Skip to content

Commercial Versus Contract Management

April 27, 2010

I am often asked to define the difference between commercial management and contract management. So here goes.

First, commercial management is a role and job title that until several years ago was largely confined to the UK and some former parts of the British Empire. It appeared to be in terminal decline Рbut is currently making a resurgence and is now not uncommon as a job title in North America and even some parts of Europe and Asia.

Second, commercial managers believe themselves innately superior to contract managers. They bring levels of imagination and judgment to their task that are far beyond the process-driven, administrative activities of a contract manager.

Third, commercial managers are generally more focused on sales and business development, though some may also embrace procurement, especially in connection with major projects (as opposed to minor acquisitions, which are allocated to ‘buyers’). However, some procurement specialists have taken to calling themselves ‘commercial managers’, so what is going on ….?

Job titles are of course always a problem, because when they lack any formal professional underpinning, they represent a wide range of activities and qualifications. However, if forced to make a generalization, I do think that Commercial Managers are more frequently engaged in leadership roles; whereas Contract Managers tend to be more driven by process. In the words of an excellent short article in the Spring edition of The Conference Board Review: ‘Leaders make decisions, big decisions, mid-crisis decisions, without certainty of the outcome. Managers don’t.”

And that perhaps explains in part why Commercial Management was a largely European development and Contract Management largely originated in the United States. ‘Managers may have the best MBA education possible, but they measure metrics, analyze, maintain the status quo and, as they love to say, ‘do deep data dives’.” Contract Managers follow process (which was such a strength in the US mass production environment); Commercial Managers exercise judgment (often because there is no real process to follow).

But increasingly this divide has narrowed. In part, that is because the move towards higher-risk solutions and services demands greater judgment in all organizations (process is no longer enough); but it is also because the status of many commercial functions has reduced Рtoday, to gain credibility, they need facts amd market intelligence, not just opinions.

In the end, title does not really matter. It is the readiness to make decisions and to be held accountable that represents leadership – and it is something to which both contracts and commercial managers can aspire – so long as they understand the need to deal with ambiguity, not having all the facts, not having all the data – in fact, if they can handle the conditions that will become increasingly common in today’s volatile global markets.

4 Comments
  1. Walter permalink

    Commercial Management to my understanding is to ensure the commercial objectives of the company or organisation are achieved for which the existence of the entity is anchored.Contract Management has its focus on ensuring the commercial relationship between the organisation and other business entities is implemented inaccordance with the commerical department requirments’.Therefore the role of both department or sections’ is clear ,the confusion that may arise as to the roles in some organisation can be attributed to lack of professionalism i.e having the right persons in the wrong place,people trained and qualified in a different field heading a department which has no relevance to the persons’ training,experience and skills.

    Walter

  2. Hien permalink

    My modest observations below:

    On a construction Project:

    A Commercial Manager manages commercial risks and legal compliance pre-award. He/She does not have to be an engineer
    A Contracts Manager administers the contract post-award and must be a trained engineer to read and interpret drawings/specs/schedules

    Hien Le

    • Thanks for this comment. It is an interesting addition to the unending debate over what skills or background are needed for those in contract management. Your suggestion that being an engineer is important contrasts with those who say it should someone with a wide business background, or financial or legal. I can appreciate that the nuances – and tasks – associated with the role have significant industry variations; though also they depend on individual company perspectives.

  3. Hien permalink

    Yes, all companies hold different views to how they manage commercial risks by appointing either commercial or contracts manager to look after their own interests

    At the end of the day however, and regardless of titles, efficient contract formulation and management throughout the project life cycle calls for seamless integration between commercial, legal, contract and technical specialists whom are real the stakeholders influencing the outcome/successful delivery of the project. I have seen instances when contracts were formulated on the strength of commercial negotiations alone but scope and technical compliance were overlooked, which resulted in contractual disputes and financial losses during the execution of the project.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: