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Procurement is NOT Commercial

April 12, 2019

I am observing a growing trend for Procurement teams to adopt the title ‘Commercial’. While I understand the reasons for this, it is typically misleading and misrepresents the true purpose of Commercial Management.

What is Commercial?

The International Association for Contract & Commercial Management (the world’s only Commercial Management association) has a very clear and comprehensive definition of ‘commercial’. In essence, it is about ensuring that an organization’s policies and practices are aligned with market needs and business goals. Ultimately, it is an integrationist function that reconciles the multitude of (often conflicting) stakeholder perspectives and interests to better understand both opportunity and risk, operating to support both buying and selling.

in an excellent article, Bruce Everett has illustrated what disastrous consequences can occur when that overarching alignment is missing – the human, social and economic cost.

So why isn’t Procurement ‘commercial’?

I am not suggesting that individuals trained in procurement can’t be commercial managers. On the contrary, I know many who have made the transition, along with others from functional specialisms such as Legal, Finance, engineering and project management. But here we have the point: Commercial is cross-functional in its nature. It cannot be some bolt-on to specific functional activity.

Why is that? The answer essentially lies in functional purpose and measurements. As Bruce’s article points out, performance measures such as lowest price and compliance are not compatible with long-term value or ethics. Similarly, if we think about this in the context of lawyers, a contract that is legally watertight is often not going to generate a collaborative relationship or future innovation. That doesn’t make typical Procurement and Legal roles less important – it simply acknowledges they represent functional positions, which are not the same as holistic business and social interests.

Into the future

I understand why functions like Procurement want to re-brand as ‘Commercial’, because this high-value, analytical role is where the future lies. More formulaic and repetitive activities that today are performed by functional specialists will in many cases rapidly become automated. I welcome the wish people have to make this change and IACCM is here to assist with membership, training, mentoring and advice.

Commercial Management is a critical role that reconciles economics, ethics and innovation. Making the shift requires much more than simply changing your name or job title.

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