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Barriers to collaboration


It is understandable that collaboration is such a big topic these days. The pandemic caused many people and organizations to appreciate the extent of our interdependency, the fact that the best solutions come from working together. Of course, not everyone succumbed to this spirit of collective effort, but in general those who collaborated seem to have emerged stronger and with a more positive outlook than those who did not.

But now, as we move forward, will collaboration survive, especially in a business context? We have heard for years that people typically prefer to collaborate, that they like ‘win-win’ scenarios and behaviors. But turning that preference into a reality has proven challenging ……

The three big barriers

Number one: do people even have a common understanding of what collaboration means? In a recent (small) survey of suppliers, the overwhelming view was that many buyers say ‘collaboration’ when they actually mean ‘subservience and conformity’. So when we use the word, do we actually mean that we want to develop a solution together, based on shared input and mutual respect, or do we actually mean ‘Do what I say and don’t complain’?

Number two: measurement and motivation systems mostly get in the way. Although we prefer a collaborative environment, there are just too many factors that derail our good intentions. The need for speed, the pressure for short-term savings or rapid revenue, the difficulty of coordinating and reconciling multiple opinions. If our personal goals and incentives were based on the way we behave, the way others see us, the quality of longer-term results, then collaboration might rapidly flourish – but until then, it remains a ‘nice to have’.

Number three: external collaboration is thwarted by the absence of internal collaboration. Our same mini-survey highlighted how rarely organizations speak with one voice. Different groups and functions typically reflect different interests. As one respondent observed, even if different stakeholders were united at the beginning of a contract or relationship, their views often diverge over time. This leaves the counter-party ‘stuck in the middle’, trying to deliver something that satisfies all sides and in consequence ‘not seen as collaborating appropriately’.

So if you are serious about collaboration, you really do need to reflect at both a personal and organizational level and ask whether you have the attitudes and capabilities to make it a reality.

Contracts – another victim of COVID-19


While it would be premature to announce the demise of contracts, there is no question that the pandemic revealed their unhealthy state. In practical terms, they served almost no purpose in dealing with the issues created by COVID-19.

Join World Commerce & Contracting CEO Sally Guyer in conversation with Ned Coleman, Executive Director of Contracts at Accenture, as they discuss the impact of the pandemic on contracts and contracting practicesregister here.

Most business contracts attempt to create certainty. They are designed to impose fixed obligations and establish consequences for failure. Negotiations repetitively fixate on risk allocation – liabilities, indemnities, performance undertakings. Endless hours – and large amounts of money – are spent in agreeing terms which proved irrelevant in dealing with the pandemic.

As market uncertainties continue and increased volatility and variability are established as ‘normal’, what is the future of contracts? Do we find ways to make them more agile and adaptive? Does it mean shorter periods of commitment, or perhaps greater focus on governance terms and principles? It is clear that contracts will not disappear – there are many reasons why we need them. But they must change; we must step back and ask ourselves once more ‘what is the purpose of contracts?’ We must recognize that the depth of purpose varies so there is no ‘one size fits all’ response – for example, a short term commodity purchase is not the same as a long-term service delivery.

Organizations are already pondering and designing for the future – reconsidering contract terms and commercial models; re-thinking risk analysis and scoring; moving away from rigid templates towards AI-powered clause libraries.

In recent times, the standardization of contracting practices has operated as a constraint on business and negotiations have become a battle over the relative power of the parties to impose their preferred terms. That must change. We need contracts, but they must be practical, intelligent and sources of mutual value. 2021 will be a year when contracting recovers its health.

Join World Commerce & Contracting CEO Sally Guyer in conversation with Ned Coleman, Executive Director of Contracts at Accenture, as they discuss the impact of the pandemic on contracts and contracting practicesregister here.

Is it your contract or your relationship that under-performs?


There is a lot written about the role of contracts in value delivery and erosion. Traditionally, many have argued that value comes from the relationship and that contracts have little relevance, unless things go badly wrong. In many respects, the pandemic can be seen as supporting this argument. In most cases, contracts proved of little practical use in addressing or resolving the chaos that ensued.

But is this due to an innate failure of contracts themselves, or more because of failure by those who develop contracting strategies and standards? Yesterday, I was looking through past editions of IACCM’s Most Negotiated Terms report and was reminded that we had written about this particular issue in 2015, when we highlighted the contrast between contracting for transactions and contracting for relationships. Here is what it said:

“A transaction is a quick, short-lived exchange. It’s about this deal, these terms. Get a signature, and you’re done.

Negotiating relationships is a process with no clear beginning or end. Your goal is to build sufficient understanding, comfort, and trust between parties that you can work together now and in the future, under conditions that enable both sides to prosper.

