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Wake up to a new world view


Business imperatives are changing fast. The walk-out by corporate leaders from the Trump administration business councils is just one indication of the shift taking place in boardrooms. Exercising good commercial judgment is increasingly tough, yet critical for success.

Ethics. Collaboration. Innovation. Leadership. These are among the terms frequently used in corporate strategies to describe the attributes that a business must now demonstrate. They are closely interconnected values that demand fresh thinking and attitudes throughout an organization.

This implies substantial change for functions such as contract management, legal or procurement. To remain relevant, they need to become more visible in business decision-making; but that relevance depends on demonstrating creativity, adaptability and holistic behavior.

Long-term business success has always depended on innovation and problem solving. What has changed is the extent to which those characteristics must be achieved through working more collaboratively with others, at far greater speed, and under the ever-watchful eye of social media. The challenge for commercial staff is that their work is often viewed as risk-averse, adversarial and a cause for delay. Whether or not such a view is merited is not the point: just as with business itself, a positive image is fundamental to survival.

The media is full of stories about the elimination of traditional jobs and professions, yet values such as ethics, collaboration, innovation and leadership will not be delivered through machines. Commercial understanding – the ability to understand what makes a business successful, through either buying or selling products or services – lies at the heart of these attributes. But the demanding context in which commercial understanding must now be delivered requires a far more outward-looking and inquiring attitude. Too often, legal, contracts and procurement groups do things a particular way because that is the way they do them; they fail to challenge themselves and others to think differently. Yet thinking differently is now the core of commerciality.

Steady reform is not enough. To build a new image and to gain true relevance, commercial teams need reinvention. One way to get started is through a ‘hackathon’, an approach that has been used successfully by a number of groups. Ultimately, we must find a way to automate or eliminate traditional tasks and focus efforts on supporting dynamic, creative business models and relationships. To be considered commercial experts, we must demonstrate that we are commercially aware – and we don’t do that by denying the validity or relevance of the emerging world view.

Why do we have contracts?


Contracts – there are millions of them and they cost a lot to produce. They have been around for thousands of years. So you might think that their purpose is clear and universally understood.

But it isn’t.

That is the immediate conclusion to be drawn from early results in IACCM’s survey ‘The purpose of a contract‘. To those who work with contracts on a regular basis, this may cause little surprise because they are only too aware of the complex interactions and motivations of the multiple stakeholders. For example, it is clear that the primary interests of a lawyer asked to draft an agreement may differ from those of the cost accountant asked to evaluate profitability or the project manager who is defining a scope of work.

But this variation of perspective is in fact a matter of great concern because the real purpose of a contract is to drive a business outcome, not to satisfy the particular needs or interests of an individual contributor. The fact that ‘purpose’ is apparently in the eye of the beholder and there is no consistent sense of the ultimate, unifying goal goes a long way to explaining why so many agreements fail to generate the anticipated results or benefits.  The problem is amplified by the fact that over 60% of those responding acknowledge that there is no clear point of accountability for ensuring that the contract fulfils its purpose.

The survey results will tell us not only how different functions view a contract, but also the variations between geographies, industries and size of business. For those who develop or negotiate contracts, this will offer an invaluable insight and understanding of how others may perceive the process.

To participate – and obtain a copy of the results – visit https://www.research.net/r/Thepurposeofcontract

 

Automation is creeping up on you


Contract management technology has been around for almost 20 years – and has had remarkably limited impact. While some administrative tasks are now widely automated, the bulk of contract management still depends on human intervention and knowledge.

The fact that so many systems implementations have failed has engendered a degree of cynicism, a sense that contract management is just too complicated for machines to master.

Well, if you are one of those who harbour that belief, it’s time to look over your shoulder because you may be in for a surprise. There is a whole new wave of technology that is rapidly coming over the horizon.

Scarcely a week goes by now when there is not some announcement of a new initiative. Blockchain and smart contracts grab frequent headlines. More quietly, we are seeing significant advances in deployment of artificial intelligence and advanced analytics. And perhaps one of the most immediate areas of impact is NLP or natural language processing.

Behind all these, the forces of digitisation and standardisation are working away, designing and building platforms, codifying content and debating where future contracts will be housed, how they will be designed and the form of global database governance and maintenance. Common Accord, Accord, Open Law, the Open Contracting Initiative …. these are just some from a long list of collaborative ventures that seek to drive new efficiencies in contract creation and management.

