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Commerce and Contracting: Why I Care


Contracts and commercial management are fascinating because they are interdisciplinary. They touch and require a degree of understanding of every facet of a business or organization.

My first exposure to contracts was from a financial perspective, working with Procurement to analyze and control purchase cost. In my role as a Financial Analyst, I discovered the multiple economic factors influencing prices, including government policies and interventions. In 1977, I recall presenting to members of the UK parliament on how prices and incomes legislation, far from subduing inflation, was in fact embedding it within the contracting process.

At that time, most contracts were letter agreements. In the context of local, long-term relationships, this level of informality worked well. But then my responsibilities expanded and shifted to supporting sales in export markets. There, a lack of formality frequently led to a lack of clarity and understanding, resulting in later disagreements. In driving a shift from the exchange of letters to a jointly signed agreement, I recognized my ignorance of law, so made that my next field of study.

Over the years, I have been in roles that brought me into direct contact with Sales, Marketing, Engineering, Product and Project Management, Risk, Audit, HR, Logistics – the list goes on, because in different ways and at different times every one of them impacts and is impacted by contracts and commercial policies and practices.

Today, those impacts and interactions are frequently described as ‘friction points’. In that sense, it takes me back to the beginning, to cost analysis, because every friction point represents a cost. Yet I have learned that we often seek to eliminate costs at our peril. By limiting interactions and constraining conversations, we may destroy opportunities to create value or we simply shift costs to another point in the acquisition or delivery cycle. We also lose opportunities to innovate, to introduce new ideas or methods.

Commerce and contracting are never static. They lie at the heart of business complexity and design. Because they are so multi-disciplinary, they have received limited attention from academia and often defy the attentions of top management. Yet slowly their central role in improved economic and social understanding and cohesion is becoming appreciated. Today, organizations need dedicated contract and commercial professionals and, for 21 years, IACCM has supported a growing body of highly-qualified practitioners. But that is not enough. The world also needs a powerful institutional champion for better commerce and contracting, for the research, standards and advocacy that will better serve the many disciplines which depend upon them.

This is the reason behind changing our name to World Commerce & Contracting, for expanding the role and mission performed by IACCM. Through increased knowledge and understanding, we can aspire to a world where every trading relationship delivers social and economic benefit. It is a big ambition that may never be fully realized, yet its benefits are obvious.

And that is the reason why I care.

Protecting Supply Chains


Many supply chains were fragile before COVID. Now, they could rapidly fall apart.

As organizations struggle to conserve cash and cut costs, the impact simply moves down through the supply chain until the weakest links snap. And then what?

In this podcast, supply management expert Jens Hentschel and commercial and contract management professor Tim Cummins discuss the challenges created by the pandemic and share their thoughts on how customers and suppliers should react to protect on-going supply.

How does your team stack up?


Twenty-five years ago, I was leading a project at the IBM Corporation to develop a worldwide contracting process. The world was in a state of turmoil, with new technologies breaking down boundaries and geopolitical change challenging established norms.

At IBM, we knew that we had to change – and we had to do it fast. The market was demanding products and services that would equip them for this altered environment. Our management systems, our measurement and reward systems, our internal technology – the Corporation faced a need for fundamental transformation.

The role of contracts …. and the contracting community

Until that time, contracts had been designed to support local markets. Transactions occurred at a country level. Processes and resources were also developed locally. So even as we rapidly re-engineered our contract terms and models, we still faced a critical challenge – the people to support them. Back then, we did not even know who those people were, whether they actually existed. It took months to explore how contracts were assembled, negotiated and managed in the different operational teams around the world. And even when we had found those answers, we had no insight to levels of skill or knowledge.

That is where a formal Competency Assessment became critical. We had to develop a consistent definition of the skills and knowledge we considered critical. We had to develop a tool to assess the community of people performing contract and commercial roles. We needed to understand the extent, nature and geographic variability in strengths and weaknesses. Only then could we start to design and build a worldwide team capable of supporting the business.

Making your team stack up

The re-engineering project was a massive success. It equipped IBM with a high-performing contracts and negotiations function that was an important pillar in its survival and growth in those uncertain and demanding times.

My learning from that time was put to use a few years later, with the formation of IACCM (now World Commerce & Contracting). The Association developed a world-leading approach to Competency Management, not only drawing form that experience at IBM, but with the added ability to provide in-depth benchmarks. Today, an organization can undertake the skills and knowledge assessment, it can identify relative strengths and weaknesses across its team – and it can also make comparison with the outside world, answering questions like ‘How do my negotiators stack up against industry norms?’ or ‘How diverse is the knowledge and experience of my commercial team against those of our top competitors?’