• In a deal, the counter-party is often treated as an opponent, in that your goal in the negotiation is to ‘win’ by conceding as little as possible and to have them conform to your terms. In a relationship, the other party is viewed more as a preferred partner and you want to gain from their knowledge, experience or special values, so you are interested by their perspectives and their thoughts and ideas on the terms you are negotiating.

• Deals are about getting as much of what you want as you can carry away. Relationships are based on fair division and joint burden-sharing, recognizing that benefits come over time.

• In a deal, you limit interactions with the other party: limiting the information you provide and the people they are allowed to speak with, guarding your responses, pressing your position. In a relationship, you are more relaxed, open, and natural: sharing information, making connections and truly seeking to understand and resolve differences.

• In a deal, you may exaggerate the strength of your position or try to trick the other side into giving in or giving more than you really need (e.g. to satisfy short-term measures of success). Successful relationships are based on honesty, reliability, and follow through – they are thinking about values achieved over the longer term.

• Deals are static, inflexible, with exhaustive contracts intended to guarantee that every term and condition will remain “carved in stone” until the transaction is completed. Relationships are also based on fundamental agreements, but they are more accommodating, less rigidly detailed. Because relationships take place over time, change needs to be anticipated and managed constructively rather than ignored because it falls outside the scope of the initial agreement. Relationships are dynamic, not carved in stone.”

So perhaps one of the big lessons from the pandemic is our need to apply much more thought to what we are trying to achieve in our supply transactions and to design contracts and their terms accordingly.

2021: the year when a light is shined onto contracts


Only 48% of organizations consider themselves ‘good’ at monitoring the in-life financial performance of their contracts. A new study from World Commerce & Contracting reveals the types of contract and the industries most affected by the resulting value loss and erosion.

The report, released to the 500 participating organizations today, confirms persistent problems created by the fragmentation of process, systems and resources that are applied across the contracting lifecycle. Without connectivity, there is limited visibility and therefore a lack of the data needed to support urgent action.

There is also a view that, even when senior management is aware of possible value erosion, the problem seems too complicated to fix. The fragmentation that causes losses is so pervasive that fixing it would require too many changes to business systems and operations.

Fresh thinking, fresh capability

Has the time now come when these problems can be addressed? For many CFOs, the pandemic has created heightened urgency in protecting revenues and reducing costs. There is a view that new technologies may prove game-changing, with digital platforms that could aggregate and drive data flows between systems. Artificial intelligence and machine learning are starting to augment human resources, in ways that support simplification and promote self-service. New thinking about standards and contract design offer the prospect of increased market and business intelligence, for contracts to become tools that deliver operational efficiency.

The World Commerce & Contracting report shines a light on the types of contract and the industries where maximum benefits can be achieved. It complements other, related studies, undertaken in 2019 and 2020, such as the investigation into Post-Award Contract Management; the Most Negotiated Terms report; studies on Relational Contracting and governance; and recent papers on Supply Ecosystems, Friction Points and the use of Artificial Intelligence. Together, these offer a blueprint for change.

What does it mean for organization and jobs?

It is clear that such radical change will impact organizational structures and potentially lead to more fundamental restructuring of jobs. There are already signs of a growing integration of contract management and relationship management. New systems will empower the front office and reduce the need for many of today’s back-office support activities. At the same time, better integrated data enables a more agile and adaptive approach to commercial and contracting practices, which in turn requires an increase in the strategic resources needed to manage and implement change. These impacts are being assessed in a new World Commerce & Contracting study which will be released later this month. To be among the first to receive the results, you can participate here.

World Commerce & Contracting research reports are available to members in the Research Library at https://www.worldcc.com/Resources/Research-Library. In a few cases, they are available at a summary level only, with the full report restricted to members of the WorldCC Research Forum.

Contract Management Facing Upheaval


Is your organization re-evaluating the structure or the headcount for its contract and commercial management activities?

Almost 65% of organizations are re-evaluating contract management

Among the many discoveries from the pandemic, the importance of contracts and supply chains stood out. In most cases, management discovered critical weaknesses in underlying processes, organizational structure and contract terms.

It should be no surprise that almost 65% of organizations are now re=evaluating the way they go about contract management, both pre- and post-award. And over 70% are examining where value can be gained through improvements.

But what does this mean to incumbent communities of lawyers, contract and commercial managers, supply management professionals? Are resources being cut, increased, redeployed? World Commerce and Contracting’s latest survey is providing answers. To receive a copy, simply participate in the survey by clicking here. Your input remains confidential and results will be issued in January.

The future of supply chains


Change, change – that’s all I ever hear about. Soon, everything will be back to normal.

Do supply chains have a future? The long, extended supply chains of today are a relatively recent phenomenon, a product of relentless outsourcing in pursuit of ever-lower costs. The pandemic exposed a number of challenges associated with this model and is driving a re-appraisal.

