Yesterday I met with a newly-appointed Group Head of Commercial Management at a large international defense supplier. One of his first moves was to undertake a study of the satisfaction of internal customers as well as the contract mangement team. He found a high level of consistency in the replies. Among them were:
– There is a lack of clarity in the purpose of the function
– Although individuals work hard, the function is often a bottleneck
– If there was earlier involvement, the process would work better
– Functional leadership is lacking visibility and direction
– What is the value statement?
– Why aren’t the processes and service levels more consistent?
– Too much fire-fighting, too little focus on cross-group learning and efficiency
These comments were reflected (although more succinctly) in a note I received today from a senior contracts exectuive in the oil and gas sector (this time dealing with procurement contracts): “The challenges are huge and range from internal stakeholder engagement, to contractor / global capacity, internal controls (or lack thereof), too many cooks, local vs whole of organisation strategies, etc, etc ….”
In other words, highly consistent messages that occur with remarkable frequency. I have written before about many aspects of these opportunities for improvement and how they can be addressed. It remains astonishing that, even though the focus and importance of contract management is increasingly recognized, the functional approach remains largely tactical. The newly appointed Head of Commercial asked at one point: “At IACCM, you must see all the companies that have real leaders within Commercial or Contract Management – the people who are really leading change and improvement. What percentage would you say that is – perhaps around 50%?”
Paul Mallory (IACCM’s Global Head of Learning) and I looked at each other. Both of us were thinking of the 80 / 20 rule, but as Paul then said, “20% is rather generous, it is probably more like 10%”.
Those 10% are revealing the tremendous difference that good contract management can deliver to the business, yet progress remains alarmingly slow. Perhaps it will only come when new leaders are introduced – people who do not have a background in the contracts or commercial function. Certainly the evidence points to the fact that very few incumbents have the enthusiasm or imagination to carry the function forward.
IACCM’s Global Forum (www.iaccm.com/globalforum) will feature an executive program that explores ‘The Future of Contracting’ and will equip leaders to promote and drive the changes required to manage trading relationships in today’s market conditions.
On the IACCM LinkedIn group message board, Veronica Whitmore entered a plea for more supplier innovation – a plea that was picked up by John Hansen in his blog.
Veronica said: “I write tenders & oversee tender evaluations for an Australian government body – and I’ve always included criteria around “innovative” business processes & systems. Sadly, the responses to these questions are usually very disappointing and just offer up the industry standard fare…
I don’t think that a supplier having a competitive advantage contradicts the concept of a fair and level playing field – it is almost a silly comment to my mind. Just because it is a government tender it doesn’t mean we are looking for mediocrity and / or uniformity. I for one would love to see a tender response that made me say ‘wow’… still waiting… ”
I think this is a big topic – and very worthwhile. As we all know, lack of innovation is one of the most common complaints about suppliers; yet suppliers say that it is often the customer that frustrates the innovation. So what may be causing the problem that Veronica outlines?
I don’t know what percentage of client organizations invite ‘innovation’ in their tender documents. And of those that do, I suspect in many cases it appears to be a bit of throw-away – “Oh, and by the way …”. It seems rare for innovation to actually have any specific weighting in the evaluation criteria …
And there are several reasons for this, not least of which is the fact that the standard tender process cannot sustain a true ‘level playing field’ if it also seeks true, radical innovation. So we are probably talking about two different processes – one where you know what you want and may be open to marginal variations; the other where you truly wish to find a new form of solution.
But is Veronica still right to be disappointed in the supplier response? First, suppliers respond to the things that they think will make them win – so if innovation is not a high priority, it will receive little attention. Second, as mentioned above, real innovation will often challenge many of the assumptions that procurement included in their requirements document. In other words, if I offer innovation, I may need a completely new bid document … and I rarely find procurement groups that are open to that particular challenge.
And then there is simple logistics. Suppliers are complex organisms just like customers. Assembling the team to get the basic bid completed on time is usually hard enough. Getting an expanded team together to brainstorm and produce innovative ideas is a tough proposition. And some on the team are reluctant to play ball. Sales is often nervous about confusing the customer – or even worse, causing a delay. After all, if I offer something ‘wow’ (to use Veronica’s term), chances are that you will go back to the drawing board and re-issue the tender … so what does that mean to timeframes, competition etc?
Another factor is that if I have something really innovative, do I want to expose it in the context of a competitive bid? There is a high risk that the customer will then reveal my idea to others, to test their ability to do something similar. If I am really innovating, I probably prefer to initiate that discussion by a different means than a bid response document …. and I may prefer to have the conversation somewhere else than Procurement.
So – as Nick Sullivan explained in his response – we should not think of traditional bidding as a way to solicit innovation. And Frank Ibazebo goes further by recommending the use of ‘trial tenders’ in cases where you are seeking innovative ideas. He also correctly points out that the key is to be clear about your tendering strategy and this must be driven by clarity over your objectives.