Insights such as this create a true capability to ensure that your team stacks up. It informs talent development and acquisition. It supports targeted investment in training. It enables monitoring of progress. In the words of one Vice-President of a large contract management team: “The skill-set upgrade initiative is based on talent scouting/hiring, investments in training, and the World Commerce & Contracting certification program.  We have been using the World Commerce & Contracting Competency Management Program for the purpose of comparing our contract managers against the market.  Whilst I am fully aware of potential constraints, it is the best model we could think of and has helped big time to show the needs and the progress in terms of people investments to our senior management.”

We are once again in turbulent times, with boundaries shifting and a need for highly adaptable people and systems. In the context of these demanding conditions, how does your team stack up? And how do you, as an individual, stack up? World Commerce & Contracting provides its members – both individual and corporate – with the ability to discover the answers.

Starting September 14th, the World Commerce & Contracting TASK program addresses the topic ‘How do you and your team stack up?’ 

Does uncertainty make you unhappy?


According to an article in Time magazine, the answer is yes. It reports on a study that found ‘people are more stressed when there is a possibility they will experience discomfort’. Given the many uncertainties we face today, this finding matters. It suggests that all of us must be really unhappy.

But hold on! The study was based on people choosing from a group of rocks – and seeing whether the one they chose had a poisonous snake underneath. This scarcely represents an attractive opportunity, with the only upside being that you don’t get bitten. The uncertainty we face today is not like that. For those who have imagination, who are ready to adapt, there are always opportunities.

So how is uncertainty affecting you?

Talent: do you have what it takes?


Rapid adaptability and a readiness to change: those are critical characteristics if we want to flourish in times of uncertainty. So that means we must be ready to do things differently, to respond to change by quickly grasping the ways that our work and output must adjust.

Not everyone gets this – many feel challenged or even immobilized by change, especially those whose job role and training has focused on avoiding risks and ensuring compliance.

The way ahead

The current IACCM study of the Most Negotiated Terms confirms this tension. Most current negotiations remain focused on traditional areas of risk allocation, yet beneath the surface there is an encouraging shift towards terms that are important in managing uncertainty. A high proportion of respondents indicate that they sense the need for a change of approach, towards a greater focus on collaboration, transparency and terms that will support on-going management of the contract and relationship post-award.

This wish for change is not new, but COVID-19 makes it more pervasive and urgent. Yet for all the aspiration, there remains a sense of resignation that it won’t happen. Many feel there is just too much resistance, internal and external.

So should we give up? Clearly not – developing more sustainable trading relationships is an economic and social priority. We must develop commercial frameworks that support recovery and future growth. And an encouraging finding from the IACCM survey is that about a third of negotiators recognize that they are currently part of the problem – that they do not have the skills and training needed for this new era.

What is missing?

Although many negotiators espouse ‘win-win’ in concept, very few have really grasped what this means in practice. The talent we need today is to develop influencing skills that can be applied across the lifetime of a program or relationship. This means commercial teams need to be involved from inception of the opportunity; they must engage with customers or suppliers to ensure a common sense of how value will be achieved; they must understand the concerns or needs of all stakeholders and build empathy and trust that those concerns and needs will be addressed.

Changes like this don’t just happen. We make them happen by being ready to adjust our behavior and approach: so what must we do to develop influence?

  • Make others believe they will get what they want or need;
  • Make others feel important;
  • Connect with positive emotions;
  • Make others feel empowered;
  • Show respect for their opinions;
  • Work to coordinate, not to instruct;
  • Demonstrate sympathy.

How many of those attributes do you and your commercial colleagues exhibit today? Without them, you do not have what it takes to support the future.

Visit IACCM for the next phase of its TASK program, addressing the topic ‘Developing Talent & Building Your Resume‘.

Will lawyers undermine our recovery?


People want change. Many believe there will be change, real change, as we emerge from the pandemic. Even politicians are being forced into fundamental reassessments of their policies, proving adaptive, acknowledging their mistakes and errors of judgement.

The current IACCM survey of the Most Negotiated Terms reveals a similar hunger and aspiration for a fresh approach. Commercial and Contracts professionals grasp the importance of increased transparency, better and more efficient communication, more intelligent approaches to the allocation and management of risk. They want to increase the level of collaboration between customers and suppliers because they know it is the right thing for their business and its future resilience.

Has anyone told the lawyers?

I am worried. That’s because, in a series of interviews with in-house counsel, we are hearing that many are going in the opposite direction. Take this quote from a senior lawyer in a large technology and services company as an example:

“Negotiations now are definitely different because of the future uncertainty – we are all trying to work out how best to handle it. But things go downhill once the buyer’s lawyers get involved. They seem to see these increased risks as a need to become even more unreasonable, to impose even more onerous terms on the supplier.”

