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Let’s turn back the clock …


There are few better ways to establish irrelevance than to be a barrier to change. Could this be the fate awaiting many business negotiators and contract managers, if they continue their reluctance to embrace technology?

IACCM’s most recent survey explored the challenges of ‘protracted negotiations’ – an issue which we know frustrates many senior executives. With technology driving and accelerating most business processes, the world of contracting is an increasingly visible stand-out and barrier to the digital world. Even in those organizations where change is occurring, it is rarely led by the practitioner community. Too often, change happens around and in spite of those who (from a role and function perspective) should be its leaders.

In the survey, practitioners acknowledged the need for faster turn-round times, but the results revealed that current steps are having minimal impact. There is a reluctance to embrace or promote the steps needed to achieve improvement. For example, in many cases they simply want to go back to the past, with over 70% believing that more ‘face to face’ negotiation is the answer. Perhaps they believe that if they just wait, the rest of the world will see the light and the digital world will go into reverse.

There have been plenty of people in the past who shared that belief. Some were even proactive in destroying the technology that they considered their enemy. They did not fare well.

The reality is that negotiation and contract management processes will be supported by automation and it will result in streamlining and improving business results. It is my hope that those who understand these fields best will grasp the opportunity to define their future.

For almost 20 years, i have observed a similar problem with contract management software. Rather than work in harmony with the application providers to develop practical systems that deliver superior results, the contracts and legal community has mostly preferred to stand on the sidelines and criticize. Now we are seeing similar reactions to negotiation software, even though IACCM tests have shown the potential that software has in driving vastly superior negotiated outcomes. In fact, we found that face-to-face negotiation is the problem, not the answer.

Dynamic systems are starting to emerge (for example, from Synergist), where organizations can establish value-based trade-offs, rather than the typical compromises or power-based settlements of today. They reach agreement faster and are far more likely to generate win-win results. But while some practitioners are interested by this direction, most find multiple reasons why it won’t work, or set unrealistic pre-conditions even for running tests or a pilot.

To flourish in the future, people must be ready to innovate, to experiment, to take risks; or they must at least have the courage to imitate those leaders. Because if we are not either innovators or imitators, we are consigned to Warren Buffet’s third category – the idiots. And that is not a good place to be.

The good, the bad …. and the future


4294899_thbIs it really 17 years?

This week I was taken by surprise when messages of congratulation started flooding in. They were a reminder that it is 17 years since IACCM was incorporated, with a mission to put contract and commercial management ‘on the map’.

So how have we done? In those early days, many were skeptical that anyone would care. Today, with 40,000 members representing some 14,000 different organizations, we can probably say that we proved them wrong. Others insisted that there was no point because the role was ‘fundamentally different’ in every industry, as well as every jurisdiction. Once again, with members in 164 countries and from every industry, I think we can assume they were mistaken.

Today, there is an established ‘body of knowledge’, globally available training programs, a respected professional certification standard and vibrant member networks, on-line and physical. A fast-growing research base has taken contract and commercial management from a mysterious craft to an acknowledged discipline. Organizations and individuals consciously strive for excellence, appreciating the value this discipline brings to their business. So can we now rest and say, after 17 years, ‘Mission accomplished’? Far from it – in my view, it is a journey just begun, with so much more it can deliver.

In both business and government, there is demand for commercial innovation and excellence – yet far too little supply of individuals with the necessary skills and thought-processes. Both contract and commercial management remain starved of the right technology. While internal enterprise activities have been automated and streamlined, the same cannot be said of inter-enterprise relationships. And IACCM benchmarks continue to show the challenge of establishing accountability for contract and commercial capabilities.

By their nature, contract and commercial management span multiple disciplines. They are activities that integrate – and therefore have no natural home in the typical corporate structure. That is why they report to so many different places and often lack an executive champion or sponsor. It is therefore ironic when top management complains about the lack of ‘commercial excellence’ or ‘contract management competence’. The answer to this is in many ways in their own hands, yet they fail to make the appointments or the investments needed. And as our research shows, that failure incurs real costs and results in the loss of real opportunities.

