It may not be an issue today, but at some point, most contracts and commercial groups face the question “What value are you bringing to the business?” And when that question arises – whether it is to justify headcount or to support a business case for more investment – most contract management groups struggle to describe their value in financial terms.
Without that ability to justify (or even better, having proactively provided management with the data), many groups find themselves subject to the ups and downs of the market, or the whims of management sentiment.
Ironically, it is in Government and public sector that the value of contract management is often most evident. This is because the audit process results in far greater visibility of losses – and with increasing regularity, the auditors are highlighting the weakness of contract management or failures in commercial expertise as key reasons for these losses. Recent examples can be found in many countries and they amount to many billions of dollars (see separate blogs or recent articles at the IACCM website).
To support its members in developing the business case for improved contract and commercial management (both sell-side and buy-side), IACCM is conducting a study to discover the extent of corporate financial losses that result from weaknesses in contracting. Its goal is to support members of the Association in their efforts to gain management support or provide strong rationale for budget and headcount.
Given the nature of the survey, the individual inputs will of course remain confidential (and can be submitted anonymously), but consolidated results will be issued to all identified participants. I hope readers of this blog will take a few minutes to share their experiences at https://www.surveymonkey.com/s/CMvalue
There is an interesting discussion underway on the IACCM Forum. It relates to relatively frequent question (and frustration) over the ability to move between industries.
We are often told that organizations should hire for skills, not knowledge. Indeed, one of the top issues raised by functional management is around the skills gap that they face. I hear relatively little about ‘the knowledge gap’. Is this because they see the two as interchangeable?
Based on the experience of many job applicants, specific industry knowledge and experience often seems to trump the value placed on demonstrated skills. There remains a tendency to hire people who fit our existing employee profile – even though we are at the same time saying that profile is not quite right for the future!
I understand that we are often hiring as a matter of urgency and want people who can ‘hit the ground running’. But firstly that assumes there is only one way of doing things and secondly it means we never start to address our more deep-seated problem, which is a lack of diversity and new ideas and knowledge.
So how do job applicants best oversome this narrow-minded approach to selecting interview candidates and hiring? I would love to hear your thoughts, either because you have succeeded in breaking down the barrier, or because you are a manager who deals with hiring.
And just a comment for those who are giving up hope. I managed to move from banking, to automotive, to aerospace, to technology. I recall overhearing my line manager the day I joined automotive saying to my supervisor ‘He comes from banking, I don’t know why they hired him, but we’ll find a way to move him on very soon’. Fortunately, he changed his mind. Now I must give some thought as to why that was, and maybe it will help me answer the question!
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- an ability to simplify the discovery process; and
- The fact that if a company has already built a robust contract management system, it reduces the risk for a merger or acquisition partner and therefore should make the business more attractive (unless of course there are a lot of bad contracts!).
I was reading recently about the financial crash and the author was suggesting that far from too little regulation, the problem is that we have too much. He suggested that much of the governance and regulation in place today is a pretense by politicians that they have things ‘under control’. It is a reaction to events that actually increases systemic risks by creating a false sense of security.
There is certainly some truth in this view. A framework of governance and regulation generates a sense of underlying confidence that reduces the diligence with which situations or decisions are reviewed. That certainly appears to have been true in the financial services industry. If there had been no regulatory framework, would people have had such blind faith in the actions of the industry?
The truth is that you cannot regulate desirable behavior. There are always conflicts between short-term and long-term interests, between personal and social benefit. Certainly we nee d to protect against criminal activity, but we also need to remain skeptical and ask questions about motivation and representation.
This is true in any form of governance system – including the world of contracts. And, as one colleague pointed out recently, rigorous process often causes us to spend more time and effort on getting through the process than we do on assessing the risks that were the underlying reason for the process.
The confluence of concern about risk and demands to cut costs results in a dilemma for many contracts, procurement and legal groups. It generates the frequent question ‘How do we do more with less?’
Of course, if one is simply looking at cutting cost without substantially reducing service levels, the main solutions are to automate and / or to outsource or move some activity offshore. However, concerns about risk typically imply increased review and approval – and hence greater workload. And for smaller organizations, offshoring is not likely to be a practical solution and outsourcing may not generate any cost savings.
