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Contracts matter


Contracts ‘set the tone for the relationship’, especially in more strategically important interactions. The design of the contract, the way it is worded and negotiated, all have a psychological impact on the parties, influencing the way they perceive the counter-party and subsequently behave.

The research is available

For at least 30 years, academic research has indicated the importance of the contract to subsequent performance. IACCM’s studies, especially those related to ‘The Ten Pitfalls’, have confirmed both the elements and the impacts of poor contracting. In one study, ‘Using Psychological Theories to Shape Partner Relationships through Contracting’, the authors observed: “if a firm can develop specific competencies in the contractual process, particularly in the more complex end of the contract spectrum, then it is possible for it to create a competitive advantage based on these contracting capabilities. This idea is akin to that of alliance capabilities, in which some firms develop competencies in creating and managing alliances that other firms cannot imitate (Kale, Dyer & Singh, 2002). One way for firms to develop a contracting capability is to first identify what type of relationship it desires with the partner, whether arms-length or a trust-based relationship, and then use psychological theories to guide the framing that it uses in the contract. Although this process seems straight-forward and therefore imitable, it is, in fact, difficult to determine the type of relationship that is most appropriate and the best approach to accomplish this end”.

I have highlighted the sentence regarding the type of relationship because it is remarkable how frequently businesses fail to give this adequate consideration. Indeed, a mentality that is based around standard templates and compliance almost inevitably results in a failure to address – or even care about – the psychological impact of the contract. Far too often, behaviors are driven by narrow views of efficiency and risk, rather than the economic or business outcome to be achieved.

Getting things wrong

IACCM’s work regularly confirms the pervasive nature of this issue. For almost 20 years, the annual study of ‘The Most Negotiated Terms’ has indicated the divide between the terms that are most important versus those that receive greatest attention. This in turn explains why many in Sales or within business units consider contracts to be negative or even destructive in the formation of relationships. One result of this is that the type of relationship – and the appropriate contractual framework – is often ignored. Indeed, a common complaint by contracts and legal staff is that they are involved too late, meaning that often they have little or no influence over the contractual framing.

In many cases, technology makes this situation even worse. ERP and P2P Systems in particular typically relegate the contract to a point of little significance, imposing a cookie-cutter standard, almost regardless of its applicability or suitability.

Avoidable costs

All this sums up to the fact that most organizations fail to build robust contracting capability. This results in a whole host of avoidable costs – not only is it intrinsically inefficient, but it generates extensive downstream operational costs, as well as lost revenues, missed opportunities for innovation and damaged reputation.

Unfortunately, the pervasiveness of these failings makes it hard for enlightened organizations to break the mould. Even those who wish to develop sound, productive relationships typically find themselves frustrated by the contracting practices of their counter-parties. This goes a long way towards explaining why the stories of highly successful contracts are so rare and why they are then so hard to replicate.

Achieving change

Although the evidence is compelling, achieving change is not easy. One major factor is education. The facts about contracts and their economic impact are simply not taught. Hence a multitude of stakeholders emerge with little or no understanding of the way that contracts frame their business relationships and as a result, few organizations make the investments needed to build a true contracting capability. Things are improving and new technologies will accelerate the change, but it remains frustratingly slow and sadly is often perpetuated by people who really should know better.

It’s time for all those who care about business results to start shouting the message. If you want successful relationships, contracts matter!

Get ready for change … big change


Are you feeling uncertain? Do you watch the chaos of politics, the tensions over world trade, and wonder where we are headed?

The volatility of today’s business and economic conditions is no accident and it isn’t temporary. We are undergoing a period of transformational change, a transition into a new era. Just like the evolution from the agrarian to the industrial world, there is no sudden shift – there is an extended period of large-scale, often unexpected, social disruption.

So what does it mean?

Supply relationships are especially vulnerable at a time like this, with the capabilities of both individuals and organizations facing challenges. This year will bring rapid acceleration of trends that are already underway. Among the most important characteristics of business relationships will be:

  • Greater pressure for committed performance, outcomes – buying results
  • More flexible, agile, adaptive processes and relationships that focus on value
  • Competing on quality and reliability at low cost

The implications are that there will be a greater need to anticipate change, monitor markets, analyze results, proactively improve performance. Contracts will increasingly be designed to avoid problems, which means their terms will include far more focus on active management and their design will assist user understanding. The emphasis for contract and commercial teams will shift to value delivery through reducing operational cost and reducing risk likelihood. The contracts portfolio becomes an invaluable source of management information, key to driving business decisions. Competitive analysis will include focus on benchmarking terms and conditions and comparing commercial policies and practices.

