Skip to content

World trade and the role of trust

The collapse of the U.S. / EU safe harbor provisions covering transfers of personal data is a reminder of how fragile key trading principles can be. It is especially pertinent at a time when major cross-regional trade agreements are being negotiated and signed.

There will always be those who oppose trade, for either political or personal reasons. They will be looking for weaknesses, betrayals of trust, as opportunities to pounce and undermine relationships. Safe harbor is a good example. While it was on one hand convenient to pretend that it represented true cover for the rights of EU citizens, that was most likely a myth. Various political and industry groups always opposed the measures, believing that they entrenched the power of US technology giants. When Edward Snowden revealed the scale of US intelligence gathering and abuse of the safe harbor principles, it was only a matter of time before a challenge would be mounted. Now it has been successful and some new principles will need to be agreed. Meantime, European tech companies have a window of opportunity to offer locally based services.

Once again, the lesson here is that there are no secrets in a networked world. Governments – at least those which are democratic – that abuse trust or trample on principles will be found out and suffer accordingly. The same applies to business. Failure to operate with integrity is increasingly punished. On the counter side, regimes that pervert the truth condemn their people to poverty and are forced in most cases to operate outside the world trade systems.

“What should I be when I grow up?”

Every parent must at some time look at their child and wonder “What will you do when you grow up?” Today, it is perhaps harder than ever to predict or offer guidance. Jobs that once seemed safe and secure are increasingly under pressure or disappearing; at the same time, new roles are emerging – a recent report suggested that 15% of the jobs in London today did not exist 15 years ago.

Yesterday I presented at the PASA conference in Melbourne, Australia. My topic was ‘Is the world of Procurement disappearing?’ And my answer was in many respects yes – because the role and its potential value are changing fast. I suggested that all the ‘C’ words that have been associated with the function (control, compliance, categories, commoditization, cost) are becoming supplanted by higher value issues that have much greater appeal to top management – for example, ‘the 4 R’s’ of reputation, relationships, risk and return.

Underlying the challenge for all workers today is the relentless rise of networked and digital technology. ‘On-demand knowledge’ means that simply knowing things or performing process steps has limited value. I made clear that this challenge is universal – one has only to follow the debate in other professions to appreciate that they are all insecure and that roles which perform tasks or offer general advice are disappearing – no one will be willing to fund them. Doctors, lawyers, accountants – many of the services they provide can be performed faster and more accurately on-line.

So the important question is ‘what’s left?’ And it seems to me there are two fields on which we can focus. Both are related to the management of the changes going on around us – one being to deal with the complex and innovative possibilities created by our changing world and the other to establish and maintain the framework that enables the performance of others.

Organizations survive if they establish competitive advantage. While product differentiation is important, it is relatively hard to sustain. Therefore it must be accompanied by commercial differentiation – the ability to deliver things that others cannot do, or to deliver them more reliably and at lower total cost. At one end of the scale, this may mean highly complex and innovative projects which demand exceptional judgment, teamwork, ingenuity. At the other end, it would be represented by agile and efficient standardization to support mass production of goods or services – demanding replicable yet adaptive processes where human operatives are empowered to be highly self-sufficient.

So where does Procurement play in all of this? My suggestion is that businesses will soon stop thinking about ‘buying’ and ‘selling’ as opposites and will instead start to see them as integrated activities that depend on an ability to coordinate a portfolio of trading relationships that deliver organizational goals. In other words, there will be a specialist group that oversees the capabilities associated with implementing commercial strategies. They will focus on the portfolio of required relationships and the mechanisms through which these are transacted and performance is overseen.

For today’s Procurement practitioners, as with other professionals, their underlying knowledge will be assumed. Value will come from their skills in leadership, influencing, creativity, judgment and coordination. They will engage either in supporting high risk projects developing innovative and demanding solutions (for example, major capital projects or transformational service delivery); or they will be developing and maintaining the tools and systems that perform the roles of today’s procurement practitioners.

Their measures will no longer be based on the divisive formula of today (compliance and cost), but instead on their contribution to revenue and reputation.

