Skip to content

Buy-side & Sell-side: Can They Be Friends?

June 14, 2010

On Procurement Excellence, Peter Smith kindly reported on IACCM’s recent initiative to introduce certification standards for supplier relationship management. While welcoming this, Peter raised a question about one of IACCM’s core value propositions – “Would I want to associate professionally with the people who might be across the table from me in contractual negotiations?” It is a good discussion point – and I thank Peter for raising it.

IACCM’s perspective is that companies rely on the success of their trading relationships – buy-side and sell-side. In recent years, these relationships have continued to become more complex. We are increasingly dealing with rapid change, volatile market conditions, a growing number of cross-border relationships, more frequent shifts in technology, new sources and forms of competition, a growing dependence on a ‘virtual’ world – all in all, the skills and professionalism of those who are charged with forming and managing these trading relationships is under tremendous pressure and is rapidly maturing way beyond the old world of purchasing and contract administration.

The response by some Procurement and Contract / Commercial Management groups has been muted. Far from grasping the opportunity to raise their profile and contribution, many appear to resist the demands for greater collaboration, innovation and risk management. They remain focused on spend management and adversarial, highly repetitive negotiations. Many Procurement groups continue to have little negotiating authority and to deny that they have any substantive role in post-award management. They therefore gain limited understanding of what contracting is really about. In the words of one senior executive (on the buy-side, I should add): “In looking at the value from contracts staff, we have to move away from endless arguments over things that may be unimportant or inappropriate to the deal in hand. My goals are to get into contracts quicker, based on reasonable positions, and to drive greater savings through improved outcomes. These benefits depend on improving organizational and individual skills and in ensuring their consistency on both sides of the negotiating table”.

Or read the words of the UK’s Head of the National Audit Office (again speaking as a buyer): “Commercial skills are essential to success in complex projects and a great deal of money rests on this; but there is still not a coherent system for providing skills across government or for using the existing skills as efficiently as possible.”

Buy-side and sell-side are locked into traditional adversarial battles which are often based on a high degree of mutual misunderstanding. Many contracts professionals talk about the importance of communication – and they are right. The quality of communication lies  at the heart of all successful relationships. Communication is not always friendly; it does not always lead to agreement; its purpose is to ensure clarity, to enable honesty (or spot dishonesty), to assist understanding. A classic example of misunderstanding came up in one of Peter’s comments, when he mentioned ‘the commercial manager’s bonus structures’. In fact, very few commercial managers have any sort of deal-based incentive because their role is to ensure objective assessment of the opportunity and associated risks – very much in line with the role that the Procurement professional should be playing on the other side.

So let’s look at a few facts:

  • Approximately 40% of IACCM’s current members already handle both buy-side and sell-side negotiations and contracts.
  • A further 20% have at some time switched from buy-side to sell-side (or vice-versa, though that is more rare). So the case for transferability of skill and knowledge is not simply an opinion.
  • More than 8,000 contracts and commercial staff have completed IACCM’s skills assessment, drawing from a common set of skill templates covering buyers and sellers. Over 6,000 have then progressed into the IACCM Managed Learning syllabus – which has approximately 45 modules, of which more than 30 are common to both buy-side and sell-side personnel.

By failing to have a common body of knowledge, similar methodologies and good mutual understanding , buy-side and sell-side negotiators place their organizations at risk. Both should be endeavoring to develop and oversee successful trading relationships. That is a point of mutual interest for their companies and is a compelling reason to ensure increased professional synergy for anyone who wants to be handling the more important and strategic relationships for their company or organization.

Finally, I come back to Peter’s original observation: “Would I want to associate professionally with the people who might be across the table from me in contractual negotiations?” I cannot think of any other professional group that makes this division. CEOs negotiate, lawyers negotiate, project managers negotiate, finance executives negotiate – there is not one professional body I can think of where the members avoid each other because they perhaps represent opposing interests. Indeed, if this is to be the basis of ‘professional association’, I guess that buyers should not really talk with anyone employed by a competitor, either. The truth is that real professionals understand that they sometimes need to maintain confidentiality and manage conflicts of interest. That is another skill that they learn as members of IACCM!

I would like to thank Peter Smith for entering into the spirit of this debate and like him, will welcome your thoughts and comments on this topic.

4 Comments
  1. I think there’s room for both opinions here.

    I agree with some of Peter’s comments in the sense that what’s underlying his argument is the fact that commercial interests ultimately determine the sort of relationship you’re going to have with the other party. In fact, I would go as far to say that communication is not at the heart of good business relationships – interests and values are. No amount of great communication skills will overcome irreconcilable interests.

    There’s no mistaking that commercial organisations ‘facing-off’ to eachother have to have a degree of competitive, distributive behaviour in place. This is based on the ideal commercial outcomes for each – namely maximisatioin of their own shareholder value. That ideal for the selling company is to charge the highest price it can sustainably get away with and the converse is true for the buyer. I would say this is simply the reality (however grossly simplified) of business.

    Where relationships are genuinely interdependent, then the relationship can develop to a point where the both parties can work on ‘increasing the size of the pie’ and generate additional value for both sides. I’m all for both sellers and buyers developing those value-improving skills, and there is much scope for improvement in many business sectors. So, keep banging the drum on this issue.

    In non-interdependent relationships, the risk will always be there that the other party will behave opportunistically (if they pursue their own ideal interests regardless of the impact on the relationship) and, therefore, keeping your eyes and ears open is a must – you can call it healthy scepticism if you like.

    Finally, the many purchasers I have come into contact with – past and present – would love to be able to capture and create value beyond cost savings, but they struggle as long as CFOs and CEOs measure their performance on that value lever alone.

    Hope this adds something to the debate.

    • David, thank you – excellent comment. Your point on ‘healthy scepticism’ (or skepticism for our US colleagues!) is perhaps especially pertinent. Scepticism is a good thing because it implies open-mindedness and causes us to ask questions. Unfortunately, it is not unusual for buy-side / sell-side negotiations to be divided instead by cynicism – which of course reflects close-mindedness and a failure to ask questions, because we have already made our mind up that they are dishonest, cannot be trusted etc.

      As professionals, we should always be sceptical, but never cynical.

      Tim

  2. Tim, I wholeheartedly agree with your comments, based on my many discussions with professionals globally. Plus, my experience is that many companies, in outsourcing for example, are competing with a company in a tender process in the morning, buying supplies from that same company in the afternoon and are then partners in a collaborative joint venture for big government projects in the evening… this ‘do we really want to sit down with them’ attitude is not sustainable in today’s contracting world.
    Paul

  3. I am delighted to report that Peter and I met yesterday for the first time and rapidly proved that we, at least, can be friends!

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: