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Is negotiation dead?


At its simplest, the word ‘negotiation’ means no more than having a discussion that is aimed at reaching an agreement. In this context, it seems safe to say that negotiations will survive; it is the current approach to negotiating that, while not yet dead, is in terminal decline. That’s because most negotiations today are inefficient and a high proportion are ineffective.

The real purpose of negotiating

It is certainly true that negotiations aim to reach agreement – even if that agreement is ultimately not to agree. An effective negotiation seeks to explore interests and reach an alignment. To succeed, there must be something for both (or all) parties. A good negotiation also establishes a framework – for example, rights, obligations and consequences – and is often needed to ensure shared understanding of goals or objectives.

A key problem that affects many negotiations is that they are incomplete and they are an exercise in the use of power. Business negotiations often operate to a formula and within constraints that almost guarantee sub-optimal results. In fact, they are often non-negotiations because the more powerful party deploys a team with little authority and with an objective of ensuring ‘compliance’.

A new – and better – way

I am looking forward to a webinar next week, when I’ll be discussing with Chris Halward, former Director of the Global Sourcing Association, how to bring new life and meaning to the field of negotiation. We are planning to explore the extensive influence that technology is starting to have, both in terms of equipping negotiators and – in a growing number of cases – replacing them. But we are also confident that there is a continuing role for humans and will explore how that will change, as the focus shifts from ‘getting the deal done’ to ensuring that we have established the mechanism for a positive outcome.

If you’d like to join us on the webinar, you can register at http://www.iaccm.com/events/register/?id=3169. And if you have thoughts, opinions or questions you’d like to share please write to me or post a comment.

 

What’s in a title?


A few years ago, IACCM explored the range of job titles involved in performing the end to end commercial and contracting process, both buy and sell side. We found approximately 65 titles in common use. More recently, we undertook a more comprehensive examination of our member database and found well in excess of 200 titles.

What does this diversity tell us? Is it that there are wide variations in job roles, with perhaps a trend to increased specialism? Is it (as some would contend) that there are few similarities in the work undertaken in different industries or geographies? Or perhaps it is just a matter of preference and taste within individual organizations ….

Are we alone?

While the scale of variation appears excessive and potentially confusing (especially for recruitment), there is a similar situation in other more well-established functions such as finance – with a tendency to categorize/classify jobs and their titles by the nature of the tasks they undertake, eg purchase ledger clerk or accounts receivable etc.

Although at a generic, cross-industry level there are multiple titles, we found an element of industry conformity and to some extent also geographic standards or norms – for example, in the oil & gas industry there are many “contract engineers”, while in the UK (and to a lesser extent the US) “contracts officer” is a common entry position in aerospace and defense, including in the public sector. However, outside defence, other civil servants are typically ‘contract managers’.

Title versus Job Role

Looking beyond the title, how much difference is there in the tasks being performed? Job descriptions obviously vary, as does the role of a contracts or commercial function. But essentially there is a high degree of commonality in the work that needs to be performed. Descriptions and titles are translated down through the operating models embedded in the organization. Influencing factors include examples such as:

  • where do contracts and commercial staff report? For example, when embedded in a business unit, they tend to be more focused on business enablement, whereas within Legal or Finance there is greater emphasis on compliance.
  • is there a split between pre-award and post-award contracting activities? When consolidated, there tends to be a greater focus on value delivery. When separated, the groups are often seen as more administrative.
  • is contracts and commercial activity conducted through an integrated buy/sell team, or do these headline functions operate in different spaces and report through to different executive directors (eg CFO buyside and COO sell side)?
  • is the function centralized, center-led/hub and spoke, or a fully devolved model? With the centralized approach it is more likely to operate with greater discipline in titles and career path, whereas more devolved models are accompanied by greater diversity.

Ultimately, a lack of conformity in job titles across industries and geographies does not much matter so long as the individuals themselves operate with reasonably consistent knowledge and methods. Without this consistency, career opportunities are limited since the transition between industries, geographies and perhaps even between companies is often risky for both the individual and the employer. That is a major reason for IACCM’s development and promotion of professional certification standards, raising the status and performance of contract and commercial practitioners no matter what their title may be!

Benchmarking is often the key to survival


Quality, time and cost are critical indicators for most business functions as they compete for funding and resources. Many contracts and commercial groups struggle to gather reliable data, leaving themselves vulnerable to arbitrary judgments regarding their performance and value. A lack of information frequently leads to unfortunate decisions by senior management.

Where do you stand?

Over the years, IACCM has gathered comprehensive data, enabling its members to undertake industry and competitive comparisons. It is interesting how rarely contracts, commercial and legal groups make proactive outreach that anticipates the need to have data which demonstrates their worth. As a result, many requests are made in desperation, with questions like:

  • Can you give data on typical workload / cycle times / expense to revenue / headcount ratios?
  • Can you tell us the typical reporting line of contracts / commercial staff and what impact this has on results?
  • Can you advise on the effectiveness of different organizational models – for example, centralized, center-[ed, decentralized?
  • Can you provide information that shows the financial impact of having / not having dedicated contract and commercial staff?

The list goes on – and we have, or can readily obtain, answers to these questions, split by different industries, company size etc. The problem is that, by the time we are asked, it is often too late. A decision has been made and it is an uphill battle to have it reversed.

So what should you do?

Successful, high performing groups are typically driven by data. They want to know how they are performing – both against their own past and against competitive or industry norms. Increasingly, these groups are not just looking at relative efficiency, but want to assess their effectiveness. New technologies are making that increasingly possible. For example, some of our benchmark leaders have us monitoring market shifts in terms and conditions or in contracting models. Others are assessing the impact of terms and conditions on the cost of commercial operations and the relative ‘ease of doing business’ for their trading partners. Some commission directly comparative research to understand their ranking against competition on key capabilities, such as their approach to negotiation or competence in post-award contract management. Armed with information like this, they are consistently demonstrating their value to senior management and, while this does not guarantee that they are immune to organizational change or budget reductions, it certainly strengthens their position and their voice.

In a forthcoming webinar, we will discuss current standards – for example, what metrics are typical, the impact of reporting line, organizational model and automation, scope of responsibilities, typical cycle times – and also emerging trends, which include more extensive financial measures, the implementation of standards and contributions to innovation or business operations.

If you would like to discover today’s norms and leading trends as organizations gear up their contract and commercial capabilities, simply click here. Participants in the webinar will also be among the first to have the opportunity to participate in IACCM’s 2018 Global Benchmark Study and to receive (at no charge) the resultant comprehensive report on Contract & Commercial Benchmark Standards.

The cost of poor invoicing


There have been many highly publicized cases where invoicing went badly wrong, especially in the public sector. But the challenge of effectively checking and validating invoices is universal. For example, a recent consultancy report suggests that Small-Medium Business in the UK loses £9bn a year due to invoice errors and fraud. In Australia, news broke in April this year of a multi-million dollar fraud scheme involving employees at one of the country’s biggest banks. The Better Business Bureau and Office of the Attorney-General in the US issue regular warnings about the prevalence of fake invoices.

However, the problem is not only related to deliberate fraud. With businesses increasingly purchasing services, rather than goods, the opportunities and likelihood of incorrect invoicing increase. Many charges today are based on hours worked, or the level and experience of staff deployed. There may be complicated algorithms for payment, related to performance levels or results achieved. These factors make errors more likely and checking more complicated.

In a recent IACCM survey, almost 60% of participants acknowledged that increasing complexity and difficulty in understanding contracts is translating to invoicing errors. In most cases, their invoice-checking capabilities remain rudimentary. Just 12.7% have advanced systems to validate accuracy, leading to an overall estimate that businesses are, on average, losing an amount equivalent to 4.3% of invoice value.

The scale of impact varies, with services agreements especially vulnerable and particular industries – such as construction – reporting higher frequency of errors.

Is this inevitable?

Ultimately, there will always be errors – both unintentional and malign – in invoicing. But that doesn’t mean that customers (or suppliers) are helpless. There is extensive publication of ‘best practise’ advice from governments and NGOs. Increasingly, there are also advanced software packages that can assist. One of those comes from Zen Enterprise and I recently conducted a short interview with its CEO, Brett Petersen. The resulting podcast (and the recent IACCM survey) can be accessed at https://www.iaccm.com/resources/?id=10273

 

Are you getting what you need?