Forming and managing trading relationships lies at the very heart of human development and economic wealth – so a role in this field will continue to offer tremendous opportunities. But it must be as an enabler of performance, not as a constraint. So what advice should you offer your children? I think quite simply, they must always focus on roles that deliver value and benefit to others and which draw on their ability to make good judgments, to be creative and to be energized by innovation and change. Hopefully, we can ourselves exhibit those characteristics and prepare them to take advantage of the volatile, uncertain environment they will inevitably face.

Challenges in managing cross-cultural teams

You are running a project or preparing a complex negotiation. The team you have assembled is cross-cultural, reflecting the various areas of skill and knowledge you need to ensure success. Suddenly you become aware of tensions within the team due to differing religious beliefs and attitudes. What should you do?

This is a topic discussed by attorney Tim Garrett in a series of articles “Is your workplace the new battleground for culture wars?” Tim offers some suggested guidance for those finding themselves in such a situation and points to the potential liability that organizations face if they fail to act in such situations.

IACCM research (available through the IACCM website) has shown the growing frequency of situations where contracts and commercial staff operate in multi-cultural teams, both within their national organization and on international activities. A growing number of countries are legislating to protect the diversity of opinions and behaviors related to race, sexual orientation and religion. As the article shows, this places real pressures on any supervisor or manager dealing with a diverse team. Our research indicates that few IACCM members have received any formal training in this area and that many employees feel there is a lack of sensitivity and inclusiveness in cross-cultural teams.

While Tim Garrett’s articles are written from a US perspective, the principles are increasingly important and valid internationally – and are also important if we want to ensure high performing teams. It’s yet another of the areas about which today’s commercial experts must be aware and vigilant – and indeed a topic included in IACCM’s new Advanced Training Curriculum.

Are you hindering or helping your business?

Several months ago, I was talking with a friend who is CEO of a mid-size software company – let’s call it Company X. She had been working with the marketing group at a large corporation and they were excited by the functionality that her product offered. The IT organization were also supportive because of its ease of integration and use. Both could see significant financial benefits when compared to competitive offerings.

The problem was that Procurement had already started a bid process and Company X was late to the game. Their sales team – despite the internal support from Marketing and IT – had failed to gain Procurement support for either including them in the bid, or putting the process on hold. In frustration, my friend decided that she would personally call the responsible Procurement manager. After several minutes of conversation, she felt compelled to ask: “Which matters more to you – getting value and the best solution for your company, or complying with the process?” Without hesitation, the reply was: “Complying with the process”.

It is attitudes like this – and the blind adherence to rules – that helps account for the findings published recently by the Chartered Institute of Purchasing that ‘Three quarters of IT chiefs believe Procurement hinders rather than helps”. Perhaps indicating the depth of the problem, the article fails to question why such attitudes prevail and what Procurement should do differently. Instead, it focuses on the risk that this non-compliant behavior is creating – in other words, the problem is entirely with the executives and their attitude.

To me, the interesting point is that the remaining 22% of those IT chiefs presumably think that Procurement brings them value. So what are those 22% doing differently? I bet it is not that the IT chiefs are mindlessly subservient; it is more likely that they have procurement staff who are better integrated with their function and support the demanding business goals that are today imposed on IT executives. They are active in aligning business value and needs with market capabilities; they achieve compliance because people want to engage them.

I feel that talented procurement professionals are being badly let down by those who call for ‘licensed practitioners’ to be imposed on the business. It undermines their skills and contribution to imply that the only way Procurement can gain status is through diktat. It overlooks the fact that business functions are servants to the business, not its master. They are responsible for offering the services and support that merit inclusion and involvement in decision-making.

Within every business, processes are essential to ensure underlying controls and efficiency. But they represent a platform – and a key aspect of professionalism is to exercise judgment in their application. We must understand not only the rules, but also their implications and impacts in specific situations. The mark of true professionalism is therefore to know when it is appropriate to deviate from the rules (or to challenge and change them) and how to manage the consequences.

Today’s focus on business value means that we must all be ready to question what we are doing and how we do it. If three quarters of your clients feel you are hindering their work, I suggest it is time to rethink what you are doing – not to turn around and blame them for avoiding you.

Sustainability and collaboration

A survey recently published by The Ethical Corporation suggests that the ‘most exciting opportunity’ to achieve sustainability is through collaboration with suppliers. However, while this was the most popular approach among those surveyed, it was selected by just 24%.

Those polled report that their main incentives are linked to eliminating supply chain risks and avoiding reputational damage. Topping their list of issues were traceability (56%) and environmental concerns (53%), although these varied by region with North America seeking to ‘eliminate dependency on unsustainable raw materials’. Answers also varied depending on markets served.

The question of how we achieve sustainable practices – and where responsibility lies – is complex. Clearly there is an opportunity for suppliers to gain competitive advantage through their ability to make distinctive commitments. These will come from product innovation – for example, alternative materials, technical innovation – such as improved control or measurement systems, and increased control over supply chains. Yet many of these improvements require investment and may increase costs – and there is little sign that most customers are willing to pay for increased sustainability.

Overall, the range of issues highlighted in the Ethical Corporation report represent demanding and exciting commercial challenges. They reflect the growing array of opportunities for commercial experts to contribute to the business through innovative approaches to the formation and management of key trading relationships.

To view a copy of the report from The Ethical Corporation, click here

Relationships versus Contracts: Challenging the Myth

How often have you heard that ‘it’s the relationship that matters?’ Either by inference or quite explicitly, ‘the contract’ is pushed into the background as having either little significance or, in some cases, being a downright impediment to that all-important relationship.

Steadily, the evidence is mounting that this widely-held view is a myth. ‘Relationships’, according to leading sales authority Dave Kahle, are often used as an excuse for poor selling. In a recent article, Dave observes that the claim of “”great relationships” is too often a veil that sales people hide behind to keep from exposing the weakness in their sales skills”. He goes on to point out that businesses must remember that their goal is to sell things and generate revenue. Whereas with friends or family, your primary objective may be a strong relationship, that is absolutely not the case with customers – unless it is visibly leading to strong growth and increasing penetration.

So the fact that ‘the relationship’ is not really so important does not of itself alter the proposition that contracts also have limited – perhaps negative – significance. So what evidence is there to challenge this element of the myth?

First, we certainly know that contracts can have an extremely negative effect. There are many connections between contract terms and important issues such as trust, integrity and ease of doing business. We know, for example, that contract terms and their negotiation frequently undermine the promises made during the sales or marketing process. We know that unfair or unbalanced risk allocations often result in negative behavior. It is in organizations that work this way that the tendency to emphasize ‘the relationship’ is strongest – and that is hardly surprising. I once worked for a company where Sales were trained to tell customers “It’s not what the contract says that matters, it’s what we actually do”. Inevitably such statements undermined trust – and suppliers who were ready to make stronger commitments started to win more contracts. So certainly contracts are a potential differentiator.

But there is more than this. One IACCM member recently reviewed several thousand customers and they discovered that customers with a formal contract were almost twice as satisfied as those without. Their subsequent research confirmed a point that IACCM has been promoting for some years – that good contracts define and set expectations and therefore represent the framework for a relationship. In this case, customers were indeed happier because they knew what to expect; there was discipline to the way the organizations worked together. Indeed, it was almost the opposite of the loose management through a ‘great relationship’.

Best practice does indeed lead to a conclusion that ‘relational contracting’ is the right way forward – an embedding of relationship principles into the contract and a refocusing of negotiations to establish structure to the way that organizations will work together. Top performing organizations are edging towards this approach – re-thinking the timing and connections between Sales and contracts / commercial staff, developing centers of excellence for ‘relational negotiation’, re-designing contract structure and content to emphasize collaborative performance and governance.

So it is time that all of us challenge the myth of ‘contracts don’t really matter’.

The importance of ethics

I find the accusation that Volkswagen has been deliberately falsifying emission levels on its cars quite remarkable (see New York Times article here). US authorities have demanded the recall of half a million vehicles and presumably Volkswagen faces not only substantial costs to ensure compliance, but also heavy fines. If proven, it will not be surprising if class-action law suits follow.

The story is that Volkswagen installed software that would specifically deceive emission test inspections and yield false readings. The thing I find amazing is that a company like Volkswagen would believe that it could keep this secret – though if the allegations are correct, it seems to have succeeded for at least 6 years.

This is just one more example of the transparency of business conduct in the world today. The idea that our policies and practices can be kept secret is something that must be challenged. From a commercial perspective, if Volkswagen truly did commit this offence, it represents a failure of ‘commercial challenge’ and confirms the importance of having a strong business practices function or role within business.


Get every new post delivered to your Inbox.

Join 1,183 other followers