In my experience, any successful effort to improve the quality of service while cutting or maintaining the cost of service depends on thoughtful segmentation of the contract base. This does not mean dividing deals based on revenue, or ‘strategic importance’, or similar techniques which frequently bear no co-relation to actual risk.
I thought it might be helpful to share a couple of methods that we have used with our members at IACCM. I’d welcome other ideas or approaches so please make a comment if you have one.
- Confidentiality / NDA
- Agent / remarketer agreements (including involvement of an agent or remarketer on a specific deal)
- Teaming agreements
- Joint ventures
A lack of strong leadership frustrates many contracts, procurement and legal professionals. In the most recent IACCM survey, they indicate that functional management frequently fails to provide adequate strategy and direction – and of course, this undermines their status and their confidence about the future. Many are concerned about their career path and their organization’s ‘failure to invest in its people’.
It is findings like this that have encouraged IACCM to undertake a comprehensive study of ‘the future of contracting’. Our aim is to provide authoritative insights and ideas on how the contracts and commercial process will evolve, enabling current and future leaders to develop a more robust strategy and to ensure investment in the skills and resources for tomorrow. A two minute video describing our goals, methods and early findings can be accessed at http://www.iaccm.com/library/?id=4096
But it is not only IACCM that is focused on the future. A growing number of academics have recognized the importance of contracting and many are working in partnership with the Association to drive research and to incorporate contracts and commercial knowledge within the University and Business School curriculum. A sample of those research papers will shortly be presented at the IACCM Academic Forum, featuring content from a range of top institutions in America and Europe. The papers will also be published and made available for IACCM members. Topics include:
– Visualization: Seeing Contracts for what they are, and what they could become
– Learning in Evolving Corporate Models in the Construction Industry: A Case Study
– Contracting Capabilities in Management of Innovation Networks
– Why a contracting party may be less cooperative after having suffered a loss
– Global Sales Law: An Analysis of Recent CISG Precedents in U.S. Courts, 2004-2011
– Protecting Networked Innovations with Contracts
– User-Centered Contract Design: New Directions in the Quest for Simpler Contracting
– Public Procurement as an instrument for driving regional innovation
– The Role of Proactive Law for System Level Innovations
All of this content will be available to delegates at the IACCM Global Forum in Phoenix, Arizona on October 26th – 28th. In addition to the 2 day agenda of industry break-outs, case studies and keynote presentations, they will also have access to an outstanding series of workshops. The workshops feature inspirational leaders on the following themes:
Synergy Between Contracts & Sourcing
Finding Added Value in a Commercial Negotiation: The Creation of Trust
IMPACT! What Difference Do You Make?
Plus there will be an Executive Forum where senior management can gain early insight to the Future of Contracting study results and share in discussion about their implications.
Details about the conference can be found at www.iaccm.com/globalforum/
But if you cannot be there, don’t despair! We will ensure that all our members benefit from this wealth of information and learning. Over the coming months, we will issue reports and run webinars and expert calls. The presentations form the conference will be available in the Member Library in early November. The book of academic papers will be published that same month.
Tough economic times tend to place ethics and honesty under stress – and I am seeing growing evidence of ‘underhand behavior’ as the pressures mount.
There are perhaps three major areas where we must be watchful. One is around competitive behavior; another is around the ‘truth in bidding and negotiation’; the third is in honoring commitments.
When it comes to competitive behavior, actions can take many forms. These range from the formation of cartels designed to reduce competition in bidding, to unfair or unprincipled actions towards competitors, often designed to put them out of business. The way that patents are used is one example that I have cited in previous blogs. Deliberate misrepresentation of a competitor’s performance or capabilities is another. Using subterfuge to gather competitive information is a third.
Many of these actions are not illegal, but they should cause buyers to be alert. A smart buyer understands that any gain they receive from anti-competitive behavior will be short-term. First, it should alert them to the character of the company and its likely post-award behavior; and second, if it succeeds in reducing competition, prices will rapidly rise.
