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Contract Managers as a source of risk

February 3, 2014

Last week, I wrote an article on the role of contract management in today’s business. I highlighted its increasing strategic contribution, being driven by the need for increased compliance and the growth of longer term, outcome-based trading relationships.

In the article, I also mentioned that this change has implications to the skills and measurements of those who are in contract management roles. Taking the counter-side of this observation, a failure to adjust current skills represents a source of risk – and I recently observed a great example of this problem.

Many businesses face rapid change in the way that services are delivered and a reducing cost of entry for new competition. Together, these forces demand creative commercial strategies and speedy implementation. I had the opportunity recently to sit through a review of such a situation by a team of senior staff from Contract Management and Legal. The situation they faced was of fast-growing market demand, increasing diversity in customer preferences, limited capacity by their business to scale a response, and new competitors emerging. These competitors are at this point relatively fragmented and localized, but they clearly represent a threat.

Business management knew that it could not grow the business fast enough to respond to global market demand, so it had developed a channel strategy through which they would leverage these local competitors by turning them into remarketers or, in some cases, developing strategic partnerships. Through this approach, they could ensure global brand awareness and they would achieve rapid income growth to fund the new product developments that sustain competitive advantage.

I observed the contracts and legal reviewers rapidly lose sight of the major risk (loss of markets) and focus instead on the general complexity of channel management. Their only specific concern seemed to be around the possible threat to brand image that can result from working with third parties, but rather than explore ways this might be tackled, they concluded that a small and relatively unimportant pilot program should be run and that any major decision should be deferred.

This failure to grasp the bigger picture is sadly symptomatic of many current contract managers. They are of course correct in highlighting possible risks, but they must put these into the wider business context and they must propose ways in which the risks can be eliminated or mitigated. If they fail to do this, they are condemned to being no more than a review function that everyone would prefer to avoid.

 

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