“More than 90% of respondents say they need to update their skills at least yearly to work effectively in a digital world.”

The MITSloan Management Review recently released its report on the impacts of digital business. One critical finding related to skills and the need for constant update to keep pace with a fast-changing world. The report observed:

“Some 90% of respondents indicate that they need to update their skills at least yearly, with nearly half of them reporting the need to update skills continuously on an ongoing basis. Yet, only 34% of respondents say they are satisfied with the degree to which their organization supports ongoing skill development. Many organizations continue to rely on formal training for developing these skills, but cultivating an environment that allows on-the-job learning may be more effective.”

On one level, it is encouraging to discover that so many of the survey respondents recognize the importance of on-going skills development and, by implication, a commitment to CPD (continuing professional development). But there are problems with this.

Inquiring minds

First, in my experience, the people who respond to surveys and find research interesting are by definition the people who have an inquiring mind and a personal commitment to development. Unfortunately, they are a small minority. More typical is a communication that I received today from a senior manager at a large, international corporation. It read: “I am personally convinced about the critical importance of our staff gathering new ideas and understanding of market trends and practices which they can apply to their work. I have been shocked to discover that there is an internal belief from other managers that this is a distraction.”

Second, there is the challenge of where to find the right information or support. On one level, we are today flooded with material and sources. But how do we identify what is worth reading? How do we assimilate so much and make sense of its meaning and application? Individuals – and organizations – need trusted sources. They need to be able to rely on the data and information they receive being timely, accurate, thought-provoking, practical and up to date. In theory, one might hope to gain that support from professional associations, but many are not structured to deliver such dynamic content. In fact, they find it threatening because it causes many to question the validity and relevance of much of their traditional material, on which professional qualifications have been based.

So how do I get what I need?

Looking ahead, I have little doubt that the people who will flourish are those who find change interesting and are excited by the idea of adapting their skills and knowledge. They will develop their own approach to CPD, often by working collaboratively with selected delivery partners. Certainly, at IACCM we find not only an increasing hunger for CPD programs, but also that leaders in our community want to participate in defining what that CPD content should be. The digital world allows more effective engagement, as well as more creative design and access models.

So my advice? Don’t wait for your employer to develop a solution for your needs; the chances are that whatever they provide will already be outdated. Recognize instead that the high-value, highly-rewarded employees of the future will be those that engage in a voyage of self-discovery and as a result bring their organizations the new ideas and thoughts on which survival depends.

Cutting Legal Costs


Workload for the average law department has grown, but this has not made them immune to pressure for improved cost control and reduction. Achieving this can be challenging, especially since spend management discipline is not an innate competency within these departments.

To succeed, in-house legal must undertake greater analysis of current expenditure, as well as finding alternative delivery methods. A new study by IACCM indicates that most cost reduction efforts have focused on spend with outside-counsel – understandably since this is the largest area of expenditure, but with the risk that such a focus misses wider opportunities for innovation.

To date, alternative delivery methods such as increased automation or use of low cost providers have been limited – and surely must be set to increase. Indeed, recent research shows that more than 70% of large in-house legal groups anticipate the introduction of new technology[1] – but few seem clear on what that technology will be or what purpose it will serve.

Even though there is such a strong focus on cost reduction, the relationship between Legal and Procurement functions remains at best tenuous and those legal groups that do engage Procurement report mixed results. The main exceptions appear to be when the Procurement resources are embedded within Legal; this closer alignment generates increased trust and shared objectives.

Based on this and other research, IACCM offers two observations:

  • The major impact of new technology is likely to come from investments outside the Legal function. One will be through broader business initiatives such as RPA (robotic process automation) and blockchain, where lawyers will become more integrated participants in overall business processes and data flows. The other will be through external providers offering technology-enabled services (systems using artificial intelligence, natural language processing) such as litigation support, M&A analytics, contract standards and benchmarks and ‘big data’ analysis.
  • Legal departments are conflating increased value with lower costs. While cost reduction is important, it is not in itself a source of business value. To date, many in-house legal groups have not adequately examined their role and contribution in the context of the strategic goals of the business. As a result, they will struggle to demonstrate ‘value-add’ in a wider business context and to show a meaningful return-on-investment (ROI). Without such data, the pressure on cost reduction will continue.