The challenges created by the pandemic are universal. It did not discriminate between buyers and providers. Successful emergence requires a spirit of compromise and a readiness to work together to identify and resolve future issues. A narrow focus on protecting ‘my client’s interests’ at the expense of the counter-party is sure to backfire. Negotiation has to move attention towards terms that support open communication, reporting and governance. This includes an honest conversation in sensitive areas such as change management, rights of delay, ways to reduce the likelihood of supply disruption. Organizations that fail to address such topics and simply seek to place all risk on the counter-party either lack understanding of the market, or are operating in denial. They are probably best avoided.

A shift of thinking and approach

We know from our interviews and surveys that this problem of legal attitude is not universal. For example, the recent webinars that IACCM conducted with law firm Baker McKenzie illustrated how highly experienced lawyers appreciate the need to think across the entire acquisition lifecycle and set terms accordingly. But a universal shift of thinking and approach is urgently needed. No matter who is negotiating, they must do three things:

  1. Make an honest appraisal of their own organization’s position and the potential threats to its ability to honor commitments.
  2. Perform a similar analysis of their counter-party, where necessary asking tough questions and gathering data to understand their strengths and weaknesses.
  3. Have an honest conversation about ways they can best work together to either reduce or handle the risks they anticipate or the areas of potential weakness they observe.

This expanded view is not customary for many law departments, often because they are not involved early enough in the process. That must change. Every in-house lawyer should ask themselves whether they are doing what is needed to support growth and recovery.

Belarus: an indictment of power


So many recent events have made us aware of the use and abuse of power. Many times, this is so embedded that we accept it as normal. In so doing, we perpetuate inequality and stifle opportunity.

The situation in Belarus is just the latest example of an autocratic ruler defying his people. The stories and pictures are horrific and must be condemned. If we ignore what is happening, or perhaps dismiss it as inevitable in former Soviet states, we are in fact condoning the use of force in repressing legitimate human aspiration.

As the free world increasingly reflects on its past and future, I think we are starting to see how power creates a destructive dynamic. It underpins abuse, it justifies discrimination, it generates conflict. People are about more than this, they are better than this. Through a commitment to collaborate, we build empathy and understanding. We build trust and collectively stand up to the growth and misuse of power.

In business as in society, we need a new and better way – an approach that creates sustainable  relationships, that operates to values that result in a fair distribution of economic and social value. Power conflict has dominated human history, but that does not mean it has to dominate our future. Many of those in the world of commerce are turning away from the theories and practices of power-based negotiation and management and recognizing we must work together to build and conserve our world and human society.

As individuals, we can make a difference by calling out those who, like Lukashenko, show no respect for fundamental human values. It is time for change. It is time for us to build that better world.

 

Commercial Innovation …. or Inspiration?


Commercial innovation lies at the heart of human progress. It is through commercial innovation that we have created the conditions for successful invention, the framework for trade, the access to goods and services.

Innovation is clearly fundamental for any successful commercial and contracting practitioner. But we must accept that we are not all innovators; in most cases, the important point is that we encourage and welcome innovation, that we do not resist the benefits of change.

What about commercial inspiration? Where does that fit within the job role or personal characteristics of commercial professionals? The answer is that it has a massive role to play – never more so than in these testing times of worldwide uncertainty.

Inspiration is defined as ‘being mentally stimulated to do or feel something, especially something creative’. This implies a strong link to innovation, but they are quite different. Perhaps most important, while not every commercial practitioner can innovate, every one of us should aim to inspire.

Tackling barriers, grasping the opportunity

Back in 2018, IACCM undertook research with the support of behavioral psychologists. We identified that the most common characteristic among commercial staff – whether legal, procurement, contract or commercial management – was ‘preventism’. Essentially, that meant they saw their role and value primarily in terms of preventing bad things from happening.

Inspirational? I think not – and a direct consequence of this characteristic is that colleagues from elsewhere in the business frequently view commercial teams as people best avoided, as people who tend to come up with problems. Clearly, this has a massive impact on our influence and status.

COVID-19 has thrust many commercial groups to the forefront as they seek answers to the many challenges and issues that have arisen. Often, those answers are themselves inspired, or have perhaps proved inspirational to others. As we move forward, we must retain this ‘can-do’ spirit and ensure that commercial management continues to occupy the high ground. Today’s uncertainty and volatility is not going away. The need for more rapid and creative solutions remains essential for business survival – and, at a personal level, to career opportunity and growth. It matters little whether you are inspired, or whether you inspire others – the key is that there is inspiration and that it is associated with you!

IACCM’s TASK program – helping the commercial community to emerge from the pandemic and flourish in our altered world – continues with the topic ‘Inspiration in the face of change’. Join us – and be inspired!

