Contract & Commercial Management: Key Messages from IACCM Americas 2016
This year’s IACCM Americas conference confirmed the speed with which contract and commercial management are transforming as business disciplines and in the value they are providing. Conference sessions were full of ideas, examples and case studies. Here are just a few of the take-aways that we captured during the closing presentation.
The critical importance of contracts
IACCM’s COO, Sally Hughes: My first takeaway is the absolute acknowledgement of the critical importance of contracts – the reinforcement of that throughout the last three days has been very evident.
Let’s remember the statement from this year’s Nobel Prize award for economics: “Modern economies are held together by innumerable contracts”.
Another quote at the conference was “Contract Management is a leading indicator of financial performance”. Of course we would fully endorse that statement and our research certainly shows that poor Contract Management and contracting process can lead to value leakage of, on average, 9.5% of annual revenue – an amount that few other improvement projects could come close to matching. We have seen some wonderful examples of how you can significantly contribute to the bottom line by addressing your approach – for example, in the Innovation Award we made this week to Shell.
We said in our opening presentation that “contracts lie at the heart of social, political and economic activity”. It’s important to reflect on this – those are not ethereal words – Susan’s Wittenberg’s moving story demonstrated the role that effective contracting is playing in the eradication of Polio – an example of the critical importance of contracts and the skills of those who manage them – in this case impacting the health of thousands of people globally.
Simplification through Technology
IACCM’s CEO, Tim Cummins: Picking up again from conversations this week, it was Dierk Schindler who said that we need to move from “Masters of Complexity” to “Masters of Simplification”. We have presided over an era of massive growth in the length and complexity of contracts, to a point where 88% of business users can’t understand them and 83% find the process by which they are formed unhelpful. Much of that complexity is a direct result of the new technologies that have transformed business operations and markets. But the reason that contracts and the contracting process are complicated is because we ourselves have done so little to adopt the technologies that would simplify the experience of our clients, users and stakeholders. As we have seen over the last few days, those technologies are available and it is imperative that we accelerate their adoption.
Sally Hughes: My next highlight is “Commercial Innovation”. We have talked extensively about technology and digital transformation, but what about Commercial Innovation? Bryan Barker said in our opening keynote panel that “…we’ve traditionally been here to provide certainty and a backdrop for when things go wrong….”. That is absolutely not our future and anyone who continues with that mind-set is doubtless heading for failure. Mind-set is something that I consider to be a critical component in our quest for change. Both Brett and Liam’s presentations this morning talked to that “mind-set shift” and “unlearning assumptions”. VUCA (volatility, uncertainty, complexity and ambiguity) is our reality and, like it or not, Robots are Rising! We have to accept our reality and decide how we are going to innovate around all of this transformation.
Operate as a Team of Teams
Tim Cummins: My second take away builds on the presentation from Liam Brown this morning and the concept of a “Team of Teams”. As we saw with the success of the FFG Enterprise and their winning of one of our Innovation Awards – we need to rethink the way we use the term “enterprise”. Increasingly we work in extended supply networks or ecosystems. Their interdependence means that we must break down the borders and boundaries of traditional enterprise thinking and enable operation as a team of teams. But this concept goes further. For example, when we undertake research, our members often tell us that the biggest barriers to change, to innovation and to increased business value are created by the silo-based thinking that goes on within their organisations. Going further, we should think about our professional community itself and how “outsights” represent our source of status and business contribution. These can only be attained by again considering ourselves, this community, as a team of teams, eliminating the narrow thinking that views other companies, other industries, other countries as having little or no relevance to our work. We must stop claiming that we are all ‘special’ – because it is that belief and the ‘specialism’ that it implies that creates barriers to teaming. At the heart of enabling “team of teams” thinking, lies greater transparency, data exchange, shared tools and systems – in fact many of the characteristics that we have identified as being at the heart of relational contracting.
Sally Hughes: That brings me nicely to my last takeaway which is “Outsights”. How many of you knew what that word meant before you came to this conference? I hope that having spoken to this term, we have now clarified what we mean. So how many of you feel that you haven’t gained any outsights over the last few days?! And how many of you will not be going back to your organisations with new ideas?! I’m so pleased to see no hands being raised! We make the point each year, but it is always important to reiterate – the primary purpose of IACCM is to be your source of outsights and it doesn’t stop here, with the end of the conference . We will be running this week’s ATE on Thursday afternoon as always, our library continues to fill with a plethora of material and resource for you to refer to you at your leisure. We have communities of interest where you can test your ideas and gather new ideas at the same time, member meetings, message boards – the list goes on. Equally you can reach out to any one of the IACCM Team at any time.
We still have a way to go with some of the concepts that we have been talking about but we certainly sense from our many conversations that these last three days have provided you with new examples and ideas and demonstrated how you might be able to do things differently.
Measuring our success
My last takeaway builds on a conversation inspired by John Proverbs on how we should measure and demonstrate success. Our current measurements inhibit the value that we bring to our business and stand in the way of commercial excellence. Indeed, a focus on short-term savings or compliance can often detract or even undermine that value. While transactional performance is clearly important, it rarely offers the insights that we need if we are to raise our status and our contribution. Our thinking and our measurements must start to focus on driving benefits at a portfolio level and relate directly to achieving the strategic goals of our business. Most typically today these goals demand improved speed, quality, integrity and financial performance.
Value will be delivered through a process based view, through monitoring the outcomes of what we do, through generating measured innovation and continuous improvement. This depends upon capturing and analysing performance data, through challenging established rules and procedures, through inspiring the new models and approaches we have discussed this week. And it also depends on courage – developing leadership and influencing skills.
The agenda is clear and is contained in two infographics in our Future of Contracting and Commercial Management Report. These explain the market forces and influences that have transformed the required role of Contract and Commercial Management and the characteristics of the new model we must adopt.
Next Monday morning start the change by making sure that a copy of the report is on your CEO’s desk.