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Organization and reporting line are distractions

November 4, 2014

One of the questions asked most commonly by contracts and commercial groups is how they should be organized and where they should report. These are not the right questions. The fact they are asked so frequently is in fact an indicator of the real problem – which is lack of clarity over purpose and goals.

It is in a way ironic that the biggest cause of lost value in contract management is disagreement over scope and goals. This is precisely the issue that ails many contracts and commercial groups. No one is quite sure of their purpose, or there are widely divergent opinions. This leads some executives to perceive no value at all, while others will have quite varied views and expectations. This inevitably means the function will disappoint many in its contribution or achievements.

In a recent IACCM workshop we provided four options regarding the primary value that comes from effective contract management. These were related to risk and opportunity; reputation and trust; revenue and profit; and operations and performance. We know, in reality, that high performing contract management processes contribute significantly to all these things. But the problem is that few executives see contract management as a process; in consequence, the debate over organization is generally focused on a much narrower area of value delivery – typically associated with either control and compliance, or with assisting business units to work around controls in a managed way. The workshop resulted in lively and healthy debate, leading to much greater understanding of the potential benefits and a refreshing discussion on what this might mean to the way contracts are formed, drafted and communicated within the business.

The start point for any business activity should be a clarity over its purpose and value. From this flows a definition of process, measurements and the skills or knowledge required for performance. Then – and only then – can there be meaningful discussion over the size, nature and reporting line of any associated group or function. A failure to follow this approach results in confusion, regular change and lack of investment – and hence the regularly recurring question ‘How should we be organized and where should we report?’

To gain respect and status, contracts and commercial groups need to rise above these organizational questions and challenge senior management with the much more fundamental question regarding their potential purpose and value. The good news is that IACCM offers extensive data to illustrate how substantial that contribution can be, if only management addresses the core issue of investing in a business competence.

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