Skip to content

GDPR: Is Europe crazy?


At last week’s IACCM Americas conference, many delegates were stunned by what they learnt about GDPR, the data privacy regulations that the European Union plans to impose from May next year. One observed that this is ‘another example of the law operating contrary to reality’.

It isn’t just the scale of fines that matter (up to 4% of annual revenue), but the extent of what will be deemed ‘private data’. As Apple’s head of litigation observed at a conference this week: “The challenge is that it applies to all personal data, meaning any data that can be used, ultimately, to identify who you are. So it’s far beyond your name, your Social Security, your bank account. It’s your IP address, or your device ID, or a reference number to a customer, or a complaint or question that you brought in. For any organization, beyond tech, it just covers just about anything.”

This legislation is costly; it is questionable how companies will comply; and there is no real evidence that anyone (beyond the ivory tower of the European Commission) actually wants it. When they discover the impact of this legislation, there is every chance that consumers will complain because it means more checks, more clicks, more validations and more focus on giving specific authorizations regarding use of data.

For corporations (and government) GDPR places a heavy burden on processing costs, which will inevitably fall back onto consumers in the form of higher prices or taxes. The level of technology investment required to protect data continues to spiral; the sophistication of nations interested in hacking continues to grow. Adding these further layers of required protection challenges European competitiveness in international markets.

Ultimately, as with too many regulatory initiatives, the rationale and benefits are unclear. Cynics might suggest that the real purpose behind this is that it is another way to fill the EU’s coffers with money from fines. When the consequences – as in the case of GDPR – are so profound, there surely should be a much greater engagement with the wider population to obtain their support.

 

Change, Risk & Integration


At the end of each IACCM conference, we like to summarize key themes. Today, I am featuring the observations of Sally Hughes, IACCM’s Chief Operating Officer.

CHANGE

Change is a constant enigma to us all.  While one executive presenter told us to embrace change, to “make change your best friend”, another observed that in reality change is reacted to by one of two things – complacency or terror!

We are all facing change – in our organisations, in technology, in the projects that we are managing – so don’t we all have a duty to react to change in a very different way – to focus on it as an opportunity?  And in the context of contracting, we need to design our contracts as an instrument for managing change.  Our organisations are demanding us all to be more agile, more adaptive; to remain relevant – we have to contribute to this agenda.

RISK

We heard a lot about risk throughout the conference. Again, I would like to quote the speaker who commented that risk is always owned by a customer in every case; customers can lend that risk or share it – but customers always own it.   So, we need to have the courage to talk about risk and focus on appropriate risk allocation, on risk management and risk mitigation – to focus on minimising risk.  It was noticeable how everyone ran out of the conference room following a presentation on GDPR, terrified of the potential impact of a regulatory fine – 4% of annual revenue.   But we seem to concern ourselves so much with what needs to go into the contract to protect us and not the practical solutions to avoid the risk becoming a reality in the first place!  It took on of our Leaders of the Future to observe – “…why are we so worried about 4% of annual revenue when it might not happen?  Why don’t we worry about the 9.2% value erosion that is already happening as a result of weaknesses in contracting…!”

INTEGRATION

My final theme came as a result of the output from the Great Debate.  The audience, by a very small margin, voted that procurement should become a sub-element of Contract Management.  However, I think the real output was in fact the need to focus on integration. And that brings me back full circle to our opening remarks on Wednesday where we talked about the inclusiveness and diversity of the IACCM Membership, one of the great strengths of IACCM.  The Chief Compliance Officer from 3M talked in her presentation about the “15% Culture”, the need to spend 15% of your working day focused on activities beyond your role because this is the source of innovation, of value. This is the thinking and the opportunity that IACCM provides  – extensive networks, the ability to outreach, a commitment to research – beyond your organisation, beyond your industry and beyond your geography – to gain those outsights.  So, don’t let this be the end – one of our Leaders of the Future talked about how she was excited to have found “applicable solutions” to challenges that she can take away from these three days.  That is the purpose of this conference, to give you tangible takeaways so that rather than just saying – “…it was an OK conference…” – you can say it was an “outstanding” conference and start putting into action the things that you have learnt when you get back to your desks on Monday morning. And key to that learning is to think and operate as integrators of ideas, approaches and people.

Collaborating across boundaries


Trading relationships often involve multiple parties whose support and alignment is critical to success. Achieving that support and alignment depends on empathy – an understanding and appreciation of their point of view (whether or not we agree with it).

Last week, IACCM held its 16th annual Americas conference, bringing together groups that represent four of the key stakeholders in every significant trading relationship – lawyers, project managers, contracts and commercial and procurement professionals. The spirit of collaboration was palpable. Newcomers especially were amazed at the openness and inclusive behaviors, commenting on the positive, ‘can-do’ atmosphere.