Right now, the agenda is being driven by a combination of lawyers and technologists – those who actually manage contracts are notable by their absence. Except, of course, IACCM. The association is engaged in many initiatives, seeking to convene, to coordinate and to ensure the voice (and needs) of the practitioner are heard. We also keep our membership informed through webinars, articles and – most important – our ContractTech track at the IACCM conferences (next up is IACCM Americas, in Toronto, October 11-13).

We can’t force you to look over your shoulder – but it would be the smart thing to do!

What is a commercial powerhouse?


Commercial management is about understanding markets, then turning that understanding into an appreciation of the capabilities needed to meet market requirements and determining whether those capabilities can be developed, sustained and turned into profitable operations.

Given the complexity and pace of change in today’s markets, it is not surprising that the topic of commercial capability is gaining increased focus and priority. It is also leading to questions over how best to create the necessary organizational structure and skills – a ‘commercial powerhouse’.

At IACCM, we have studied this field, undertaken research, developed training for the last 20 years. We have also assembled the world’s only community of commercial management practitioners and an associated ‘body of knowledge’. Fundamentally, commercial competence is not a functional discipline; it is the ability to operate across functions, reconciling stakeholder interests and perspectives to develop a commercially feasible solution.

Many organizations are struggling to adjust to the demands of volatile markets. They are constrained by traditional functional thinking and power battles. They lack the right technologies. They have internal measurement systems that drive contention, rather than collaboration.

IACCM is unique in having created a multi-functional professional association, where members share experiences and use their diversity to create solutions. Our mission is to enable sustainable relationships – and we are succeeding. IACCM member companies are given the insights and the skills they need to handle the commercial challenges of an uncertain and volatile world. By bringing together lawyers, commercial and contract managers, procurement staff, we are transforming organizational thinking and enabling a collaborative approach to market management and trading relationships.

The old world was based on divisions of labor and functional contention systems. The new world requires ‘a commercial powerhouse’ – unified, cross-functional teams with market understanding, who undertake effective assessments of requirements and construct commercial capabilities. Those teams act as a gearbox, driving coherence across trading relationships and facilitating innovation and continuous improvement.

Supplier Relationship Management – a long way to go


In the world of sales, the value of relationships is well understood. A key business goal is to generate repeat customers, to establish a sense of trust and loyalty. This is because, in general, the cost of servicing a repeat customer is lower than the cost of finding and closing new business. Sometimes, it is also true that loyal customers are willing to pay higher prices – or, in the case of less scrupulous suppliers, can be taken advantage of because they are less likely to price shop.

The economics of relationship management is relatively well understood from a sales and marketing perspective and this is reflected in sophisticated segmentation models that generate different levels of relationship support and depth. The range of technologies that are now available has enabled ever-increasing sophistication and variety in the nature and scope of those relationships, taking account of detailed customer preferences, demographics and values to produce targeted and differentiated offerings and terms and conditions.

That same sophistication has been much slower in coming to supplier relationships. Indeed, the more that suppliers have sought to implement strong relationship selling, the more that buyers have felt the need to resist. Global networked technologies opened a world of apparently endless, low cost competition, providing opportunities to achieve price-based savings and encouraging the abandonment of ‘relationships’, which were seen as innately exploitative. Strategic sourcing encouraged a mentality of arm’s-length transactions, controlled interactions and commoditization.

Scrapping relationships came at a cost. Dealing with a constant churn of suppliers has many hidden risks. Loyalty and reliability disappear. Ethical standards become unaffordable. Opportunism becomes the order of the day. One direct consequence of buyer behavior has been a steady growth of national and international regulation, which is now a major cost imposition on business. In other words, the savings achieved through aggressive procurement methods have in large part been eliminated by the additional costs that flow from those methods.

It is this environment which is driving a steady re-think of procurement practices and supply relationships, but often still without the strategic clarity of customer relationship management. Disciplines such as SRM remain confused and struggle in many cases to obtain investment and support. That confusion is evident in the typical program that focuses on a few ‘strategic suppliers’, without having any clarity on the broader approach to supplier relationships in general. As a result, processes and responsibilities often remain confused and benefits are elusive.

