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Distant or together? Contracts narrow the divide

While physical distance can easily translate to a sense of separation and division, the current pandemic is also creating some remarkable instances of unity and togetherness. Unlike traditional wars, on this occasion humanity has a common enemy and also, because of our networked world, a shared awareness of its effect.

IACCM’s research is revealing the scale of impact on contracts. Many simply cannot be performed in current conditions, yet at the same time – in spite of such uncertainty – there are many new agreements being created. The picture varies by industry and by geography.

A shared understanding

Some doubtless assume that the extensive focus on contracts and contract performance indicates a level of contention and adversarialism, as parties battle over rights and responsibilities. I have no doubt that this is sometimes the case – but the information we have suggests that is the exception rather than the norm.

The beauty of contracts is that they create a framework under which we can establish mutual understanding. It is true that they are often far from perfect – sometimes they reflect the use of power to impose unbalanced terms, others may be based on templates that are ill-suited to their purpose. But overall, as the Nobel prize awarding committee observed back in 2016, “Modern economies are held together by innumerable contracts”.

An end to obscurity?

Today, as we face many more months of physical distancing, the role of the contract for business and society becomes even more important. Perhaps we will see not only recognition of how much contracts matter, but also how much easily understandable contracts matter! The Nobel committee also spoke about ‘the pitfalls of contract design’. These include the fact that they are too often obscure in both form and word. The absence of design standards creates a level of complexity that is entirely avoidable and now, unable as we are to engage in physical meetings, it would seem a good time to create a shared determination to improve.

Faced by such changed conditions for all business operations, IACCM has been busier than ever in working with members. Many of our programs are focused on creating shared understanding and methods – for example, the impact of coronavirus on contract terms, tips on how to conduct virtual negotiations and geographic and industry impact analysis. But shining through has been the scale of demand for on-line contract design and simplification workshops and services – indicating the extent to which many practitioners appreciate that good contracts truly do narrow the divide.

Contracts – bringing us together in a time of coronavirus.

The Business Impact of Coronavirus: It’s Not Just Short-Term

In its latest report on the coronavirus pandemic, IACCM reveals the scale of impact on worldwide industry and commerce. In just two weeks, the percentage suffering moderate to severe effects on contract performance has jumped from 37% to 60%. However, as the report reveals, there are considerable variations across geographies and across industries, with some of those who were feeling limited disruption just two weeks ago now at the top of the list.

The infographic below summarizes what we discovered – in particular it highlights the potential for this pandemic to have a major effect on underlying sourcing strategies and patterns of world trade.

The full report with industry and geographic analysis is being issued to IACCM members later today.


Pessimism: Is That The Answer?

Last year, ‘optimism’ was a major theme at every IACCM event. We even conducted research that revealed the optimistic nature of the commercial management community – though it discovered the optimism does not extend into the workplace. When commercial and contract professionals are on the job, they typically see their role as ‘preventist’ – that is, protecting the organization from ill-considered or over-optimistic actions.

A dose of pessimism

An article in the RSA Journal suggests that many of the world’s problems are the result of too much optimism and that a strong dose of pessimism would be a good thing. Author and Economist Rodrigo Aguilera challenges the statistics behind the view that the world overall ‘has never had things better’. He suggests that this is a message promoted by those who see success purely in economic terms, of ever-growing material wealth.

The rich are to blame

There are indeed many reasons to challenge that measure of success. Indeed, a study released by the University of Leeds suggests that human survival depends on our acceptance of the need to change our attitudes and values. Wealth in itself, especially at the individual level, is not a good indicator of happiness or well-being. More to the point, the research reveals how personal wealth is directly connected to the destruction of our planet.

Yet a strong dose of pessimism scarcely seems likely to resolve the situation. Surely the issue is that we associate reasons for optimism with the wrong things. That is why pressing challenges such as the environment or social exclusion are relegated to a conceptual wish list, not motivational aspirations. What we need is to re-set our view of the things to be optimistic about – to confront the fact that material wealth cannot any longer be our motivator.