So what makes it different?

For an event to succeed, it requires a shared sense of purpose that goes beyond simple networking. The IACCM conference enables conversations between people who would not normally meet each other outside a negotiation. With its focus on ‘trading relationships’, they rapidly find a uniting topic, something that all of them care about and consider important.

I am going to highlight three of my observations from the event – three factors that helped build this spirit of togetherness.

  1. Each of the functional groups is facing similar pressure to increase delivery of measurable value. This means a need to expand their role and thinking – and to achieve this, building bridges between each other is an obvious way to generate more creative, more successful solutions and outcomes.
  2. At this event, even more strongly than in the past, there was a clear consensus that the approach to formation and management of trading relationships is changing. The integration of ‘the contract’ and ‘the relationship’ lay at the heart of many presentations and case studies, with focus shifting to the terms that support improved governance, greater adaptability and proactive performance management.
  3. There is a new enthusiasm and belief in the opportunities that lie ahead of us – in particular from new and emerging technologies. With ContractTech a major feature of the event, delegates were given multiple insights to an exciting future, where the quality of data will enable a shift of role and business influence.

For several years, IACCM research has pointed to the scale of value erosion that comes from weaknesses in the way we form and manage contracts. While a few organizations have picked up on this and driven significant improvements, most have not. Suddenly, the reticence is disappearing; there is a real belief that a focus on ‘relationship resource planning’ can yield the next big wave of savings – and that the IACCM community, with its ‘collaboration across boundaries’, will be at the heart of the movement that drives these benefits.

Has Procurement really changed?


The field of Procurement has been undergoing rapid and significant change.  All the experts predict that the era of change is not over – indeed, quite the opposite – it is speeding up.

How successful has Procurement been in making the adjustments expected of it? IACCM has been undertaking research – ‘Procurement Present & Future’ – to find the answer and to discover priorities for further improvement. While input from the function itself has been welcomed, our particular focus has been  on those who interact with Procurement – other internal functions and stakeholders, plus suppliers.

What’s the verdict?

There is widespread agreement that Procurement has become more influential. This has been especially noticeable in its focus on compliance and allocating greater risk to suppliers. Around 70% have also noted the relentless pursuit of lower prices, with around a third noting a shift towards the broader measurement of ‘cost of ownership’.

Given these observations, it is not surprising that few perceive Procurement becoming better at building collaborative relationships. In fact, internal colleagues actually think that Procurement has gone backwards in this regard; supplier personnel are a little more generous, but still only give a rating of 6 out of 10 for this capability.

SRM is a bright spot; technology gets mixed reviews

Supplier Relationship Management (SRM) receives positive reviews for the contribution it makes to improved results. Category management is also seen as helpful. In organizations where they have been introduced, both of these initiatives link to perceptions of increased professionalism.

Technology has been an area of major investment for many Procurement groups, so has this generated a positive return? Views are mixed. There is consensus that systems are generating better data, supporting improved conversations and performance management. However, outside Procurement, there is no great feeling that automation has streamlined procedures, nor has it resulted in fairer rewards. Indeed, suppliers identify procure to pay systems in particular as overall damaging to business results and the ‘fairness’ associated with contract award.

So does it add up to greater value?

Overall, the results support the view that change has been occurring. Certainly Procurement appears to have been increasing its control and making its presence felt – and it is not surprising that these characteristics are not popular with everyone. But of course the real question is whether those increased controls are starting to deliver real business benefit. That is where the jury appears still to be out. Scores in areas such as business judgment, delivering innovation and operating flexibly are on average negative – and this sums up to very mixed views on whether Procurement has actually increased its business value contribution in the last five years. By a small margin, suppliers feel that value has increased; by a slightly larger margin, internal colleagues feel that it has not. Clearly, there is still progress to be made – and the pressures for rapid change will only increase.

To participate in the IACCM survey and receive a full copy of the ‘Procurement Present & Future’ report, visit https://www.research.net/r/Procurementpresentandfuture

Failed outsourcing? Don’t blame the other side


New research will be presented at the IACCM Americas conference next week. It shows that levels of trust in outsourcing relationships are often weak or non-existent. Not surprisingly, where trust is low, disappointing or failed results are not far behind.

Without giving away the details (further in-depth reports will be published later this year), a couple of points jump out at me from the findings. First, in spite of all the talk about strategic advantage and innovation, the overwhelming majority of buyers continue to focus on cost reduction as their primary goal and measurement of success when outsourcing. This aligns with previous research which shows that, at least in early years, reduced costs are the main determinant of a ‘good’ project. Only over time do other characteristics, such as innovation or continuous improvement, start to have extensive influence on the relationship.

