Contract Management: An Inspiration Or A Waste Of Time?

There are of course days when even an enthusiast like me stops and wonders whether it is all worthwhile. Contracts and Commercial Management have been a feature of my life for almost 30 years and somewhere along that path, I became convinced that these disciplines contribute not only to operational and tactical results, but also to business strategy. As a commercial or contracts professional, we gain insights to the way that  policies, procedures and offerings inhibit business performance. This insight represents an opportunity to become an agent of change within the organization. But does anyone really care?

Before answering that question, I will illustrate the opportunity we face with a few examples:

• In my early days in the technology sector, increased competition led to the development of volume discount agreements. These became increasingly complex, resulting in a heavy administrative burden, frequent incorrect billing and a regular source of dispute with customers. As if these problems were not enough, it was also obvious that volume discounts are typical of a commodity supplier – and yet my employer at that time was trying to escape the commodity trap. The contracts group was in a unique position to observe these problems and push for change.
• Later on, I saw many organizations struggling with the impacts of globalization. Large multi-national companies could not coordinate their resources to meet market or competitive needs. Management systems, measurement systems, resource allocations, pricing and revenue policies – all of these prevented the types of contract offering and terms and conditions that were needed to address market trends and requirements. Once more, the contracts group was probably the only place with visibility across the business and an understanding of the priorities for change.
• Distribution and partnering relationships are critical to most businesses. Frequently, individual business units have relative freedom to develop their strategies and determine the channels to market or to establish sub-contractors. Many of these relationships fail to perform. They are often costly to administer and may create internal conflicts, as well as external confusion or dissatisfaction. The involvement of a central contracts group can lead to greater discipline and rationalization. It should also offer ‘best practice’ insights, drawing on market and competitive intelligence on effective offerings and terms.

There are many examples where the contracts and commercial teams can observe opportunities to improve and should be offering market intelligence  to business unit owners and to executive management. The real hallmark of contracting excellence is when we offer contracts and terms and conditions that represent competitive advantage, not only by better meeting the needs and aspirations of our trading partners, but also in reducing internal costs of operation. This is true whether we are supporting sales or procurement; and it makes Contract or Commercial Management an exciting and rewarding career.

So why do I occasionally wonder whether this is worthwhile? First, within a business it is often hard to gain attention. It requires tremendous perseverance and usually depends on finding an executive sponsor. So those within the contracts and commercial community who want to be agents of change must not only collect the data and build the business case, they must also be sufficiently determined to gain top management’s attention. And even then, success may take a long time to achieve and is not guaranteed. It always seems easier to carry on working at a transactional level and wait for someone else to change the rules.

But that is not the reason why I sometimes have doubts. The thing that most bothers me is the shortage of leaders within our community – those who have the resilience to grasp these opportunities and the desire to build the function’s status and reputation. Many individual professionals enjoy their job; they gain satisfaction from their transactional successes and support on individual deals. They are aware of the things that are regular issues or inhibitors, but do not feel that it is their job to seek changes. They impose the rules, they may even find creative ways around the rules – but rarely do they challenge those rules and cause a fundamental shift in the business. And all too often, we learn that such groups are being taken over, broken up, pushed aside – because they are seen as offering little business value and someone else has successfully argued that they could do the job better.

In the end, my moments of doubt are few and they generally last for just several minutes. Because as I think back, I am inspired not only by the changes that I – together with my colleagues at IACCM – have been able to achieve in some of the world’s largest companies, but I also hear with increasing frequency about the  impacts and the inspiration that IACCM is offering around the world. With each year, the momentum increases and the stories of success grow. We are seeing quantifiable and irrefutable results – contract and commercial excellence really does make a major difference.

As we enter 2010, I know there will be many opportunities for us to assist our community in raising its profile and business contribution. Whether you are a practitioner or a provider of services or solutions to the contracts community, I hope that your resolution for 2010 will be to believe in the possibility of radical improvement and to commit yourself to become an agent of change.  And don’t forget, you are not alone on that mission; IACCM is a committed and enthusiatic partner.

Together, I have no doubt that we can make 2010 a year to remember. Happy New Year!