 

The end of Procurement


COVID-19 is prompting numerous changes in society, the economy and commercial relationships. Many are changes that would have occurred anyway, but the pandemic is generating a new sense of urgency. Examples range from the massive debates over racism and equality, to a rethink of economic management, the discussions over working from home and the need for increased collaboration in trading relationships.

Back in April, an article in the Financial Times highlighted one of the critical issues facing businesses. “Too late, many executives and owners have realised that by pursuing the holy grail of ever greater efficiency, they sacrificed robustness, resilience and effectiveness. In many cases, they will turn out to have sacrificed the business itself.” Already, in spite of government support programs, this is turning out to be true – for example, in June, business bankruptcies were up 43% on the previous year.

Much of the fragility in supply chains is a direct consequence of the procurement practices of the last 20 years. Investors, corporate boards and politicians are grasping the urgency of change, the need for a fundamental re-think of supply strategies and relationships. Clearly, Procurement as a function must lie at the heart of this review.

Digitization plays a big role in this new thinking. It is not only that it offers streamlining, but it demands a re-think of business processes to ensure the right data flows and the delivery of value. This is one of the changes that represents a fundamental change for Procurement. A digital process creates the need for an integrated life-cycle view, from definition of requirements through to contract close-out or renewal. With this comes a fundamental change in accountability and measurement, with a focus on value over time rather than cost at a moment in time.

A second major force is the urgency of building resilient supply chains. This demands more collaborative supply relationships and increased transparency. Achieving these depends on increased levels of trust – and therefore a focus on the quality of the overall relationship, rather than on individual transactions.

‘Procurement’ remains an activity within this longer-term thinking, but must support the altered priorities. The roles of the future will focus on market management, economic assessment, funding and relationship quality. In fact, some procurement professionals have been steadily shifting into these more holistic roles – but this trickle is now set to become a flood as the old ways are abandoned.

For many, ‘Procurement’ has long been a tainted brand and they will not be sorry to see its demise. There have been many debates about potential name changes and re-positioning. Now, the nature of the change is much more fundamental than just a change of name. Among the big questions are how fast today’s practitioners will awaken to the need for reskilling and whether they will make the transition in time.

Supplier loyalty: now there’s a concept


Businesses are naturally worried about the resilience of their supply chains. COVID-19 was full of surprises, not only regarding the frailty of many suppliers, but also discovering just how extended their supply chains have become and how little transparency exists.

Early in the pandemic, businesses sought alternative sources of supply and started work reviewing their sourcing strategies. This led to a range of options being considered, including bringing activities back in-house, shifting supply to on-shore or near-shore alternatives, increasing stock levels and multi-sourcing. Many also started to reevaluate the economics of recent procurement wisdom – in particular, if supply chains have now become so extended, does that not mean they are innately inefficient and costly? Has the mantra of low-cost sourcing actually led to the opposite effect in terms of final cost?

Low cost sourcing has been pernicious in its effect, in particular in its destruction of investment and loyalty. Given the constant threat of re-bidding, suppliers have been forced to focus on short term cost reductions as the primary source of customer value. This sense of ‘disposable relationships’ has permeated many areas of global trade.

How did we get risk so wrong?

This week, the Sourcing Industry Group is promoting a webinar posing the question ‘How did we get risk so wrong?’ It acknowledged that the “COVID-19 crisis just exposed how weak the collective Supply Chain and Procurement industry was at doing risk planning. For years, cost savings has been the primary strategic objective at the expense of risk, innovation, and corporate social responsibility. The crisis isn’t even over and this lesson has become abundantly clear. Therefore the value equation has to fundamentally shift. But, how far do we go? How do we prevent over-indexing the other way? What other factors do we need to consider?”

The thing that amazes me is that organizations that represent the sourcing profession can still be asking this question. Why did so many get it wrong? Maybe not listening to the market. Paying too much attention to consultants and analysts. Believing that success comes from following the CFOs orders, without regard to the wider stakeholder community. Grasping at straws like ‘we are going to be at the top table’. Procurement had a strong run for 20 years, driven by the opportunities created by globalization and automation. Its actions had massive impact on our world, good and bad. Change is now long overdue.

How do we fix it?

One part of the answer lies in the comments above – by listening more, by acting as team members truly focused on output and outcome value, rather than input cost, by supplementing or replacing its inwardly focused transactional technology with tools and systems that facilitate ‘relationship resource planning’, operating across enterprise boundaries.

New technologies must be deployed to provide heightened levels of transparency and increased flows of data between organizations and throughout supply networks. The European Commission is already looking at how to do this on an EU-wide basis, so surely we can get to grips with implementing new approaches at an enterprise level. New platforms offer far more efficient and dynamic ways to monitor markets than the traditional approach of regular re-bidding. And with those new methods comes the opportunity to build increased loyalty between buyers and suppliers, for both to establish the levels of trust and collaboration that are fundamental to stability and growth.