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What’s going on in Contract & Commercial Management?

The 2019 IACCM Benchmark Report will soon be issued, providing a wealth of data and insight to the current state of contract and commercial management. One of the many areas we have researched is to understand what major initiatives contracts and commercial teams are currently undertaking. The list (which appears below) is interesting – and the differences between buy-side and sell-side priorities even more so! Our report explains the implications and the reasons – along with a myriad of data regarding performance measurements, headcount levels, the state of automation, skills and knowledge management and a host of other topics.

Is Procurement under greater pressure?

The study shows that a much higher percentage are driving key initiatives on the buy-side. This certainly supports the idea that Procurement groups are feeling the heat when it comes to the need for change. We examine the reasons for that and suggest the implications for the future. But we also explore whether the relatively lower level of activity going on within sell-side groups is an indication that they may be sleep-walking into disaster. So do they need a wake-up call?

One thing is clear. Contract and Commercial competency is a growing priority and in order to respond, we need more and better data to support our planning and implementation. Many IACCM members are under pressure to provide benchmark information, or need analysis to support the case for investment. With input from 760 organizations, this latest report is without question the authoritative guide to all things contract and commercial – once again demonstrating the many benefits that come from having an IACCM membership!

Buy-side: Major Initiatives for 2019 Sell-side: Major Initiatives for 2019
1. Relationship segmentation (59%) 1. Reporting line change (32%)
2. Revised measurements (54%) 2. Expansion of current role (30%)
3. External benchmarks and research (49%) 3. Skills development (29%)
4. Contract analytics (48%) 4. Contract management tools/systems (28%)
5. Reporting line change (44%) 5. Contract standards/new terms (27%)
6. Contract simplification (43%) 6. ‘Self-service’ support (27%)
7. Reduced role (42%) 7. Knowledge management systems (27%)
8. Contract standards/new terms (42%) 8. Revised measurements (25%)
9. Improve risk management/governance (41%) 9. Contract simplification (25%)
10. Knowledge management systems (39%) 10. Improve risk management/ governance (23%)

The days of the 1,000 page contract are gone

Twice last week, I heard from business executives that long, complex agreements are a thing of the past. I don’t know whether they had been speaking with each other, or perhaps attending the same event, but both were forceful in their view that contracts must change – a sentiment that we strongly echo at IACCM.

In the view of these executives, there are two fundamental issues driving the need for a fresh approach. One relates to the sheer complexity, time and cost associated with drafting and negotiating multi-page agreements. They also observed that such massive tomes are rarely used and, when they are, they are full of contradictions – a classic case of ‘too many cooks’, as one law firm recently described the typical business contract.

Focus on principles

The second factor is that they want agreements that truly reflect the spirit and intent of the parties. In this context, they talked about contracts which focus on underlying principles and clear approaches to governance, all of which can be expressed succinctly and then communicated within the customer and supplier organizations. Ultimately, these executives reflected the growing view that litigation in the typical b2b contract is so unlikely that traditional ‘belt and braces’ legal agreements are unnecessary. That doesn’t mean clarity is not important – in fact, the reverse is true – they want clarity for the business user as well as for the lawyer.

Calls for better contracts are not new*, but they do appear to have growing momentum. In part, this may be because they are now so pervasive. But I suspect also that the overall complexity and volatility of our business environment has increased appreciation of the need for documented agreements – and that these, far from adding to the complexity, must actually make it simpler to handle and understand.

Great jurists such as Lord Denning been powerful advocates for clear language, promoted also by evangelists such as Ken Adams and his Manual of Style. Today, these efforts have been further advanced by IACCM member working groups which have established a series of contract principles, model terms and contract design standards, all freely available at the IACCM web site.

Contract Management status: it’s in your own hands

According to LinkedIn, there are some 8 million people with Contract Manager as their job title. I don’t know how all 8 million feel, but many that I speak with complain that people don’t really understand what they do, or fully appreciate its value.

My answer to that is, you are right. So what are you doing about it?

Diversity is the norm

Contract management is a lifecycle activity and therefore there are multiple roles within it. These vary in how they are performed (eg it depends on the complexity of the contract or environmental factors such as the industry or jurisdiction) and potentially the level of skill or knowledge required to perform them. This means the generic job title doesn’t automatically help in understanding the specific tasks that an individual contract manager undertakes.
However, the same is true of many other functions. What do individual lawyers, doctors or finance professionals do? The answers are very diverse since they also operate in specialisms. Just knowing someone is a lawyer tells us nothing about their particular area of practice or knowledge – a prosecutor, an IP specialist, a regulator, a family law expert?
So what’s different?
The big difference is the failure by those who call themselves contract managers to unite around a core body of knowledge. That has been – and continues to be – a core purpose of IACCM. It is why we have spent almost 20 years developing and publishing the contract management body of knowledge and training programs; defining test and certification standards; undertaking research; developing an academic community and journal; defining the contract management lifecycle and producing an ongoing series of updates that describe the role and how it is evolving (the most recent, exploring the impacts of technology, just 4 months ago). Recently, those new technologies and changing social and business expectations have allowed a growing range of standards – contracting principles, terms and design.
It remains true that people come to the contract management role from diverse backgrounds, but that’s also the case for many other roles (eg procurement, project management, finance). It is also true that contract management has been slower than others in gaining university recognition, but at last that is starting to change. However, even when it changes, those existing 8 million and many new recruits will still come to the role with different backgrounds. The key is whether they then appreciate the need for achieving professional status and recognition by studying for a formal accreditation.
Recognition and status is in our own hands
The opportunity for standards and consistency already exists. The only thing constraining growth in the status of contract managers is the speed with which the existing practitioner body adopts a common set of knowledge and methods. As IACCM this week welcomes its 60,000th member, we can proudly recognize all those who are now trained, certified and working within the framework of a defined contract management lifecycle. For the remainder, we look forward to welcoming you and providing momentum to your career journey!

Bridge or barrier?

It is widely recognised that collaborative relationships generate better results. It is also generally acknowledged that collaboration doesn’t just happen – it requires characteristics such as openness, honesty, free-flowing communication and a sense of shared interest.

In the context of business relationships, collaboration is made more complicated by the fact that each business is itself a complex ecosystem of interest groups – multiple stakeholders, each with their own perspectives, objectives and interests. That is why success often depends on the existence of an integrator, an intermediary who acts as a bridge between customer and supplier.
On the supply side, that bridge is often an account manager – someone who sees their role as understanding and representing the interests of their customer. A good sales commercial function also operates with this balanced view, understanding that it is essential for long-term positive results.
Procurement and collaboration 
But where is that bridge within the client organisation? Is it the Procurement function? Not according to suppliers. In a recent IACCM survey, 81% of suppliers say that ‘Procurement is more likely to operate as a barrier to business collaboration than to operate as a bridge’. Whether that’s a reality or just a perception doesn’t really matter, because either way it impedes collaboration.
Does this matter? The answer clearly is yes. Firstly because collaboration is itself important. Secondly because without Procurement fulfilling this role, who will? And thirdly, because if it doesn’t step into this space and address its image, Procurement as a function will become increasingly irrelevant to business needs and be seen as an obstacle to good results.
The CPO as leader
Many CPOs understand this challenge to their future role. A good number see their function evolving to become ‘integrators’, coordinating across stakeholder interests. However, most seem to see this from a purely internal perspective – which potentially further reinforces that ‘barrier’ image. Indeed, some even go so far as embracing the concept of ‘licensed procurement professionals’, having a monopoly on the power to award business. Good luck with that idea!
While the barrier mentality (focused on rules and compliance) may be fine when dealing with low value commodities, it is detrimental for most other acquisitions. For Procurement to have a robust future, it needs to expand the number of leaders who understand they must break down the barriers and instead build bridges – not just internally, but to their suppliers. That is certainly the spirit we see at IACCM conferences and it is the spirit that underpins the incredible optimism among IACCM members.

The Future of Work: Is There a Real Issue?

McKinsey’s Global Institute is just the latest in a long stream of consultancy firms to publish research on the future of work. Like many others, it calls upon senior management to set up “systems and programs to help the tens of millions of people who may need to switch jobs or even occupations” as a result of automation. I am sure McKinsey will be delighted to assist such initiatives – for a substantial fee.

But is there a real issue with automation and to what extent does it truly demand urgent action and intervention?

History suggests otherwise

In a world where the past is increasingly dismissed or ignored, we are only too ready to believe that the challenges we face are somehow unique. Yet technological innovation is far from new. It stretches back across millennia and in every instance it disrupted old ways and demanded new skills and ways of working. Somehow, the world coped – even without the benefit of highly paid consultants. And it is my belief we will cope now because, just like in the past, change will be evolutionary, not revolutionary.

This comment is not intended to belittle the massive impact that automation will have upon society and the workplace. It is more to point out that a) it will happen over time; b) humans are actually quite adaptive and c) many aspects of the impact are unpredictable – even to consultants.

A case in point 

Let’s take an example – the switch from steam power to electricity. The BBC is running an excellent series on 50 forces that shaped the modern economy. The adoption of electricity is one such force. Today, it seems obvious that any business would rush to use electric power in preference to steam. Yet that wasn’t the case in the 1800’s. Although electricity and electric motors started to become available in the early 1880s, twenty years later less than 5% of US factories were making use of them.

The main reason is that electricity was simply too disruptive. People couldn’t easily get their heads around the scale and nature of change, nor the benefits it might bring. Electric power demanded complete re-engineering of processes; redesign of production; new investment – and discarding existing investments; and new skills and working practices. Ultimately, it brought massive benefits to the world in terms of productivity, working conditions and costs. Yet it was many years before steam died out and in those years, people and society adjusted.
I understand that consultants want to make money and they often do this by generating fear of being left behind. But do they really have knowledge and programs that make a fundamental difference? Is there really any reason why the latest technological changes will be different from the evolution of the past, when consultants didn’t even exist?

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.