Commercial Agility

At the most recent IACCM member meeting in London, one of the presentations led to a discussion on ‘commercial agility’.

The meeting focused on the interesting dichotemy that has emerged in the executive approach to risk management. Research has shown that many businesses believe they have become more cautious in their approach to risk – hardly surprising, given economic and governance conditions. Yet in reality, the need to respond to the dramatic impacts of the recession have actually led to a significant increase in risk-taking.

When looking at all the sources of increased risk (more outsourcing, greater readiness to accept high risk terms in order to win business, rapid expansion to new markets, drastic supply chain decisions), attendees observed that the recession had accelerated a trend, rather than leading to major new sources of risk. It is actually the hastiness of many decisions – often without ‘due diligence’ with regard to possible consequences – that is the real threat.

Adrian Furner, Commercial Director at BAE Systems, suggested that this is perhaps the ‘new normal’ and that contracts and commercial groups must adapt. “Traditionally, commercial management has been about certainty. How will we change to fit with a constantly changing world?”

Adrian provided dramatic illustrations, ranging from the challenges of new markets to amazing reductions in cycle times – for example, products that used to take up to 20 years in design and test now going through the same process in a year or less. He suggested that our role must increasingly be to manage commercial agility and highlighted six implications:

• contract and commercial frameworks must be designed to manage ambiguity
• organizations must enable flexibility
• the terms governing relationships must also support flexibility – for example, anticipate switching
• commercial resources must assess and become comfortable with managing risks in new ways – for example, across portfolios, rather than individual deals; through collective acceptance and management of risk across integrated supply chains
• encourage diversity and best practice
• balance passion (to win) with objectivity

A key question for any commercial professional, he suggested, is ‘are you associated with the accelerator or the brake?’