‘Truth in bidding’ is a topic on which IACCM has run a series of workshops. As in the post-award ‘honoring of commitments’, there are faults on both sides of the table. Measurement systems provide incentives towards acts of omission and commission when specifying needs or capabilities. Commercial staff need to operate with increased skepticism in discovering the accuracy of requirements or commitments. Unfortunately, it seems there is also a need for increased rigor in monitoring actual performance and the management of change. Hard times lead to the temptation to understate or overstate the impacts of changes (depending on which side you are on). They also lead to an increase in inaccurate billing, including such areas as overstated hours or application of the wrong charge levels.
It is nice to believe that contracting can always be used as a vehicle to create harmonious and high-value relationships. Unfortunately, we also have to remember its importance in rooting out dishonesty and unethical practices.
If you want legal advice in the UK, you will soon be able to get it at your local bank or supermarket. That is the result of reforms to make the law more accessible and cheaper.
Of course, reactions to this vary, with many lawyers and law firms strongly opposed and asserting that it will lead to a proliferation of bad advice. It certainly raises a number of questions, both in terms of the benefits it will bring and the possible consequences. Yet it is also exactly the type of initiative that led IACCM to conduct its ‘future of contracting’ study, because anyone who believes that the next few years will not bring fundamental changes is, we suggest, fooling themselves.
This ‘commoditization’ of the law must surely increase demands for easier and faster access to commercial and contractual advice. It is once more symbolic of a dual force now affecting ‘professionalism’. On the one hand, there is a growing need for more in-depth expertise; on the other, there is the imperative to make that expertise more accessible, more responsive and less costly.
Among the relevant findings in the ‘Future of Contracting’ interviews are the pressure to drive increased empowerment among user communities and also the demand for contracts themselves to become far more user-friendly. Professionalism must not involve mystique.
There are some fascinating challenges and opportunities ahead of us – not least of which is that professional associations like IACCM will most likely see a continued increase in demand for their low cost, instantly accessible advisory services.
To see more about the UK initiative to put legal services into the retail environment, visit http://www.bbc.co.uk/news/uk-15187154
Would you like to increase the status and influence that you have in your organization?
Last week, I attended a Government conference where a senior official was talking about the importance of professionalism. In his speech, he highlighted the extent to which innovation influences a profession’s status because this is the characteristic that generates real interest and respect. Capability is assumed; innovation makes us distinctive.
IACCM research shows that only 10% of those who perform contract and commercial management are innovating – which should help us understand why the perceptions and status of our role are often so mixed.
The speaker observed: “To implement new approaches, we need a profession that is committed collectively and personally to keeping up to date with emerging industry trends and with learning and development”. This comment goes to the heart of the IACCM mission. The hunger to learn and to develop new approaches is evident in some members and is also a noticeable characteristic of some organizations, but as the research cited above illustrates, not a majority.
Do you have that commitment? Do you ensure that you and your team have access to industry trends and learning and development? Are you staying abreast of innovation in contracting – its role, structures, terms and policies?
There are numerous ways this can be achieved: I wonder how many of these approaches you are using:
– The IACCM member network. Have you built a personal contact group from within IACCM’s 23,000 members?
– Ask the Expert calls. How many of these weekly calls have you or your team listened to and acted upon?
– IACCM member meetings and conferences. Have you attended a meeting? Do you offer to host or speak at meetings?
– Research projects. How many research surveys have you contributed to? Have you read the results and taken action, or alerted management? Have you ever initiated an external research survey?
– Message boards. Do you make use of message boards to gather outside opinion? Have you contributed to them?
– Learning and development. Do you and your team have structured approaches to personal and organizational learning? Do you undertake objective assessments of skills and performance, including periodic benchmarks against similar groups outside your organization?
– Advisory services. When was the last time you sent a question or made a call to IACCM to gather information or discuss an opportunity or challenge that you face?
Professionalism is something that is collective and individual. Every one of us makes a difference to how all of us are viewed. As a rising profession, we have so much opportunity before us – so long as we make the personal investment in innovating and implementing new and higher value approaches.
Commitment Matters 