What I found especially interesting in the results was that the number one reason that buyers give for their unhappiness is that they perceive suppliers ‘under-scope’. This, presumably, leads to regular battles over fee versus free and, in many cases, to additional costs or under-performing services.

These issues of cost reduction and under-scoping appear to me inextricably linked (and were discussed in my recent blog on opportunism). If buyers focus on cost reduction – and therefore base supplier selection on low prices – they can hardly complain if the provider minimizes scope in order to win. This syndrome is evident in industry after industry and, sadly, suppliers who try to warn buyers about the consequences of this approach simply do not win business. All the evidence we have is that honesty and integrity do not pay.

So if your outsourcing agreement – or indeed any other signficant project – is failing, you should look at the success criteria you established and see whether these drove subsequent behavior. If you want to achieve lower costs, a low-trust and adversarial relationship is the last way you will achieve it. Successful results typically accompany open and honest relationships where the parties are not punished for speaking the truth.

Uber’s biggest failure: contract management


One of my colleagues recently met a marketing executive from Uber at an airport. While talking, my colleague observed:’Uber is really a giant contract management company’. His comment was met with a puzzled look, followed by the reply: ‘I’ve never really thought about contracts’.

Ten years ago, there was the financial collapse. Before that, Enron; and since then, a multitude of highly publicized cases of major public sector waste and, in some cases, corruption. The common factor in each of these? All of them were running operations that relied on integrity in their contracts and contracting practices, yet with senior management that either didn’t know or didn’t care about the underlying lack of visibility and operational discipline.

So what about Uber?

Contracts – and the way they are formed and managed – is the core of Uber’s business. They establish contracts with their drivers; users of the Uber app accept its terms and conditions; regulators require contracts as part of the license to operate. It is the commercial design and interconnections between these contracts that should provide the source of the company’s overall integrity.

So what should Uber be doing differently? I’m certainly not suggesting that there has been any form of corruption. The issue is more to do with alignment. Good contracts and effective contract management are based on thorough stakeholder analysis and reconciliation of different (sometimes conflicting) stakeholder interests. In its race for growth, Uber appears too often to ignore or disregard key stakeholders, or to ensure compatibility between the various relationships it establishes. It has operated with an arrogance or ignorance – I don’t know which – that is now bringing inevitable repercussions, in particular massive damage to its brand.

Uber is not alone in failing to use a disciplined contracting process to drive operational performance and standards. In a recent IACCM survey, the role of contracts in supporting corporate values and brand image came in bottom place. Yet in my view, it should always be top. Contracts should test, validate and reflect the brand. You cannot, in an age of growing transparency and heightened consumer expectations, get away with marketing one thing and contracting for another.

The fact that a senior marketing executive could be so dismissive perhaps offers a further clue to the problems Uber faces – but also suggests a path through which it might find redemption. Analyse your contracts, understand their interdependencies, test their integrity and alignment with corporate goals and values. Through this approach, businesses can rapidly identify and address many of their commercial weaknesses and failings. It is something IACCM member companies are fast recognizing and is one of the core values the Association provides through its annual process reviews and benchmarks.

It’s time for Uber to take a corporate membership!

 

 

Step to the side – it’s where you’ll find the opportunities


Many of the jobs in procurement and sales contracting are squeezed into the middle of the process – that is, the part that starts with preparing or responding to bids and tenders, ensuring compliance, preparing and perhaps negotiating the contract. While these are important activities, they are also highly replicable and therefore threatened by automation, standardization and outsourcing. IACCM estimates that job roles focused on these activities will reduce by some 80% over the next five years.

This means that many of today’s practitioners need to focus their efforts somewhere else, providing support or leadership in areas that either are not so impacted by automation, or alternatively are new roles being created as a result of automation. The good news is that such roles not only exist, but also they are increasingly a focus for management attention.

To prepare for these changes, IACCM recommends that its members think about the performance and integrity of trading relationships. The inefficiencies in managing across organizational boundaries offer remarkable opportunities to generate improvements and measurable business value, in both pre-award and post-award management. To achieve this, we need far more focus on the market, an understanding of new suppliers, new forms and sources of competiton, trends in delivering customer value. Building commercial capability requires not just understanding, but also coordination of internal resources to ensure that these sources of value and differentiation have been developed. Such changes will drive new contract models, alternative approaches to pricing or charging and closer integration across organizations.

A holistic view of commercial performance is something that almost all organizations currently lack. Fragmented investments in technology have not helped the situation. But the new wave of analytical software tools is starting to offer very different insights and the ability to prioritize and tackle key sources of value loss and opportunity erosion.

IACCM will shortly release a series of podcasts with advice on how today’s practitioners can make the shift in their role. Alternatively, discover the answers at IACCM’s forthcoming conferences – see http://www.iaccm.com for details.