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Is contract management a cross-industry discipline?

May 1, 2012

Yesterday I responded to a comment regarding the most appropriate background for a contracts professional. The IACCM member who asked that question also sought opinions on whether contract management is a cross-industry discipline, or industry specific.

There are two aspects to this question; one is whether dedicated contract management resources are required in all industries; the other is whether the skills and knowledge applicable in one industry are transportable to others.

With regard to industry needs, my view is that all industries require contracts and commercial competence. They need the ability to design, structure and manage sustainable and effective trading relationships and to do this must have people with the judgment and knowledge required to interpret market strategies, to negotiate appropriate agreements and to oversee their performance. However, the depth of this need and the way it is established varies substantially between industries and even between companies within an industry, depending on their market strategies. For example, in consumer-facing companies, there is very little need for in-depth contract management. On the sell-side, it is negligible; on the buy-side there will typically be a need for in-depth expertise to handle areas such as technology, outsourcing, real estate and logistics, but the bulk of commodity purchasing operates with little negotiation or contract flexibility.

In a sector such as technology, the picture is more variable and driven by business and market strategies. For example, the extent of b2b versus b2c will have a major impact (think Dell compared with Apple). Also, choices over routes to market will be influential (direct sales versus the use of third party channels). Another factor will relate to the extent of market dominance – is negotiation necessary, or are contracts instruments for business and market control?

In general, the more that a company offers or acquires services and solutions and the more that its primary markets and interactions are business-to-business, the greater its need for contract management resource. Similarly, project-based industries (such as oil and gas) depend on the strength of their trading relationships (especially with suppliers and sub-contractors, and also with partners in collaboration and joint ventures).

The industry scope of IACCM membership demonstrates the cross-industry mix of contract management today and also reflects relative volumes of professionals within each industry. However, I should point out that the picture is not unchanging or complete. For example, both oil and gas and financial services have seen substantial growth in demand for highly qualified contracts staff in recent times, due to industry-specific risks and performance issues. An industry such as construction has large numbers of people who perform contracts and commercial tasks, but often under an industry-specific professional umbrella, such as Quantity Surveyor. And finally, geography perhaps has even more influence than industry. Until recently, it was relatively hard to find recognizable contract or commercial management roles outside Common Law countries. Business was based far more on localized, long-term relationships for which contracts were seen as having limited relevance. This remains the case in much of Asia and Latin America, although the picture seems to be changing.

Overall, the situation is not so different for many other business disciplines. The relevance of project managers, lawyers, procurement managers, or even sales staff varies, based on similar factors.

The second part of the question relates to the transferability of skills between industries – and I will address that tomorrow.

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