Even the most basic analysis quickly demonstrates that today’s practices for establishing and managing customer-supplier interactions make little economic sense. Approaches that are based on lack of trust and openness are by their nature inefficient and frequently self-defeating. While ‘cosy’ and opportunistic relationships are clearly not the answer, what we really need is a shared approach to relational strategies and evaluation – an approach which explores optimised mutual benefit rather than sub-optimal individual gain.

 

 

 

Avoiding the scrap heap!


When it comes to complex contracts and negotiations, scrap metal may not be the first thing you think of. But a recent edition of the Canadian ‘Globe & Mail’ tells us otherwise: “Despite the technological developments in the industry, the trust needed to do business effectively requires a face-to-face approach”.

The article goes on to explain the challenges of validating the integrity of suppliers, the provenance of the scrap and the standards of overall quality control in an industry that is increasingly global. These factors apparently demand site visits, human interaction and physical handshakes.

The arguments against automation reminded me of similar views from recent IACCM surveys – that the best way to improve negotiated results would be to reinstate face to face meetings. In both cases, not only is the conclusion wrong, but it flies in the face of the unstoppable march of technology. Rather than fight this advance, those who want to prosper should instead be thinking about how they can develop and deploy the right automated solutions faster than their competitors.

Let’s go back to scrap metal for a moment. The sources of supply are not infinite and margins are (apparently) low. It surely won’t be long before someone develops a ‘scrapadviser’ app where facilities are rated for their performance. They may even start selling through Amazon or a similar global platform, using industry standard terms and automated negotiation. And when it comes to a specific record of quality and origin, technologies such as blockchain lie at the heart of such information, offering reliable and authenticated data. (For more on blockchain and its potential to transform trade practices, see an excellent summary provided by Bertrand Maltaverne).

While scrap metal may not be top of mind for most of us, I found this story interesting. If something as mundane as the trade in scrap is heading towards technological disruption, just imagine how its going to affect you and your business – since I’m sure your ambition is to avoid ending up unwanted and on the scrap heap!

Shock news: Procurement doesn’t add value!


In a press release published in Supply Management, we learn that ‘a majority of Procurement models are failing to add value’. According to a study by Ayming, a business performance consulting company, less than 20% of executives feel that “their organization has driven significant value from procurement in recent years”.

This news is unlikely to surprise many members of IACCM, since they have voted with their feet and recognized the need to make a fundamental transition in what they do and how they do it. In making that decision, they mirror the two-thirds of survey respondents who see a need for new organizational stuctures and models (though more than half of those respondents have no plan to do anything about it).

What I find shocking is how long it is taking most procurement groups to adjust to the realities of the business and market environment. The scale of dependency on supply networks is certainly not new, nor is the extent of the shift from direct to indirect spend. Complaints that Procurement is detached from the broader business and pursuing objectives that often destroy value have been rampant for years – the ‘better, faster, cheaper’ ethos of traditional purchasing was discredited last century, yet continues to be espoused in the training and measurement systems promoted by most procurement professional bodies. Surely they should be ashamed of the fact that 84% of research respondents see a need for training and upskilling of existing staff – and this after the millions that have been spent in gaining ‘professional’ qualifications from the traditional providers.

Technology is another area where many are failing. They continue to institute systems that were designed for a world of commodities and which are incapable of delivering value through relationships. In most cases, they also have little or no capability to oversee and report on supply networks or ecosystems. The report makes the observation that increased value delivery “means making sure communications between internal and external stakeholders are as seamless as possible and that there is enough flexibility built into the system to accommodate new technologies, such as blockchain.”

I am proud of the vision that IACCM has developed and is successfully helping many of its members to implement. The focus on delivering sustainable benefit through high quality, integrated trading relationships is exciting. In the process, we are successfully challenging and changing many old assumptions and established ways of working. Organizational barriers are breaking down; technologies that enable meaningful reporting and collaboration are being implemented; the role and purpose of the contracting process is becoming understood; and contracts themselves are on the verge of revolutionary change, from instruments of battle and delay to instruments of consensus and efficient operations.

The doorway to value is wide open and increasing numbers are walking through it, escaping the constraints of their past. In the words of General Stanley McChrystal in his excellent book, ‘Team of Teams’: “Accelerating speed and interdependence in today’s world have created levels of complexity that confound even the most superbly efficient industrial age establishment …… Understanding and adapting is not optional; it will be what differentiates success from failure in the years ahead”.