“The first wave of the internet was based on TCP/IP to form the foundation, the second wave was based on HTML that helped bring us the Web 2.0, and this third wave is a new kind of Internet, not for packets but for people… and could very well lead to the conclusion of the Information Revolution and the beginning of the Relationship Economy.”
This quote comes from an article in Psychology Today, by Moses Ma, a partner at Nextgen Ventures. The observation regarding ‘the relationship economy’ lies at the heart of much of the thinking in this blog and at IACCM. It is good to see such similar sentiments starting to come from the venture capital community. For example, take this quote (which is very reminiscent of much of the behavior in contracting and negotiation): “In the past, when I worked with large venture firms, the typical process was based on mistrust and combative. Investors aimed to transfer as much equity as possible from the founders, especially as punishment when expectations weren’t met. I just couldn’t do that anymore, and have been looking for a new way to invest – a way that is a partnership, a collaboration, a mentorship – that can help founders grow teams that can build a large company successfully, instead of marginalizing them and replacing them as soon as possible.”
Ma goes on to suggest that the networked world will continue to drive down cycle times and transform the road to innovation. And he concludes with this reminder of the words of Charles Darwin: “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.”
And that is why IACCM has its current initiative to look at the future of contracting (see also Does Contracting Have A Future?), so that it can guide its community in ways that will make it more responsive to change than others – and thereby to enable survival. This work culminates in an Executive Workshop at the IACCM Global Forum in October.
Today’s Financial Times carries an article on a topic that has been bothering me – the apparent double standards that the United States has towards cyber-crime. Essentially, if others do it, it is an act of war; if the US does it, it is OK.
To quote the article: “The hacking of the International Monetary Fund, Central Intelligence Agency and Citibank computer systems has raised fears that the US is on the brink of a cyberwar for which it is woefully unprepared. To deal with this growing threat, the Obama administration’s strategy is to treat destructive state-sponsored cyberattacks as an act of war that may even result in a conventional military response. This approach unfortunately has an unsustainable double standard: while Barack Obama’s strategy treats cyberdestruction by someone else as an act of war, his administration’s actions imply that cyber-destruction by America is a normal covert action, equivalent to espionage.”
The point here appears to be that those in a position of power somehow equate that power to moral superiority – the old adage ‘might is right’. But of course others do not agree – so such an approach causes contention and also results in levels of secrecy and a feeling that doing dishonest things can be justified.
These same double standards frequently apply in the world of contracting and negotiation. Every day, powerful businesses impose thier view of ‘fairness’ onto the weaker party. It may well be that their intentions are honorable and that they generally do ‘the right thing’. But in the end, their reasoning is also because they want to be the ones who stay in power. And ultimately, it is this approach that contributes to their downfall.
Many failed projects and initiatives are blamed on inadequate leadership. Indeed, in IACCM research, ‘the quality of leadership’ was identified as the most important element in the success of complex contracts.
This is generally seen as a call for more leaders. But is it realistic or desirable to focus on individual leadership skills, or should we in fact be looking for different forms of leadership?
Any system that depends on the availability, enthusiasm and focused attention of a specific individual faces the risk of their absence at critical moments. In many ways, a cult of ‘leaders’ provides a convenient excuse for failure and a lack of team accountability for success.
Leadership is different from sponsorship. Executive sponsors are often critical to success; but in the best projects, it is their visible support that matters, not their active involvement. Indeed, if we look at flawed contracts, it is often because of the involvement of executives that we find there are ill-considered or unrealistic commitments.
So perhaps we should stop calling for more leaders and think instead about alternative ways to deliver leadership – for example, through collaborative and committed teams.
At the IACCM member meeting in London this week, Simon Rowley of recruitment specialist Rowley Bateman, discussed the state of the market for contracts and commercial professionals.
Simon started by talking about the trends he has observed over the last 10 years. Many could relate to his observation about the growth of status of those in the post-award environment. “Ten years ago, the bid and negotiation role was predominant,” he said. “There was a lack of respect for anyone in the post-award contracts role – it was seen as a much lesser skill, almost administrative.”
The growth of ‘large, risk-laden contracts, over a much longer term’ has changed that – especially given the speed of change and therefore the need for continued oversight and renegotiation of contracts. “Today,” said Simon “only about 20% of the jobs are for pure pre-award roles.” He described the extent to which companies are investing in embedded contract management functions – many hiring into this role for the first time, and most expecting capabilities in the full contract life-cycle.
“The function’s role is evolving and today the expectation is that it will add value throughout the life-cycle of the relationship,” he added, commenting that the the post-award role has become especially challenging, since the contract manager must have the skills to simultaneously deal with issues such as managing the contention around a claim, while also negotiating a piece of new business with the same customer.
