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Building Brand: The Role Of Contracts

July 28, 2010

The latest edition of Strategy+Business offers an excellent article on building and maintaining company brand. Although written with a focus on consumer markets, the concepts have universal application. It is essential reading for anyone involved in contracting and negotiation.

The article suggests that brand management is no longer the preserve of the Marketing department. “Trust in brands has diminished and customers are more likely to view brands cynically, and to feel uncomfortable with brands’ desire to control. This has created a challenge for many brand owners, because they are ill equipped to cope with greater openness.”

Today’s successful brands engage a growing number of stakeholders – internal and external – in promoting the corporate image and developing its products and services. This challenges many traditional concepts of how relationships are managed, as well as demanding new approaches to information flows and intellectual property.

Back in the mid-1990s, when I was working at IBM, the then CEO Lou Gerstner took the view that contracting was ‘primarily about brand image’. He saw that the process as well as the individual terms and conditions sent a clear message to customers about how much they were respected and the extent to which they could trust IBM as a partner and supplier.  This led to a transformation in the way that IBM formed and managed its contracts – creating approaches from which it still benefits today.

Gerstner was ahead of his time in making this connection. The Strategy+Business article indicates that he was not alone – and that it is time for others to catch up.  If brands are to be trusted, they must be more overt about the commitments they will make and more open in their management and achievement. Contracts and commercial experts must apply serious thought to the image that is transmitted by current terms and contracting policies. As revealed by IACCM‘s research, most contracts and negotiations today are surrounded by concepts of secrecy, control and limiting obligations. For example, many transactions are preceded by some form of confidentiality or non-disclosure agreement; big companies seek to abrogate all intellectual property rights; organizations battle long and hard to limit liabilities, indemnities and warranties; we resist clauses that might imply openness in areas such as audit or benchmarking. And the more important the deal, the more we apply long and laborious review and approval procedures that often imply either a lack of trust or an absence of competence.

“Although we might argue that the very essence of brands is about trust …. in reality trust has often been missing. Organizations have trusted neither their customers nor their employees. As Francis Fukuyama notes in his book Trust: The Social Virtues and the Creation of Prosperity (Free Press, 1995), the “assumption that trust does not exist in the system” contributes significantly to the high cost of doing business in certain business sectors and societies. When there is a want of trust, organizations spend much time and effort watching and monitoring what people do. Brand delivery is jeopardized by the constraints placed on employees, who respond to the lack of trust either by finding ways around rules and procedures or by telling managers what they want to hear.”

Of course contracts and commercial management alone are not the drivers of brand image. But they are a fundamental component. In the words of one executive: “We had to let go of the old-fashioned concept of an organization built on mistrust and rules. Instead, we started focusing on trust between people; between ourselves and our customers and between the management and the staff.”

In this new world, “Trust has to be earned over time through the experience of promises delivered, which means less of a focus on telling people about how great your brand is and more on building relevant content”. This means that the contracting process must switch its role from protection against failure to enabling success. It becomes strongly focused on the matching of needs and capabilities, to generate clear commitments and a governance process through which they will be delivered. Failure is an after-thought, rather than the dominant concept.

To achieve this new world, as the S+B article so clearly reveals, there has to be trust and honesty throughout the organization – and that means we must ensure the marketing hype and the sales promises accurately reflect what we can and will do for our customers (or indeed, on the other side of the coin, for our suppliers). So the start of this journey is to ensure a far more holistic appreciation of the risks we are managing and the adaptations we must make if we are to build a long-term, successful brand.

One Comment
  1. This is brilliant. It’s particularly relevant when dealing across cultural borders. Given cultural differences in even the attitudes toward contracts, it’s so easy to kill a sale or purchasing deal by putting a culturally inappropriate contract proposal in front a potential business partner.

    In my international purchasing training material, I stress three simple rules.

    1. Don’t offend. Many contracts contain language that basically says the other party won’t break a specific law, such as selling you stolen goods. You don’t need to put that in a contract.It’s already illegal.

    2. Write in plain language.

    3. Remove material that’s not relevant. People outside of the US don’t have to follow OSHA for example.

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