A change in values

So what should excite us? Perhaps coronavirus will be the catalyst for a new approach and set of values – a renewed focus on community, on taking pleasure from family and friends, on contentment with what we have, rather than constant demands for more.

Such a change would also fundamentally alter business strategies and behavior. Without the pressure for growth and ever greater share value and dividends, corporations could focus efforts far more on ethical and social values. Today, these ideas remain a relative whisper, but I have the feeling that it won’t be long before they become a roar. ‘Preventism’ will then take on a new role and meaning – a shift towards policies and practices that protect our environmental assets, rather than corporate assets and material wealth.

Let’s remember the realities of leadership

At the present time, as much of the world fights an invisible enemy, it is easy to criticize, to demand certainty. I keep hearing comments such as “I wish they’d make up their mind and just tell us what to do”.

The reality for those who must formulate those instructions is extraordinary. An IACCM member – a senior public servant – wrote to me today and one of his comments was: “Things move so fast, that even with multiple updates a day, policies and guidelines written one day can be overtaken by events within 24 hours“. And he is in one of the currently least affected nations.

Finding the right balance of action in such uncertain times is incredibly challenging and, with the advantage of hindsight, we will certainly point at occasions when the wrong decision was made, or it might have been made earlier. But it is essential to remember that all decisions operate in a context. For example, the context in a society that has never known democracy is very different from one where the population expects widespread consultation and rights of free speech.

Let all of us who live and work within democratic societies reflect on the fact that with those personal and individual rights come responsibilities. Unlike in some countries, we have levels of choice – for example, whether or not to socialize, whether or not to panic buy, whether or not to set an example for others.

it is always easy to criticize, to seek someone to blame for our own uncertainties and fears. Leaders who themselves fail to take responsibility and instead indulge in blaming others deserve our scorn – they are not leaders. But for those who are stepping up to the plate, and for those public servants in the front line of decision-taking, let us show some respect and understanding of just how demanding and stressful every day must be.

Supply Relationships: Managing the Strain of Coronavirus

The Future of Sourcing offers this advice in its weekly briefing:

“With Coronavirus wreaking havoc on communities and supply chains across the world, there has never been a more critical time in recent history to have reliable, trusted relationships with your suppliers. While AI is taking a more prominent role in managing and assisting with these relationships, the old-fashioned art of conversation – and collaboration – are still your best options to innovate.”

Barriers to collaboration

We are indeed all in this together, so there is every reason to agree that collaboration is the best way forward. But many may find that challenging. Here is why – and also what you can do about it.

  1. Many supply relationships today are not founded on collaboration, but rather on principles of self-interest. Constant pressure on price and battles over risk allocation have taken their toll. Simply uttering the word ‘collaborate’ is not enough to establish reliable, trusted relationships.
  2. There are going to be a lot of tough re-negotiations. There is so much uncertainty for everyone right now, we really do not know what supply delays and interruptions will look like, nor how many buyers will want to decommit from current contracts. Many organizations – and in some cases entire industry sectors – will be fighting for survival.
  3. Conversation and collaboration aren’t easy when you can’t travel. With travel bans accelerating at a dizzying pace, those ‘trusted relationships’ will have to be formed by virtual, not physical, conversations. That is not easy, especially with a workforce that is largely untrained in how to conduct virtual negotiation.
  4. Contracts today rarely contain the sort of governance and performance principles that support or underpin collaborative behaviors.  In fact, corporate practices have driven the adoption of transactional, commodity-style agreements on a massive scale. Compliance and risk have dominated thinking, at the expense of relationships.

So what can be done?

