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Losing money on your contracts?

Only 29% of organizations are actively monitoring the profitability of their contracts. That’s just one of the findings in IACCM’s latest benchmark research, which gathered data from 752 organizations.

Why is this not surprising? Well, for most, accurately associating costs with specific contracts is challenging, both in terms of collecting and consolidating the data. Given the amount spent on technology, it might appear that problems like this should have been overcome, but it really depends on the type of technology that has been implemented. For most of that 29%, I suspect that much of the analysis is based on standardized apportionments rather than detailed analysis.

Today’s technology is mostly about efficiency

In the typical corporation, many of the tools and systems have been implemented to automate and streamline existing activities and processes. These are interesting because they reduce operational costs and potentially raise quality, but their design frequently results in incomplete or fragmented data flows. However, there are other tools and systems that deliver far greater value by offering previously unavailable insights and knowledge – data that is actionable and potentially transforms business.

Information breakdowns are typically most severe at the cross-over point between processes or organizations. When data meets boundaries, it frequently depends on manual support for its transmission, with the result that it often gets lost, corrupted, delayed or ignored – and this is clearly the case with something as complicated as cost and profitability data on contracts or customers.

Enabling relationships through business intelligence

Transformational technologies are typically those that cross traditional boundaries and I was therefore excited recently to speak with some of the revenue leakage experts at Pramata and gain insights to their system, which is designed to provide precisely the sort of intelligence needed to support sales decision-making and ‘ease of doing business’. Pramata software equips an organization with real-time data on the overall performance and profitability of specific customers or clients, enabling resources to be targeted towards the best returns and to reduce value leakage.

By consolidating fragmented data, Pramata is equipping organizations to better manage the commercial relationship with their clients, whether dealing with new opportunities, billing, servicing existing contracts or planning renewals. It certainly appears to be filling a critical gap in business intelligence and supporting the IACCM mantra that contracts must be handled as key economic assets.

4 million contract management jobs at risk

I was startled to learn recently that there are 6.5 million people on LinkedIn who identify themselves as Contract Managers. That’s a remarkable number.

Of those 6.5 million, less than 150,000 are members of a directly related professional association and less than 75,000 have formal training and certification – so that equates to slightly more than 1% of those who say they are performing this as a job.

Little wonder, then, that the contracting process is seen by many as inefficient and that such a high percentage of contracts underperform. People simply aren’t being equipped with the professional knowledge and methods that are needed to deliver value, resulting in an approach that is typically reactive to problems and issues.

The impact of automation

Reactive processes are by their nature inefficient, driving unsustainable resource costs. The unskilled nature of many contract management jobs indicates the scale of opportunity for improvement – and emerging technologies are slowly starting to drive those improvements. For example, I recently gained access to benchmark data showing an average reduction in resourcing of 60% – hence the number of 4 million disappearing jobs in this article’s headline.

However, this isn’t the complete story. There are two further key points I’d like to make:

  1. The technology impact depends on what technology is deployed. Most organizations have heritage systems (or heritage attitudes to systems) that are standing in the way of driving more efficient (and more effective) contracting.
  2. Modern contracting can play a transformational role in business performance, equipping management with invaluable data and market insights. But achieving this requires holistic process change and, while it eliminates a high volume of inefficient resource, it generates a number of additional roles – for example, in improved market analysis and engagement, in greater opportunity management and contract growth. These new roles are much higher paid and also require supporting systems, meaning that the overall cost reduction is likely to be 30-40%.

For anyone who is among those 6.5 million that doesn’t have up-to-date, relevant qualifications, it’s definitely time to think about your future.

Does Europe have innovators? IACCM provides the answer

Five categories, five awards – the winners to be announced in Madrid on May 13th, 2019. IACCM is inviting entries for its prestigious program that recognizes Innovation & Excellence.

So what will we discover? According to McKinsey, the management consultants, the picture for Europe may not be rosy. In a recent report, they said:

“The European economy and its businesses have been grappling for years to capture the full potential of current and previous generations of digital tools.” Europe has apparently fallen far behind in its adoption and deployment of the technologies that today drive and enable innovation, transforming the way that businesses connect with markets; transforming the way that employees work and collaborate; transforming the way in which data flows and is analyzed. Together, this means those technologies can fundamentally alter the role, purpose and value of contracts and their associated processes.

So is Europe really falling behind? IACCM will soon have an answer for that since Europe is the first region to compete. This year, the awards are being collected and judged on a regional basis – EMEA, the Americas and APAC. Come year end, there will be a grand finale, as the global winners are announced.

For the EMEA contestants, entries close on March 31st, with the first round of awards taking place at the regional conference in Madrid, May 13th – 15th. Last year, European initiatives featured strongly among the worldwide winners. Will the story be the same in 2019?

For more details or to enter, visit

Top 10 issues for Contracts & Commercial

As we enter 2019, what are the key focus areas for improving contract and commercial management? IACCM gathered data from approximately 750 organizations to discover their plans and priorities.