So there is still some way to go on this particular journey. I hope to report a real acceleration of progress when we hit our 20th birthday – and I am looking forward to many more joining the party!
 

Is globalization on the retreat?


In the Financial Times (September 7th), Martin Wolf commented that globalization ‘has stalled … and it might reverse’. He cited the unexpected consequences that have flowed from the globalization of markets, such as mass migration and growing inequality, which are reducing public and political support. This is reflected in ‘stagnation of world trade’, even when the world economy is growing, and a reduction in cross-border financial assets and foreign direct investment.

Some reductions are inevitable. For example, there are not infinite business processes or manufacturing activities to outsource and the great wave of this activity is therefore in the past. Geopolitical instability has been accompanied by increased protectionism and trade liberalization has stalled.

At IACCM, we observe some additional factors that may be influencing corporate behavior. Back in the 1990’s, networked technologies suddenly started to enable new – and more remote – trading relationships. This challenged long-established supply chains, eroding old loyalties. Lower prices became the mantra of every Procurement department and existing suppliers were either discarded or forced to move production to low-cost economies. But while purchasing savings might have soared, other business costs often increased. Dealing remotely, across cultures, brings many additional transaction costs, as well as a host of additional business risks – reputation, reliability, regulatory compliance to name but a few.  While globalization certainly brought benefits, it also brought increased complexity.

Now, some 15 years after the great wave of ‘low-cost sourcing’, businesses are more hesitant about their off-shore relationships and, in many cases, more conscious of the true costs. They appreciate the challenges of good communication, of effective audit, of reliability of supply. In a recent IACCM survey, more than 70% of respondents believe that to be effective, negotiations must be face-to-face. So our virtual world continues to have limitations and as with all great waves of change, initial enthusiasm is followed by a period of reflection.

 

Do we actually care about results?


The quality movement has been around for decades and regulated trading standards go back centuries, yet still we struggle to generate the right results. Our process for establishing and managing contracts frequently does not help.

Recently, IACCM ran a webinar featuring Warren Smith, a UK Government employee. Warren talked about work he is leading on reducing ‘fraud and error’ in public sector contracts. While precise numbers are difficult to establish, he believes that the amount at stake averages some 4-6% of contract value. This number is consistent with the findings of companies such as SirionLabs, who provide automated checking and validation services for major private sector clients.

You would think that most organizations might consider savings at this level to be a worthwhile target. With this in mind, IACCM approached members of its public sector Community of Interest, suggesting they might want to connect with Warren and share ideas and approaches. To date, there have been few positive responses – in most cases, it seems to be a matter of ‘Not my job.’ And it isn’t that they then identify someone else – because the answer seems to be that it is no-one’s job and no-one wants to pick it up.

Before those in the private sector dismiss this as a purely public sector problem of attitude, we should all reflect on the many ways in which contract value is eroded. Look no further than IACCM’s ‘ten pitfalls’ to identify a series of areas where more robust contract management could be driving better results. Claims and disputes is a good example: how many of us know the frequency of claims and disputes, how many of us know the underlying causes, how many of us are actively promoting improvements that would reduce the cost? Or what about some of the terms and conditions we insist on imposing during negotiations: do they truly benefit the organization? The thing is that it is easy to retreat into our areas of expertise or what we see as our defined job role, leaving ‘someone else’ to worry about the bigger problems of overall results.

Maybe we should all be learning from the work being done by people like Warren Smith – and the scale of commitment that the UK Government (and some other public sector entities) is showing towards achieving value through commercial excellence.

 

Do you build consensus in a productive way?


Yesterday I received an invitation from HR.com to attend a webinar entitled ‘Disagree agreeably to boost productivity’. The theme of the session is that disagreement is sometimes inevitable, but it does not have to create disharmony or argument. When we operate with openness and respect, disagreement can be a learning experience that boosts value. On the other hand, handled the wrong way, disagreement creates chasms, it undermines cooperation and respect.

Certainly these points are important for all of us to remember, in both business and personal life. However, it strikes me there is a different twist to this principle, which is ‘Agreeing disagreeably undermines value’. And for those of us involved in contract negotiation, this is an equally important principle.

How often have you emerged from a negotiation feeling somewhat annoyed or disgruntled, perhaps not even feeling committed to the result? Far too often, we reach agreement through a process of contention and grudging compromise. Just because we have agreed does not make the process itself agreeable – and that surely is a point also worthy of reflection as we consider our objectives and decide on our negotiating style.

The role of contracts in delivering sustainability


Sustainability and ‘corporate social responsibility’ are the new, fourth dimension of supplier selection criteria (the other three being price, quality and time).

That’s according to Sylvain Guyoton, Vice President of Research at EcoVadis, who spoke today on an IACCM webinar. Sylvain described the evolution of sustainability and the extent to which it is now becoming integrated into procurement practices and, increasingly, a fundamental issue for suppliers. One element of this is the ability to demonstrate CSR standards; another is  acceptance of additional contract terms and obligations.

EcoVadis has seen strong growth as corporations deal with the challenges created by high risk global supply chains, geopolitical instability and increased regulatory pressures and reporting requirements. Cost pressures force business to operate in this complex environment; CSR is the tool through which they manage the resulting supply and reputational risks.

In reality, sustainability has proven to be about much more than compliance. As the discipline has grown, it has resulted in major areas of cost reduction (for example, in more creative approaches to packaging or to logistics) and value creation (for example, through competitive differentiation). But this, to me, is where it becomes interesting that sustainability is still perceived as an area driven by Procurement / Supply Management, whereas in my mind it is much more about Marketing. To succeed, businesses need increasingly to be able to show their CSR credentials and to demonstrate their capabilities proactively. Therefore, I see a growing interest by those responsible for sales contracting, as they look to anticipate market needs and embed CSR principles as a source of competitive difference.

Going beyond this, we are also observing a growing realization that good CSR practices demand different thinking about contracts. Sustainability depends on embedded behaviors and practices within a business, not just words on a contract. This need is adding to the momentum for contracts as effective tools for communication – in other words, they need to be designed and written in ways that ordinary people can understand. It is this which is driving momentum for user-based contracts and the evidence suggests that compliance rates soar as a result.

Therefore I believe the issues that are driving sustainability are indicative of a much wider change in society and business, towards greater openness and transparency – and this means not only new terms and conditions, but also quite fundamental rethinking of the way we develop and communicate our contracts.

Change management: it’s a question of attitude


The need to manage change is becoming more probable and more frequent. Markets, customers, regulators – it is a challenge for business today to remain competitive and to remain compliant. And that situation is often made worse by the extent to which we depend on our external trading partners to facilitate (or even originate) that change.

Why is it that reliance on external providers would make change more complicated? Surely a key argument for outsourcing is that it offers greater flexibility, that it removes the pain associated with internal change programs – so is outsourcing not working?

A recent blog by The MPower Group focuses on the factors that are needed for effective change management. They highlight the essential elements of leadership, employee engagement and honest, open communication. Immediately we start to see the problem. Far from facilitating change, many of the contracts we put in place today operate as barriers to it. There is frequently an attitude that change is risky and represents a potential win-lose game, associated with concepts such as ‘scope creep’.

Since most changes rightly need to be negotiated, it is appropriate that contracts place controls on the way this will happen. But in today’s business environment, it is essential that the mechanisms are fast and adaptive, ensuring the right data and conversations, the right stakeholder engagement and appropriate levels of sponsorship. Many times I find contracts do not define these mechanisms and are either vague or bureaucratic, reflecting poorly defined internal procedures.

Underlying this is the problem of attitude and the view of too many contract negotiators and managers that change is something that will bite them, that facilitating change will mean either a hit on margin or an exposure on price or budget. What we must understand is that without change, we will not be able to compete. This is just one example of the areas where contracting practices and attitudes can operate against the interests of the business – and the people who work there.