When COVID-19 started to disrupt production and supply, many businesses found themselves exposed. They didn’t know the precise source of key components or sub-assemblies. For many, the first they knew about shortages was when they hit. For others, the worst thing was their inability to anticipate or plan. The early months of the pandemic were characterized by urgent efforts to dig deeper into their supply chains, to identify alternative sources and to develop plans for increased near-shoring or repatriation. Behind the scenes, governments were also acting to encourage increased local production and sourcing, taking steps that are threatening the more open borders and boundaries of the last 20 years.

When it all quietens down ….

Once COVID is behind us, won’t we just return to the way things were? The signs are that there will be meaningful and lasting change. For one thing, supply chain resilience has become a board-level topic. CEOs are talking about a turning-point in the trading environment, about a need to change the balance between ‘just-in-time’ cost efficiency and ‘just-in-case’ risk effectiveness. This means a push for greater transparency, increased stress-testing and more holistic understanding and management of risk. Achieving this will depend in part on re-evaluating supply relationships and associated governance systems, but perhaps the most immediate need is to consider a new integration between people and technology.

Many of today’s business systems are internally-oriented – not just within the corporation, but often within the function. Supply-related data sits in inaccessible and unconnected pools and puddles. Data exchange between customers and suppliers often relies on emails and spreadsheets. All this is far removed from the operations excellence and performance resiliency that top management now sees as necessary. They are talking about a blending of people and technology that builds capabilities through agility, learning, a focus on value and customer experience. This has extensive implications to the nature of supply relationships – the extent of visibility, transparency, reporting; the nature of selection criteria and the extent of cooperation.

There are also major implications for contracts as the nature of risk is re-evaluated, as performance incentives are given increased focus, as terms are designed to provide increased adaptability in handling uncertainty, as governance models are strengthened. The introduction of new, AI-powered systems is starting to shift thinking beyond the one-to-one transactional nature of today’s contracts and to thinking much more about the creation of integrated supply networks and ecosystems. It is this approach that can deliver resilience, operational excellence and rapid innovation. So do supply chains have a future? The answer, clearly, is yes, but as part of a much richer mix of relational models, each of which is marked by far better information flows and predictive capability. Machines will be gathering the data, spotting trends and issuing alerts; we humans must become far better at interpreting and using it, especially in our approach to the way we form and manage customer and supply relationships.

Working from home: stifling or liberating?


Productivity is up. Innovation is down. Transactional activities work fine. Strategic initiatives do not.

Home working is not for everyone

As 2020 draws to a close, these comments appear to reflect the emerging business sentiment about work from home. But are they universal, or does it depend on how well organizations – and individuals – have adapted?

In the early stages of lockdown, World Commerce and Contracting undertook regular spot surveys among its worldwide membership. We found that most organizations moved rapidly to support working from home. Within a few weeks, 92% of survey respondents reported that they had they necessary tools and equipment. Over time, sentiment also changed – in the early days, a majority couldn’t wait to get back to the office. By July, very few wanted to return, at least not on a full-time basis. They had adjusted to new patterns of work and new ways of communicating and meeting with colleagues, customers and suppliers.

Overall, although for some individuals home-working has proved challenging, it does seem likely that productivity has increased – less travel time, less interruptions, shorter meetings. Although gaining access to information has sometimes been more difficult, transactional tasks have mostly been unaffected.

What about innovation?

When it comes to innovation or strategic activities, the argument is that these depend much more on teamwork and collaboration, which are difficult to achieve on-line. However, is this argument valid, or is it just that they require more thought and adaptability? In fields like science, remote collaboration has provided break-throughs for decades. Many businesses have multi-locational teams working on new products or services, often taking advantage of time zones to accelerate development. Indeed, it could well be argued that focusing activities on people who happen to be based in the same office is constraining.

We live in an age where diversity and inclusion are encouraged, to break down narrow and constrained thinking. It is certainly true that for many large organizations, highly inclusive and collaborative behavior is an alien concept. Past research by World Commerce and Contracting revealed the extent to which employees outside the corporate headquarters – and especially those from other cultures – felt excluded from providing ideas or engaging in innovative or strategic projects. Now, we have the opportunity for such exclusion to be a thing of the past. And who knows what ideas and enthusiasm this may unleash.

So my vote is definitely for liberating! What about yours?

Optimizing and securing the contracting process


It is said that ‘contracts are the lifeblood of any business’ – and it is certainly true that without contracts, many businesses would be seen as having no value and with poorly managed contracts – well, there would soon be no business.

Yet while winning and performing contracts is so critical, the contracting process frequently fails to support the steady flow of blood that is essential to its health. Consider for a moment the many blockages that occur – pain points, friction points, delay points – call them what you will, the process rarely runs like a well-oiled machine.