Number one on the list, being tackled by 61%, is contract management tools and systems. Many have yet to take the plunge on meaningful automation and others are back in the market either to replace or augment existing systems. But the range of tools now being considered is also becoming more diverse, as some organizations look at deploying ‘apps’, ‘bots’ and other enabling devices, such as dynamic playbooks and clause libraries, or more specialist applications, such as machine-based negotiation.

In second place, scoring 59%, is the development of new terms and updated contract standards. This traditional housekeeping task is becoming much more frequent; the speed of change in markets means that some corporations are undertaking review as often as every quarter to ensure competitiveness. Others are recognizing the need to innovate their commercial offerings or to develop new contract templates, for example for cloud services or to support performance-based agreements.

Coming third, at 49%, is contract simplification. There are several potential drivers and the perception of ‘simplification’ can take several forms. For some it is may be about greater standardization. For others it may be increased alignment of contracts with RPA (robotic process automation) initiatives. But for the leaders, it is potentially much more than this; it is about fundamental re-assessment and re-design of the way their contracts are structured and worded. For these organizations, there is recognition that contracts should be designed for users because this reduces risk, cuts cycle times and increases ease of doing business.

Given the changes that these focus areas indicate, it is perhaps not surprising that almost 50% highlight a priority for skills development. Contract and commercial management have tended to be overlooked areas for training investment and senior management is awakening to the issues this creates, both for their dedicated CCM staff and more broadly for those across the business with a need for greater commercial awareness.

Looking down the list, it is interesting to note that 40% are seeing an expansion of their role (reinforcing IACCM’s view that automation is actually increasing the relevance and demand for contracting and commercial skills). For almost a third, this is accompanied by a change in reporting line – though interestingly there is no great consistency in the shift being made (IACCM has issued a more detailed report on this topic).

New Terms_Contract Standards59.0
Contract Simplification49.1
Skills Development48.5
Contract Analytics 47.2
Risk Mgmt_Corporate Governance44.0
Role Expanded40.5
Reporting Line Change31.4
Knowledge Mgmt System27.1
External Benchmarking_Research25.5

Overall, the list illustrates the growing focus on raising contract and commercial competence and business contribution. While technology is an enabler of these improvements, there is increasing demand for talented individuals who can lead change and interpret trends and opportunities. This is why topics such as analytics and benchmarking now appear on the list – they were not in the top ten 5 years ago. It also indicates that the role is becoming steadily less transactional and more strategic.

Over coming weeks, IACCM will be releasing more detailed data on the state of contract and commercial management, and continuing its work with members to assist them on this important journey.

Defining a true professional

An article in a legal journal recently hailed the rise of new specialisms within the legal community, implying that these represented a sign of health for the overall profession. As an example, it cited the emergence of a handful of specialists in the use of e-mojis in contracts or legal judgments. It might equally have pointed to others who are striving to make contracts intelligible through the use of graphics, or perhaps those who push for standards in style. Such individuals are actually at the forefront in trying to address market needs and realities. Although they are often dismissed by their colleagues as odd, quirky, perhaps even viewed as a threat to professional norms, it is these individuals who keep a profession healthy and relevant. They are key to its survival and, arguably, are the ‘true professionals’.

In fields such as medicine or engineering, there is similar churn as new specialisms arise and old methods and beliefs are replaced by fresh knowledge and research findings. It is in fact the mark of a profession that it provides something of unquestionable social value and proves capable of adapting its standards over time to deliver innovation and sustained benefits.

The challenge of ‘professionalism’

The challenge for any profession is that it tends to have a long tail. For every one of its members who is at the forefront of change and innovation, there are typically hundreds who cling to traditional ways and approaches, viewing their professional standing as a mark of personal status and a route to economic gain. It is these individuals, mostly undertaking routine tasks which could be delivered far more efficiently, who try to stand in the way of progress. Sometimes, professional bodies have such power and influence that they resist change successfully for years. 

It is natural for people to welcome a sense of belonging and there is definite merit when specialist work activities become better defined and standardized. For this purpose, formal ‘associations’ of workers who perform similar tasks and have shared goals are of tremendous value. The problem is that these groups tend not to like their jobs or personal specialism to disappear, so the associations (which often represent themselves as professional bodies) become confused in their purpose. They shift from developing and maintaining socially beneficial standards, to resisting change. Some prove extremely effective in impeding progress, especially when they have successfully campaigned for their community to be granted special status and some form of monopoly rights to particular activities. Trade Unions are a classic example of organizations created in a different era to drive important changes, but in most cases evolving over time to create ‘closed shops’ that stood in the way of wealth creation and economic advance.

