming dependent upon the customer. The article concludes that organizations should not undertake extensive outsourcing unless they are prepared to actively manage the contractor through a small, highly qualified internal cadre.

A shorter version of this article 1st was published in 1996 as Appendix A (The Demanding Customer) to Defense Nuclear Facilities Safety Board (DNFSB) paper DNFSB/TECH-10 titled "AN ASSESSMENT CONCERNING SAFETY AT DEFENSE NUCLEAR FACILITIES - The DOE Technical Personnel Problem".

This 1998 version of the article provided:

• Broader policy context. The later article places the demanding-customer concept within outsourcing, privatization, workforce reductions, and “hollow” or virtual organizations.

• More attention to contract structure. It adds contractor selection, information sharing, defined responsibilities, appropriate contract type, risk allocation, reporting, and customer access.

• Greater focus on contractor responsibilities. It separately addresses competent staffing, accountability, subcontractor control, removal of weak performers, and responsible—not dependent—responsiveness.

• More Naval Reactors examples. It uses Westinghouse, General Electric, the laboratories, shipyards, field representatives, Quaker meetings, and fixed-price contracting problems to illustrate the principles.

• Stronger emphasis on technical detail. It argues that neglected small problems can accumulate into delays, cost growth, rework, and degraded performance, so close technical surveillance is not necessarily micromanagement.

• More emphasis on developing the contractor. The goal is not only immediate contract performance, but also a contractor organization that becomes progressively stronger, more self-sufficient, and less dependent on customer intervention.

NR-HA maintains a copy of this article in its archives - available only upon request due to copyright restrictions.