In a recent study, World Commerce and Contracting identified more than 40 ‘friction points’ in the average contracting process – each of them a frequent source of cost and delay. That same study indicated why they often prove so disruptive – it’s because there are very few organizations where someone, some group or function, is responsible and accountable for the quality of the process. Responsibilities are fragmented; data is fragmented; resources are fragmented; and different people have different views of what is important. The result, not surprisingly, is that there are tremendous opportunities to ‘optimize and secure’ the contracting process.

Does this matter? Is it worth caring? The answer is yes, but the benefits to be achieved are highly variable. The type of contract and the industry sector are the two big factors, both in terms of direct costs and consequential losses of revenue or potential savings. The study suggests a typical range from as low as 0.5% of contract value up to 15%+.

It isn’t just financial benefits that matter. Reduced cycle times, greater ease of doing business are two further incentives to streamline contracting. And with the growing availability of technologies that support digitization, this improved blood-flow is certainly achievable.

To discover more, connect to World Commerce & Contracting’s TASK program – a free to members offering that can be accessed at https://www.worldcc.com/Resources/TASKand don’t forget to watch out for our imminent report on understanding and eliminating friction points!

 

Managing Risk and Uncertainty


In 2018, IACCM (now World Commerce and Contracting) was commissioned to identify ‘leading practices in post-award contract management’. Following intensive study, we had not found any organization that could claim a consistent post-award capability, especially for more complex forms of relationship.

Good contract management is not about simply having a robust process and properly skilled and equipped teams. As with any process, the real measure of success lies in the quality of the deliverable and what we discovered was plenty of individual examples of excellence, but none that demonstrated consistency across an entire contract portfolio.

Managing risk is consistently viewed as one of the core purposes for having a contract and therefore lies at the core of contract management. However, that sense of purpose does not necessarily translate into effectiveness. For one thing, many contracts lack balance and seek to apportion risk primarily in the context of consequence (for example, liabilities and indemnities). They do not fully address issues of risk probability (for example, a change in market conditions or poorly defined requirements). This means that resolution of many of the events that occur post-award depends on the strength of the relationship between the parties and the skills and attitudes of the individuals managing that relationship.

The depth of these weaknesses became especially evident with the outbreak of COVID-19. Not only was this the sort of risk that contracts could not accurately predict, it also introduced an extraordinary depth of uncertainty. Contract managers knew that supply was under threat, but struggled to know where that threat would materialize and also found that they lacked the tools to handle it. In general, contracts simply are not designed to manage uncertainty and, while the pandemic is an extreme example, it is in fact indicative of our increasingly volatile and uncertain world.

When we published our report in 2019, this issue was identified as one of the key findings. We observed that a leading practice in post-award contract management would shift thinking from ‘risk management’ and instead embrace ‘uncertainty analysis and management’. This approach led us to create a new ‘Value-Compliance-Uncertainty Framework’ (see chart below), a method by which organizations position their contracts into a risk and uncertainty model which guides the form of agreement and the depth of contract management skills that will be required. The adoption of this model by several leading corporations has equipped them to better identify and manage risk and uncertainty – a critical capability in today’s business environment.

The VCU Framework

Copyright IACCM 2019

‘Managing Risk and Uncertainty’ is the topic of World Commerce and Contracting’s current topic as part of its Tools, Analytics, Skills and Knowledge (TASK) program, which can be accessed at https://www.worldcc.com/Resources/TASK

Compliance vs. Quality: Protecting Your Supply Chain


Compliance has not emerged with glory from COVID-19. For many, it became a source of rigidity that constrained cooperation, limited transparency, delayed important decisions and stood in the way of good commercial judgment.

But there is another way of looking at compliance and that is to see it as a component of quality management. For those who view it this way, supply relationships operate in a very different manner. They offer dynamism, smooth-flowing information and healthy relationships that can flex and support collaboration in managing the chaos created by the pandemic. That’s not to say these organizations don’t care about compliance. In fact, quite the opposite; they think of compliance as a component of a quality management system and ensure that it is designed and adjusted to support business resilience, not simply to impose rules.

Regulators recognize the benefit

Indeed, even the regulators have recognized the damage that compliance can inflict. As an example, the Federal Drug Administration’s recent ‘Case for Quality’ program seeks to shift emphasis and reward consistent high-quality production.

There is abundant research that shows the link between strong, healthy supply relationships and overall corporate performance (for example, the work of John Henke in assessing the automotive industry). World Commerce & Contracting has been conducting more global studies and questioning whether the future is about supply chains, or whether there is a need to think more about supply networks and ecosystems.

The experience of the pandemic has revealed the importance of visibility within and across supply chains. Without this, an organization is blind to areas of weakness and unable to offer support, generate loyalty or plan for alternatives. The many aspects of ‘protecting your supply chain’ are being explored in World Commerce & Contracting’s next TASK topic and can be accessed by members of the association at no charge.