You aren’t alone

At IACCM, with insight to thousands of corporations and public sector agencies, we have the ability to observe trends at their inception. It drives our change agenda, our strategies for member services. Next week we meet with executives from a range of leading organizations to review and sign off the strategy for 2019 – and already we are working with many member corporations and governments, providing input to their change agenda.

It’s big. It’s exciting. It’s important. Are you ready?

As the world’s only non-profit Association for Contract and Commercial management, IACCM leads the way with research and advisory services for its members, who represent more than 17,000 organizations in over 170 countries. Discover more at www.iaccm.com


A year in review: contracts and commercial management


In 2018, the International Association for Contract & Commercial Management grew by more than 25%. Growth came from multiple sources – so what are the factors that have resulted in a total membership now exceeding 53,000?

Trade is at the heart of what we do

In simple terms, there are four forces driving the evolution of trading relationships and forcing increased focus on contracting and commercial capabilities.

The most significant is the continued disruption caused by the evolution to a global networked economy.  Not only has this destroyed many traditional trading patterns, but it is creating dynamic and unpredictable market and geopolitical conditions, including the rapid formation and dissolution of complex supply networks. 

At the same time, society and business are increasingly focused on the quality of outputs and outcomes, as we move from a world of traditional products to one of customer experience, services and solutions.

There is also continued growth of regulation and associated levels of transparency and accountability. In all cases, organizations have recognized they need to make better decisions in selecting their trading partners and they need to improve the oversight and segmentation of those relationships. Commercial judgment and contracting competence are fundamental to financial returns, business controls and management visibility.

Finally, the digital revolution is having an impact on all businesses. For example, the growth of connected devices through the Internet of Things (IOT) is forcing businesses to rethink how they are structured and organized, and the growth of social media is challenging the way businesses deliver to customers and how they interface with, and work with, their supply chains. 

Consequences

Commercial and contract disciplines are shifting towards a greater balance between their legal and compliance focus and their contribution to economic value and financial returns. This need – and the solution – is embodied in the increased volume of Capability Maturity Benchmarks that IACCM has undertaken for its corporate members, supporting process and system updates and improvements.

This fast-changing environment is stretching the skills of existing practitioners, many of whom lack the access or the influencing skills to make effective representations to management about the needs or impact of change. In some organizations, a new breed of commercial executives is emerging, often drawn from other business disciplines. Many are flourishing because of the training they receive from IACCM learning programs and continuing professional development.

As for 2019, it promises to be an even more exciting year … about which I will write more soon.

Will robots replace Contract Managers?


If your job involves writing, negotiating or managing contracts, should you be worried about automation?

IACCM set out to answer that question by first analyzing the major tasks associated with contract management, then exploring how new technologies are starting to impact them. The conclusions – shared in a new thought-leadership paper – are that there will be fundamental changes to today’s procedures and extensive opportunities for new sources of value-add. That means significant change to the nature of the role and the skills needed for its performance.

One of the most significant points to come from the research is the extent to which so much legal and contract work is highly repetitive, yet practitioners delude themselves into thinking each situation is unique and requires human judgment. Substantial workload is generated by things like inconsistent terminology or personal preferences that determine contract structure. Machines quickly spot similarities that are invisible to the human eye. Modern systems are also more objective and are happy to work 24 hours a day, undertaking tasks such as performance monitoring and automated payments.

In a webinar last week, I co-presented on this topic with IACCM CEO Sally Hughes. Many found it helpful, giving them greater understanding of both the speed and nature of the changes automation is bringing. Some, however, remain in denial. One webinar attendee made the comment “There was too much about technology”.

The webinar and the research paper are both available on the IACCM website.

The Role of a Contract Manager: 2019 and beyond


As we enter a new year, it is a time when many people wonder about their future. The holiday period causes many to reflect on whether they are doing the right thing, in the right place, with the right people.

So for those who are already working in Contract and Commercial Management, or those interested in entering this field, it is a good moment to consider not only what this role looks like today, but also how it will develop this year and beyond.

To assist your thoughts (and personal development plans), IACCM has published a new fifteen page guide “Contract & Commercial Management: Role & Direction”. It draws from IACCM’s extensive research and insights from its 52,000 members, who represent more than 17,000 different organizations around the world.