IACCM has already been working on how to support the business community in these unparalleled times. Many people have already participated in our webinars or read the materials we are publishing. But we have grasped the critical need for practical interventions that go beyond advice and deliver know-how and impact, recognizing the constraints created by travel bans and working from home. During this week, we will be introducing a series of short, on-line programs and virtual workshops:

  • Virtual negotiations: how to plan and communicate in ways that will support mutually successful negotiated outcomes, when face-to-face is not an option. On-line delivery of programs that teach effective use of video, conference calls and email as negotiation tools.
  • Collaborative contracting: achieving collaboration depends upon increased definition and formality in the relationship – sometimes not just one-to-one, but potentially one-to-many. IACCM has converted its Relational Contracting workshop into an on-line series of moderated sessions.
  • Supplier management: research shows that many organizations have limited visibility into even their tier one suppliers, yet understanding where visibility is needed and to what depth will be critical in these uncertain times. This on-line workshop supports segmentation of the supply base based on an assessment of relative need and purpose, enabling prioritization based on relative importance.

As IACCM CEO Sally Guyer explains: “These are just some of the many initiatives we are taking to keep our community connected. IACCM is uniquely capable of offering its members the chance to network, to share the ideas and experiences which can sustain not just the health of their business, but also their personal well-being”.

Visit the IACCM website for details and updates on the IACCM initiatives that can help you through these testing times, plus pre-register to receive details of the online programs and workshops. 

Negotiating in a time of coronavirus

Coronavirus is creating many challenges – and negotiation is high on the list. As business suffers, the need to renegotiate many existing agreements, to resolve issues over force majeure, to agree revised volumes or deadlines means that, if anything, the volume of negotiations will increase and skilled negotiators will be in high demand.

Negotiate – but how?

But hold on! We are also in the midst of large scale travel bans and have many employees working from home. So how will those negotiations be conducted? The answer is that most will be virtual – in this time of social distancing, face-to-face is almost dead. Indeed, if we need more evidence, just consider the announcement that ‘UK and EU negotiators have agreed not to hold face-to-face talks next week on Brexit because of virus concerns’.

The problem with this shift is that very few people have been trained in how best to conduct virtual negotiations and, in recent research, they acknowledge they are not very good at it. So, as part of the IACCM Coronavirus Briefing Series, IACCM is offering two webinars to assist its members in the challenge of planning and managing virtual negotiations. In the first of these, on March 23rd, we will discuss recent research findings and provide ideas and insights to ensure success, as well as answering your questions or concerns.

Join us for ‘The Truth About Negotiation’ and make sure you are equipped for this new and fast-changing environment.


Social distancing: just one more step

I heard from a colleague today that her daughter has been ‘socially distanced’ from her school. No, not a punishment – just a sudden new experience now impacting families around the world.

As schools and workplaces close, and travel is dramatically curtailed, ‘social distancing’ is rapidly impacting human interactions at every level. Coronavirus is challenging the norms of activity and communication.

Accelerating a trend

Yet while extreme, the current crisis is in many ways simply accelerating a trend and may prove a tipping point in the way society operates. As IACCM will reveal in an imminent webinar, some 70% of business-to-business negotiation was already virtual in form even before the on-set of the virus. I’m sure right now it must be 90%+. And already, in 2019, working from home was the norm for more than 35% of IACCM members, at least some of the time.

Our capacity to maintain connections via technology is very evident as we observe the ability of universities and schools to shift rapidly to on-line teaching and as we see video communication from stranded cruise ship passengers. So we are in many ways equipped for this change, except that it’s all rather unstructured. Our processes were not  designed on the assumption that everything is digital and we haven’t been trained to operate with full efficiency in a ‘socially distanced’ world.

Email: a blessing and a curse

To take a simple example, email is used extensively for business communication, including negotiation. While in some ways this represents tremendous efficiency, it actually often leads to barriers and misunderstanding. Unlike a physical meeting, we cannot observe body language or easily test for intent. Yet it isn’t in fact that we can’t do these things – it is that we haven’t been trained to do so (though IACCM is also rapidly addressing that particular gap as well).

A new normal

With the heightened pressure to develop sustainable working practices, plus the immediate need for businesses to cut costs, accelerated social distancing may prove to be the new normal. We need to recognize and adapt to a fast-changing model in human interaction.