Simon then invited participants to define the skills and knowledge that determine ‘excellence’ in the contracts and commercial role. The critial areas – in the view of the audience – were predominantly in the skills that are needed. Most knowledge areas – for example legal or financial awareness, customer or supplier understanding, product or category knowledge – can be taught. The skills / characteristics list was extensive and – in the view of participants – includes:
– inquisitive mind
– proactive approach
– flexibility / problem solving
– learning from mistakes
– communication
– integrity
– empathy
– pragmatism
– negotiation
– solution oriented, innovative
Simon confirmed that most employment opportunities today are seeking people with the right attitudes and skill-set. He divided the attributes into those of ‘science’ (e.g. contract law, drafting, pricing / cost analysis, export regulations, competitive dialogue) versus ‘art’ (communications, team player, relationship management, dispute management, consultative style).
When asked about the most common failing, he suggested that the biggest problem for many contracts and commercial staff is their modesty. “This may be key to being a good team player, but it is not helpful in the way we present ourselves. Toomuch modest can cost you a job.”
At this week’s IACCM Member Meeting in London, some 60 participants engaged in a lively discussion over trends in recruitment, career paths and emerging skill needs for the contracts and commercial community.
The delegates represented the typical IACCM mix of buy-side and sell-side professionals, with a good number of lawyers among the audience. I will write more about this session in a future blog, because it addressed a number of pertinent and interesting points for the entire community.
But one question that caused lively exchanges was: “Is the term ‘commercial manager’ helpful, or should it be abandoned?”
Job titles are always contentious. IACCM research last year showed that there are around 60 variants within the community it represents. This is far more than the variations in job roles.
The problem with ‘commercial manager’ appears to be that it is used in a wide variety of contexts (unlike a title such as ‘contract manager’). It may be applied to business development, or sometimes sales. Generically, it may refer to the ‘commercial processes’ within a company, covering areas such as Finance and Marketing. It is also applied in a context of skills, to differentiate from ‘technical skills’. But as a former IACCM Chairman once observed, ‘Lawyers oversee law, project managers oversee projets, accountants oversee accounts; what do commercial managers oversee?’
So the point of the question was to ask whether we would actually be better (and more influential) as a community if we tried to unite around a lesser array of titles, with a specific purpose or area of responsibility connected to them – and specifically if we eliminated ‘commercial management’ from our vocabulary.
Traditionally, the title Commercial Manager appears to have emerged in the UK and spread to various other geographies, initially countries like Australia and South Africa, more recently to the US and Canada. It used to be distinguishable from the Contracts Manager because a) it tended to be much wider in its remit (for example, typically carrying pricing or financial authority) and b) it was generally focused on pre-award winning of contracts, wtih post-award work passing to the more administrative ‘contract manager’. It gained virtually no traction outside the English-speaking world.
Even the distinction between commercial and contract managers has changed and the picture is much more confused. Contract Managers (pre and post award) are abundant. The post-award role has greatly increased status. The terms no longer depict a meaningful or reliable difference.
So does continued use of the job title ‘commercial manager’ distract from our community’s professional standing? Or is it simply another variant like ‘attorney’ versus ‘lawyer’ or ‘project manager’ versus ‘program manager’?
What do you think? Is it time for us to kill off the Commercial Manager in the world of contracts and trading relationships and to begin the task of simplifying our job titles and descriptions? As someone who came to contracts via ‘Commercial Management’, I have to confess to an emotional attachment …. but I also have fond memories of the pre-computer era and yet I accept those days have gone …. So is it time to say goodbye to Commercial Management?
I spent two days last week at the inaugural meeting of the International Standard’s Organization (ISO) working group on outsourcing. The golf of the group is to develop a worldwide standard that provides guidance on managing the outsourcing life-cycle.
Outsourcing has been an increasingly prominent topic over the last 20 years and shows no sign of diminishing in the near future. Since one of its primary drivers is the possibility for cost reduction, it will remain in many cases a cross-border activity, as organizations seek low-cost sources of supply. It is this aspect that makes the ISO initiative of particular value, since it aims to create more consistency in terminology and understanding, with a view to enabling better constructed and more successful outsourced relationships.
Given its own global reach and the involvement of many of its members in outsourcing projects (including in some cases the outsourcing of their own business function), it will be no surprise that IACCM is closely involved in this initiative. Our membership has a wealth of experience to offer and it is initiatives like this that lie at the heart of IACCM’s mission ‘to increase the integrity and success of trading relationships’.
There will be some who view projects like this as threatening. While they will doubtless couch their criticism in terms of creativity or constrained competition, the truth is that standards threaten no such thing . They create a baseline that enables increased efficiency and increases the possibility for greater focus on differentiation and innovation. In fact, the only people who lose out are those who make their living based upon avoidable complexity and confusion.
