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Getting to grips with complexity


“An organisational tendency to cultivate complexity.”

That expression comes from Australian Bank Westpac in a self assessment into its internal culture, governance and accountability.

How many large, mature organisations wouldn’t find the same? People and professions tend to flourish on complexity. It justifies their position. It represents status and power. It makes them special.

Contracts and contracting processes are a case in point. They are a mystery to most people and practitioners regularly observe the steady growth of complexity. This takes a variety of forms – more complicated terms, longer agreements, the impact of increased regulation and risk management, more review and approval.

But is this growth of complexity inevitable, or is it that most organizations share the Westpac tendency to ‘cultivate complexity?’ How many of us truly aim to simplify, to see our role as having a responsibility to challenge and eliminate complexity – not just on a periodic basis, but as a core value of what we do?

Power, politics and the individual


When we use or compete for power, how often do we reflect on the impact this has on individuals?

I have been corresponding recently with a contract manager in Iran – a deeply troubled country, struggling to recover from a turbulent past. As with so many parts of the Middle East, it suffered for many years from the the power politics of competing empires and their economic interests. Today, it suffers from internal tensions that spill over into regional and international confrontation.

My correspondent is dedicated to contract management. He has worked hard and industriously to raise his knowledge and competence. He would like nothng more than to continue that development and to contribute his expertise in a more settled environmant, where his skills can be used to much greater effect, generating social and economic value.

Potential employers in Europe and other parts of the Middle East recognize his capabilities. In recent months, he has had three job offers. On two occasions, work visas have been denied. In the third, the offer was withdrawn out of fear of sanctions. In every case, the issue is driven by the stand-off between the governments of Iran and the United States.

Power battles are a reality and we certainly cannot change them any time soon. But stories like this cause me to reflect on the fact that behind every power battle there are people – individuals whose lives are impacted, often quite fundamentally. All of us in contract and commercial management are potentially part of that power-based thinking – the terms and conditions we seek to impose (are they fair?), the negotiation strategies we adopt (are they win-win?), the way we handle supplier or customer relationships (are they equitable?).

To a degree, attempts to establish power are an inevitable consequence of competition and, within limits, can be productive and beneficial. But when we simply aim for power for its own sake, or use it without thought or to tip the balance unreasonably in our favor, it is not only destructive, but also creates tensions that may spill over into confrontation.

It is easy to shrug our shoulders and see this as someone else’s problem, or take the view that this is just the way of the world. But is it really the way we want the world to be? And even if our own individual efforts can only be small, cumultatively they would be large. Fairness and balance in contracting practices would deliver a tremendous social and economic benefit – and perhaps even start to influence areas of political thinking. In the end, I just hope that my Iranian correspondent – and many more like him – can realize his ambitions and be allowed the chance to contribute his talents to the world.

Talent: what’s the answer?


A recent report from CAPS Research states that 70% of companies are experiencing a supply management talent shortage. Almost 40% say that recruiting in this field is more challenging than for any other function.

That finding is borne out by The Hackett Group’s latest ‘Procurement Key Issues’ report, which identifies ‘aligning skills and talent with business needs’ as a top challenge.

At the same time, there are consistent indicators of a downward trend in Procurement’s budget and headcount – and only about 30% of organizations appear to be doing anything significant to raise skills, attract talent or create alignment.

What’s going on?

These findings from the world of supply management are not unique. As I look across the IACCM membership, similar challenges face those in contract, commercial management and legal. In every case, demand for increased competence is high and there are concerns about the adaptability of the current workforce.

Sitting behind all of this uncertaintly is emerging technology. Everyone senses big changes and we are all aware that repetiive tasks will increasingly be automated. Indeed, that process is under way and explains the drop in the traditional procurement workforce. Where everyone is struggling is in defining quite how the new world will operate – and the classic chicken and egg problem of which comes first – the new talent or the new technology.

Hackett’s report calls for more analytical capabilities, leveraging relationships, enhancing agility and achieving true customer-centricity. There is nothing unique about this – the same list can be applied to every business function. So without urgent action, will our world collapse?

It’s a continuum

The truth is that the shortage of skills and talent has been a recurrent theme throughout history. It is either that ‘young people today just aren’t good enough’ or that ‘existing workers can’t adapt’. Then of course there is the endless fear over the imminent loss of talent and knowledge due to retirement. Many of these concerns are self-contradictory, but htat doesn’t stop the complaining and worrying.

And in spite of all the predictions of doom, our world somehow survives. Perhaps it is simply that people and workers are actually more adaptive than we believe. And behind the scenes, changes are occurring. For example, I observe more and more academic institutions engaging on the topics that are key to business and working to produce far more practical, pragmatic content. This is at all levels of teaching – undergraduate, post-graduate and executive education. The volume of material available to those who wish to self-educate is at unprecedented levels.

In my experience, managers are not all that good at predicting quite what skills are needed for the future and the real issue very often has more to do with overall organizational competencies than with individual or functional skills. So perhaps the fact that so few are trying to ‘align skills and talent with business needs’ is a good thing. Maybe that is better left to individuals and the market.

You want supplier innovation? Then demonstrate it matters


“Innovation was for the first time cited as a top-3 driver for more strategic and collaborative supplier management”, according to research by SRM consultants State of Flux. That observation is borne out by other studies and by the anecdotal evidence from executive statements and annual reports.

In fact, such statements are far from new. So the interesting point here is not that innovation is being sought, but rather that it still isn’t being achieved. And among the key reasons for that is the failure of organizations to really define what they mean and behaviors by Procurement and Legal teams that disincent supplier innovation.

An IACCM study of almost 300 organizations (public and private sector) confirmed ‘we want suppliers to bring us innovation’. Some were even clear that they would punish suppliers that failed to innovate. But reward them? Partner with them? Share in investment or risk? Oh no, we don’t want to take serious steps to help, seems to be the attitude. At best, if you innovate, you may receive follow-on business.

The study is revealing, in many ways fascinating, and it highlights scattered success stories from which we can learn and replicate.

Understanding goals

A fundamental question which many buyers appear not to consider is whether they are looking for an innovative supplier, or a supplier that will specifically innovate for them. The two are not the same and pose very different questions of selection criteria, incentives, risk allocation and relationship management.

For example, a custom innovation demands much closer collaboration, a readiness to share risk and clear evidence of buyer commitment to the process, which may include financial investment.

Today, a high proportion of contracts have an embedded innovation clause. The evidence suggests these have little or no value. Similarly, more and more organizations are developing Supplier Relationship Management programs, but these too are mostly ineffective because they are too narrow in their remit and authority. In particular, they tend to operate as oversight for ‘the relationship’ and see ‘opportunity management’ (if it’s considered at all) from a perspective of self-interest.

The IACCM report on ‘innovation and continuous improvement through supply relationships’ will be issued at the end of June, with a focus on identifying practical solutions, rather than just confirming that there is a problem.

Contracts and ‘a free lunch’


Contract performance can be undermined by strange and unpredictable factors. Such is proving to be the case in the A$50bn project to build a new fleet of submarines for the Australian Navy.

The contract was awarded to the Naval Group, a French company, in 2016, after a lengthy bidding and negotiation process that involved a number of international competitors. While there will eventually be substantial work undertaken in Australia, the early phases of the program have involved the relocation of Navy and Defence personnel to north west France. And, according to the Australian Broadcasting Corporation, they are not happy, with ‘numerous frustrations’ causing growing conflict with the supplier.

Understanding risk

Any good risk analysis will anticipate tensions in the performance of a long term contract. Indeed,  I know from conversations at the time that ‘cultural factors’ were considered during the award process for this particular program. However, no one expected such apparently minor issues as lunch habits and timeliness of meetings to become major friction points.

“The Australians need to understand the sanctity of the lunch break”, explained Naval Group’s French program director, recognizing that “Not everyone thinks like the French”. Communication challenges have been exacerbated by irritants such as a lack of punctuality (‘diplomatic lateness’) and the traditional French ‘shut-down’ for the month of August.

In reality, none of this should be a surprise and the Australian Defence Department, more than most, ought to be equipped to deal with such challenges. As one of the earliest and most successful adopters of Relational Contracting, the DoD is fully aware of the critical importance of a formal ‘communications protocol’, which is once again emerging as a solution in this case. “The staff will learn how to communicate, hold meetings and work in French-Australian teams”, explained the head of HR, recognizing the importance of training in both communication and behavior.

Dealing with the unexpected

A key lesson from this situation is that no risk register can realistically anticipate every issue and nor would it be efficient even to try. However, what can be anticipated is that there will be unexpected events and that there must be formal and agreed mechanisms for their resolution. Whether or not such mechanisms are embedded into the contract, or simply operate as a mutually agreed and documented protocol, is not important. What is essential is that the parties have the maturity and attitudes needed to establish and maintain collaborative working and that they use the disciplines associated with good contracting to define and agree the managerial and operational mechanisms that will underpin a sustainable relationship.

A communication protocol is one of the nine key tenets of IACCM’s relational contracting model and workshops, used successfully in a growing range of complex contracts and relationships within both Government and private sector projects. The Australian Department of Defence was one of the early adopters of this model, now used successfully in multiple programs.

Three easy steps to reduce contract cycle time


On average, the cycle time to conclude many contracts is increasing. This is counter to business needs and strategies. So what can you do about it? Here are three easy steps – at least easy to explain, but often harder to get through the innate resistance to change that’s endemic to so many organizations.

1. Simplify your contracts. Make them easy to understand. One global consumer goods company reduced supplier in-boarding from an average 14 weeks to 4 weeks just by making its terms easy to understand. A multi-national telecoms provider cut the frequency of business customer negotiations by 60% through a similar initiative. For inspiration, visit the IACCM Contract Design Library at http://www.iaccm.com.

2. Start from a different place. The battle of the forms is alive and well – and in most cases just a pointless tradition. Challenge yourself and your trading partners to think and act differently. Start from a position of balance, from where you’re likely to end up. Big corporations are starting to adopt the IACCM Contracting Principles for many of those contentious, hard-fought terms that bring little intrinsic value. Take a look at the principles and how to use them at http://www.iaccm.com.

3. Think the opposite. Rather than asking ‘what can I stop reviewing?’ ask instead ‘why do I need to review anything?’ Become serious about streamlining the process. Analyse what you are reviewing and why. Identify methods to truly eliminate or reduce the need for review – for example, market-appropriate terms, dynamic playbooks, effective risk scoring, fall-backs, practical use of technology.

it’s time to bring contracting into the 21st century and free up time from low value activities that simply delay and frustrate the business. Others are doing it. So can you. If you need help or advice – or links to those leaders – get in touch.

Despite technology, contract cycle times are lengthening


Read most corporate strategies and words like ‘speed’, ‘accelerate’ and ‘velocity’ jump from the page. Boards and executives understand the importance of rapid change, the ability to be adaptive to unpredictable events and market conditions.

Contracts sit at the heart of this. They are the instruments through which much of that change is enabled. Cutting cycle times sits at the heart of the corporate agenda.

With so much pressure, the time it takes from bid to contract surely must be reducing. Digitization is bringing ‘frictionless commerce’; organizations continue to invest heavily in new technology; cloud-based solutions offer much faster implementation and adaptation. But overall, the benefits from all this investment and top-down pressure just aren’t occurring. While cycle times on high volume, simple sales and acquisitions have improved, those on more complicated (and important) relationships have on average lengthened.

IACCM’s recent research points at several causes.

1. The number of stakeholders involved in review and approval continues to increase.

2. While automation is proving increasingly effective for commodity acquisitions, it has struggled to streamline more complex types of contracting – often because of challenges in gaining internal adoption.

3. Continued fears about risk, regulation and reputation are proving critical barriers to process change. As our recent study on Self-service Contracting indicated, most organizations are struggling with increased empowerment.

Ultimately, the executive focus on speed is driven by their view that failure to move fast and flexibly will be a source of lost competitiveness and a threat to business survival. Unfortunately, the data suggests that for most, the message simply is not getting through.