A need for clarity

As a society, this means we need to be clearer about the role and status of ‘professionals’, distinguishing them from people who are ‘specialists’ and those who are simply ‘workers’. Traditionally, this divide has been defined by the extent to which there is required learning to perform the role. The problem with this is that the speed of change often means that historic learning becomes irrelevant, perhaps even dangerous. That is why some professions mandate continuous update and even periodic re-examination to retain credentials. In the case of ‘specialists’, new technologies or advances in methodology have a habit of making them redundant unless they have this commitment to continuous learning.

So what should we take from this? First, that society should not allow any group to hold a monopoly over particular work activities unless it can demonstrate that its members embrace change and are at the forefront in making their specialism more useful, more efficient and more accessible. Second, for individuals, we should learn to welcome change as an opportunity for personal development and self-worth. Continuous learning and discovery are fundamental to the human mind. Our professions and associations must be a key source of such learning and discovery, as well as satisfying our need for belonging.

What did King Charles I know about contracts?

Tomorrow, January 30th, is an important date in my personal calendar. It is the 370th anniversary of the execution of King Charles I of Great Britain, who fell victim to a fundamental disagreement over scope and obligation management. Many would argue that he also suffered from a lack of negotiation skills. Unfortunately for him, neither he nor his followers were members of IACCM and the records suggest that in any case he would have ignored advice. Ultimately, he paid a heavy price for his failures at dispute management.

What should he have done differently?

The 17th century was a turbulent era, with levels of social discord growing as the economy shifted from largely agrarian to early industrial. Traditional relationships and loyalties became fractured as values altered and new skills came to the fore. As trade expanded, wealth increasingly moved from the land to the merchant classes.

Charles saw it as his duty to maintain many vestiges of the past and was influenced by his belief in the divine right (and duties) of kingship. These led to core concepts around the preservation of power, protection of assets and resistance to change – concepts that resonate with much that is happening today. New forces, driven to a large extent by economic and social interests but dressed up as religious belief, increasingly challenged the scope of a king’s role and the established order. Those forces were often unclear and divided over what they wanted to achieve, but were united by opposition to Charles’ view of his rights and obligations. Eventually, the country split, descending into civil war. Charles chose not to negotiate, essentially stifling efforts to achieve peaceful change. Instead, he insisted on compliance – and lost.

The contract between king and people may not have been in written form, but it existed none the less. Those in positions of power, whether as governments or as large corporations, ignore the fundamental principles of good and fair contracting at their peril. To maintain position and status, there needs to be an underlying consensus over a common purpose and roles and responsibilities in its performance. There need to be effective mechanisms for review and change, with a readiness to make adjustments for altered conditions. King Charles failed to grasp these fundamental elements of contracting and in consequence became seen as a tyrant. His experience provides a critical lesson for those who are charged with developing, negotiating and managing key stakeholder relationships – and even more for the leaders who wish to flourish and survive.

Contracts as a driver of employment

How effective can public procurement be in achieving social and political goals?

The leadership of the Australian Labour Party is just the latest in a long line of politicians promising a boost to the national and local economy through imposing requirements for the use of local firms and workers when awarding public contracts. It’s a policy that grabs headlines and is in many ways laudable, but is it realistic?

First, there is the challenge of the international trade rules that apply to public procurement and seek to prevent anti-competitive selection criteria. Whether or not one feels that the current rules are appropriate to the modern economy (and in general I don’t believe they are), it is pointless to deny their existence. Indeed, the Labour Party announcement acknowledges this when it says that “public service departments would still be required to prioritise value for money in major government contracts”. In practice, this always tends to mean ‘the lowest price’, since public procurement officers seem to struggle with finding an objective measure of ‘value’ that would avoid competitive challenge.

Understanding the numbers

Second, there is the issue of capability. It would certainly be nice to find small and medium enterprises and pockets of highly skilled local labour both available and with the capacity to fulfil major government contracts. But this is a real chicken and egg situation and in general those capabilities simply don’t exist. Where they are present, we run into the third problem, which is the unattractive nature of much government business. The time, cost and complexity associated with bidding and performing on public sector business is daunting. In general, small and medium enterprises simply find it impractical to engage. The United States has superficially been one of the most successful countries in driving SMB activity and social inclusion through public procurement policies, yet research shows this is often misleading. For example, many small businesses are owned by former government employees who know their way around the system and have inside connections. Many of the larger awards are fronted by a small local business, yet actually performed by a major enterprise as a sub-contractor. Too often, the numbers may look great, but the reality is very different.

A waste of time?     

This does not necessarily mean that political efforts to drive policy initiatives through public procurement are a waste of time. Indeed, the need for innovation in service delivery means that public procurement has a key role in identifying suppliers and solutions that can deliver social benefit. Encouraging local enterprise, growth and employment are important and laudable goals, but they require a level of analysis and understanding that is typically missing from politically-inspired initiatives. If the Australian Labour Party – and indeed Governments more generally – are serious about expanding the mission of public procurement, they must recognise the need for fundamental reform of the role and its underlying policies and practices.