As with all global standards projects, progress will take time. It will require the building of consensus and the various project groups are made up of dedicated volunteers who have full-time job responsibilities outside this project. However, the meeting was able to draw from excellent work already undertaken at a national level in various countries and this provides some initial building blocks for eh international teams now assembled.
At this point, the work is focusing on process and that means there is no plan to produce a set of model agreements or terms and conditions. The contracting process certainly will be addressed – and perhaps IACCM members will decide that there is merit in building from this to produce model contracts that could also be used as a reference guideline.
Volunteers – and ideas – are welcome!
Today I presented at a conference for Chief Procurement Officers in Milan. One of the most interesting sessions was a panel of Chief Financial Officers sharing their views and opinions about Procurement.
A recurrent theme was that they believe Procurement needs to partner with Finance to generate value and to support business strategies, not just to cut costs. Each of the CFOs expressed some disappointment in the readiness of procurement to be more rigorous, to ‘do the right thing, not just the easy thing’. They suggested some key questions that need to be asked, such as:
– is the supplier an asset to our company?
– is Procurement providing realistic budgets for supplier payments and do they understand supplier cash needs?
– is Procurement hiding behind rules and process, rathe than exercising good judgment?
One of the panel members discussed the ‘red ocean, blue ocean’ approach, where the red ocean is the ‘traditional battleground approach’ and described how his company had used the recession to better evaluate suppliers, to understand that there was no point asking them to give if they are struggling more than their customer.
The conversation highlighted the importance of Procurement looking at potential from internal efficiencies and lowering the cost structure threshold. The panel felt that CPOs must ensure increased interactions with operations ‘to achieve a quantum leap in performance’, but acknowledged that ‘Procurement has been so tactical for so long, it is a lot to ask that they suddenly become strategic, that they suddenly master the skills of reengineering and process redesign’.
The importance of relationship management was also stressed and they built on my presentation that had advocated a shift to achieving better outcomes. This change demands greater creativity and an end to ‘short-term savings’ as the primary goal. But to gain confidence from the CFO, ‘Procurement must be a better partner, we need them to develop more in-depth projects which they commit to management’. The panel urged greater investment in human capital and a readiness to developing ‘more specific savings targets which they share openly with suppliers and involve the supplier in creativity to reach those goals’.
One questioner suggested that a way forward is to appoint more financially literate CPOS, perhaps people with senior finance experience. But while the CFOs felt that some job rotation is beneficial, they did not agree with appointing senior finance executives to the CPO position. “That would simply reinforce the role’s relationship with a focus on price, with a ‘cash early, pay late’ mentality”, observed one. “What we really need is new insights, new ideas and leaders with the courage and imagination to propose new KPIs for their function.”
“I would welcome joint work to look at the right KPIs”, confirmed another. “My door is open for that conversation”.
In a note of some irony, the CFOs agreed on the importance of category management and the extension of Procurement’s oversight of all spend relationships. “So do you have Procurement negotiate rates with your banks?” one delegate asked. “No”, was the universal reply. “They have some way to go before I would trust them to do that”.
The Economist (June 11th – 17th) has an interesting article acknowledging the IBM Corporation’s 100th birthday. It points out that relatively few companies survive that long – especially if they are in an innovative sector such as technology.
So what led to that success? In the end, it appears to have been adaptability; but the article points out that it wasn’t about adapting core products, but instead it was about an idea. What set IBM apart from many companies was its mission ‘to package technology for use by businesses’. It was not committed to any specific technology or concept – although a couple of times it almost fell into this trap, first with the punch card, then with mainframes.
The Economist goes on to ask which companies in the technology sector are likely to emulate IBM’s achievement – and it does not rate the chances of Dell, Cisco or Microsoft very high. But what really interested me about this article was its relevance to ‘professional associations’. I realised that the success of IBM goes a long way to explaining the growth of IACCM, which is also founded around an idea rather than a specific ‘product’.
Unlike many associations, IACCM does not seek to promote a job role (although it does equip people to perform). Its vision is built around enabling successful trading relationships – an attribute that is fundamental to human prosperity, rather like IBM’s. In doing this, it crosses traditional functional boundaries and is not (in the words of Gary Hamel) ‘held hostage by its captive audience’.
Those words of Hamel were, interestingly, uttered to John Akers, then CEO of IBM. And they were a warning about the need to move on from the highly profitable mainframe and to embrace networked technologies and services. I was fortunate to be at the center of that particular transformation at IBM – and the principles of adaptability have resonated with me ever since.
So for those who are interested in trading relationships and want to remain highly relevant to the organizations and careers of the future, IACCM has become an obvious choice. It equips them with the research and ideas to cope with the future. It makes me confident that we will be celebrating its 100th anniversary in 2099 – though I regret I won’t be able to observe it!
Commitment Matters 