[1] Source: HBR Consulting June 2018

This blog is extracted from an IACCM survey report, ‘Legal Department Spend & Resource Management’, to be published in July 2018.

From CPO to CEO: a realistic aspiration?


CEOs of major corporations come from diverse backgrounds – but not from the ranks of Chief Procurement Officers. In a recent blog on the State of Flux website, Alan Day suggests that this might change. He comments:

“Procurement is a great function to gain a breadth of business experience. We get to meet lots of supplier CEOs and talk with them about the strategic alignment of our businesses and how we might work together. We get to understand how the organizations works operationally, we network at a senior level, run large teams and look after big budgets.”

The big weakness, according to Alan, is a lack of Sales experience and consequently ‘closing skills’. To remedy this, he proposes that CPOs should develop expertise in sales by learning account management in the context of Supplier Relationship Management, a discipline that he suggest is akin to the account management role within Sales.

What the research tells us

Unsurprisingly, there is extensive research into the topic of CEO skills and background. Management consultant McKinsey is among those highlighting the critical importance of operational experience – for example running a large division, or a period as Chief Operating Officer. While studies show that a substantial majority of CEOs are appointed from within the organization, only some 15% come from a functional leadership role (most commonly Finance, occasionally Legal) – and in many cases that is because the functional experience has specific relevance to a critical business challenge. In their report, McKinsey observes that most of those functional executives only make the step up because they have had broader experience and exposure, since ‘lack of breadth’ is otherwise the biggest inhibitor.

To gain a view from the front line, I turned to Richard Sterling, a seasoned executive search consultant at AltoPartners with experience at placing CEOs, as well as appointments for heads of function including Procurement and Commercial Management. Richard acknowledged that the CPO role has the potential to carry greater status, but does that really translate to a potential path to the CEO position? Here is what he said:

“To assert that Sales is the singular missing ingredient as to why more CPOs are not becoming CEOs is at best extreme reductionist thinking.  To further assert that developing account management skills within the context of Supplier Relationship Management is equivalent to a sales-focused Account Management position is to not fully comprehend the difference between sales (identifying and creating opportunities, building the relationship, potentially forming alliances, closing the deal)  and the more general activities of account management (working with existing clients, nurturing relationships, growing the account, being the client’s every point of contact on all matters). Even where it exists, SRM rarely has an equivalent level of status or accountability to the account management and account executie roles.

CEOs rise to their position from varied backgrounds although finance, legal and operational streams are most common.  This does not mean that a CPO cannot rise to being a CEO; however,  it needs to be understood that there is a great deal more to being a CEO than the State of Flux blog puts forward – and there is little chance of anyone moving direct from CPO to CEO.

The aspiring CPO needs to develop a range of personal attributes and relationships which may run counter to being a high performing CPO. By way of example, let’s look at decision making: Today’s CEOs need to make quicker decisions using the best information available, buttressed by a broad range of internal and external relationships.  High performing CEOs are comfortable with this approach. They trust their intuition, which has been fine-tuned over the years.

CPOs, however, tend to be – by profession, education and experience – analytical and risk averse, wanting as much information as possible and spending time getting that information, then more time validating the information before making a decision. They are generally driven by a relatively narrow set of performance measurements which, unlike their colleagues in Sales, are open to challenge (for example, are ‘savings’ actually achieved?) In the face of today’s rapid and highly competitive environment that approach is not sustainable.

Finally, the aspiring CPO needs to become very calculated about their career. This means that the aspirant will need much more than just having exposure to other business functions or their peers in other companies.  There is no substitute for having real experience and board-level accountability. This is what the aspirant will need to acquire either through a series of significant projects in which ability and performance outside procurement can be demonstrated, or perhaps by progressing to a role such as chief operating officer. Chief Operating Officers are one of the more commonly considered routes to the role of CEO. ”

In conclusion

So is the transition from CPO to CEO impossible? Clearly not, but as a direct route it is highly unlikely. While in some cases a career path might include a period as CPO (and there are some good arguments in favour of this), it is clearly not normal. Right now, many of those in Procurement who truly want to progress to CEO positions recognize the best route is to leave the Corporate world – and start a business of their own!