As the guide explains, there is no question that these roles face a time of major change – a characteristic in common with many other job roles. But with change also comes opportunity – especially for those who are willing and ready to adapt. Many IACCM members are already progressing on the path to a higher value, more influential role, having invested in IACCM training and certification programs. From the number registering over the last few days, it is clear that many more have commited to a New Year resolution to raise their skills and profile!

The guide sets out a useful table, showing the typical tasks that are performed by contracts and commercial staff today and describing how those will change and be enhanced by new technologies. Overall, it describes an environment that will for many be challenging, but which offers exciting prospects for the future.

“Contract & Commercial Management: Role & Direction” is available to IACCM members and can be downloaded from the website.

IACCM: 2018 in review


IACCM is about to enter its 20th year. Back in 1999, very few people cared about commercial or contract management. While they existed as job titles, there was no consistent definition of role or purpose. I remember a common reaction to IACCM’s incorporation was “It will never survive”. Now, so much has changed ….

First, for the association itself, 2018 truly has been a year to remember and celebrate. In January, we smoothly transitioned to Sally Hughes as Global CEO. March saw the formal appointment of Phil Dungey as head of Advisory Services. By September, we welcomed our 50,000th member (already almost 53,000). In October, Peggy Barber joined us as Regional CEO for the Americas and November saw the creation of the new, member-driven IACCM Global Council. So what better way to conclude the year than the appointment of Bruce Everett as Regional CEO for Asia-Pacific.

This amazing growth isn’t just because we are nice people (though I hope we are!); it’s because the world is awakening to the tremendous relevance of contract and commercial skills and competence in managing today’s turbulent markets. Our members – and their employers – recognize the critical importance of business integrity and integration in delivering successful business outcomes. They tell us that IACCM provides the leadership, the inspiration and the practical tools and insights they need to raise their profile, deliver value and prepare for the future. It’s a way of thinking encapsulated by Sally Hughes when she promotes her message hashtag#strongertogether.

And already, 2019 is shaping up for even more exciting news and progress for our CCM community! As we look at the Association’s focus and strategy, it is clear that our members face major opportunities, especially in our theme topics of contract economics, ethics and innovation. Technology will be a key enabler, but even more important is our own belief and attitude. Next month, the IACCM 2019 Strategy paper will be published, providing an exciting roadmap for growth. 

Contract bottlenecks


This year’s IACCM benchmark study of the contracting process shows no improvement in typical cycle times for reaching contract signature. At a time when digitization and robotic process automation are streamlining many other business processes, the continued bottlenecks that delay contract closure are not good news.

Is automation the solution when it comes to speeding up contracts? The answer, based on the benchmark evidence, is at best ‘maybe’. It depends on whether:

a) organizations select the right software solution – something appropriate to the nature of the relationships they form. Too often, we see selections that are incapable of dealing with business needs and which ultimately add to complexity and delay as users battle with the system.

b) organizations try to overlay software onto their current manual process, without meaningful attempts to assess and reengineer underlying activities.

In reviewing the data, I was reminded of a recent article by Kate Vitasek, which highlighted a recent book by Professor Kathleen Eisenhardt, “Simple Rules: How to Thrive in a Complex World”. This title – and the five steps that Professor Eisenhardt suggests – seem especially appropriate in the world of contracting, since ‘complexity’ is the typical excuse for delay. So what should we do to improve?

Identify a bottleneck that is both specific and strategic – the bottleneck should be relatively narrow, a well-defined process or process step, not a broad aspiration. (Contract cycle time seems to be a good example.)

Let data trump opinion – don’t come up with wild, “shoot from the hip” rules; base them on a thoughtful analysis of historical experience. (In other words, gather data, such as ‘what are the actual causes of delay – IACCM has research on this!)

Users make the rules – don’t hand down rules from above, let those involved in implementing the rules develop them. (This requires deciding who the true ‘users’ are – the answer shouldn’t be the lawyers or contracts staff.)

The rules should be concrete – rules should not be difficult to understand; think yes-or-no criteria. (This is where good automation can really help, perhaps via electronic playbooks or apps.)

The rules should evolve – simple rules shouldchange as the company and the market change, and as managers better understand what is actually happening on the ground. (And yes, this is not about rigid compliance; markets change and the new system must continue collecting data and adapting.)

So perhaps a key project for the new year (and a great new year resolution) might be to eliminate contract bottlenecks.