Many professionals believe that they should have greater influence and control within their business. IACCM surveys have shown this to be true for the contracts, legal and procurement community. They are often frustrated that they are not consulted on key initiatives, or introduced earlier, or given more specific areas of authority.
A paper in Harvard Business School’s ‘Working Knowledge’ offers some useful insights on ways to succeed in raising functional influence. It is based on a study of risk managers – clearly a related group for our community.
Risk managers have long been deemed necessary, but were typically seen as ‘compliance managers’. The growth of interest in corporate risk management created a window of opportunity – and while some have taken advantage of this, others appear to have remained static in their influence and status.
The situation for the contracts, legal and procurement professional is in many ways similar. While there are clearly high-status individuals who wield significant situational influence, many remain largely invisible to senior management and the wider business. This is in spite of the fact that their work has become more important to business health and success.
What Type Of Influencer Are You?
The analogies to the groups studied in the paper are interesting. In one company, the professionals split between an old school of highly experienced, talented individuals who were trusted by management and were engaged on strategic activities because of their personal credibility. However, these individuals did not share knowledge or follow consistent methods – their ‘tacit knowledge’ meant that their influence did not extend beyond a remit as ‘ad-hoc advisers’.
The ‘new guard’ at this company, responding to demands for greater enterprise compliance and reacting to the reluctance of the ‘old guard’ to share knowledge, had introduced a rigorous risk assessment process – but it was viewed by management as ‘alien to the business culture’ and by other functions as ‘box-ticking’.
This example stood in stark contrast to a group at a similar corporation, which had established extensive functional control and influence.
It had a leader who sought more power and accountability. She took steps to market the group’s services and capabilities to the business. She ensured that her team used standard language and standard methods, supported by a uniform process. The group developed tools and scenario planning that resulted in engagement through early warning systems. They influenced internal review and measurement systems to ensure that their values were reflected in management performance evaluations.
As I look at these two scenarios, I see a direct reflection within the IACCM member companies. There are many where the role remains a mixture of ad-hoc experts and compliance-driven administrators. And there are a few – a growing number – where there is true leadership and investment in building a corporate competence through a consistent body of knowledge, tools and systems and high-value information flows that enable practitioners to bring unique insights to the business.
Three news items caught my eye this week, raising issues that I consider important points for thought and discussion by the commercial community. Although all focus on US-based stories, I think the points they cover are of universal relevance.
The first was in the New York Times and dealt with regulation. It highlighted the loosening of insurance rules by a growing number of US states. The article makes the point that they are ‘aggressively remaking themselves as destinations of choice’ in order to attract business. This is an interesting counter-trend to the drive by many governmental bodies to increase regulation, especially at an international or regional level. Of course there have always been ‘business friendly’ regimes that try to attract business through a lower regulatory hurdle, but how far will this now go? Might we see US states (and others) introduce more favorable jurisdictional systems, for example, perhaps capping liability pay-outs? To what extent will the commercial community need to be come far more expert in determining the relative merits of different reguatory environments in their calculation and management of risk?
The remaining two articles both came from The Economist. In ‘Patently Absurd’, an editorial criticizes the failure of Congress and the White House to better understand the link between the patent and trademark system and the momentum for innovation and job creation. It calls for a reversal of recent decisions to cut the budget of the US Patent Office and to speed the progress of other legislative initiatives. The article argues that ‘America’s system of intellectual property has played a crucial role in generating economic growth’ and that the failure to adequately staff the office (resulting in massive delays to patent issue) is creating lost opportunities and competitive exposures.
This argument may be correct, though there may also be alternative ways to protect inventions and there are counter-arguments that the obsession with patents actually undermines innovation. Either way, this is also an important area for commercial professionals to understand and discuss.
The final article tackles the question of legal costs – and the extent to which the dominance of lawyers in government has become self-serving and contrary to the public interest.Many of the points that are raised apply to the consequences and challenges within business – and the need to ensure that growing concerns about risk do not result in commercial decisions becoming hijacked by any particular professional group.
“The American legal system is the most lawyer-friendly on earth. It is head-thumpingly complex”, observes the article. “Companies must hire costly lawyers to guide them through a maze created by other lawyers to defend themselves against attacks by other lawyers on a playing field built by lawyers.” The cost of this system, according to The Economist, is roughly $800 a year for every American, passed on in consumer prices.
Is there an alternative? Clearly, while ‘the maze’ exists, we must find our way through it, but the article suggests the importance of internal checks and balances regarding need and value. Strong commercial functions provide balance by subjecting all stakeholders to scrutiny and ensuring that no one of them gains excessive power or control within the business. And this issue of regulation and the lawyer’s role in business is increasingly a universal debate.
At an IACCM member meeting in Chicago, there was a lively discussion about the delivery of value.
Dalip Raheja, CEO of The MPower Group, was presenting on the subject of ‘next practices’ and in particular the need to move away from lowest price to greatest value. The discussion centered not only on Procurement, but also the role of the supplier in helping their customers assess value.
Dalip cited a few examples, including the story of an off-shore oil rig. Procurement was proud of the savings it had generated in accommodation and housing costs on a large off-shore rig. However, the head of HR was irate – because those savings had significantly increased employee turnover rates, as workers moved to competitors offering more luxurious conditions. He rightly pointed out the false economy achieved by cheapening the cost of food and quality of accommodation, while raising the costs of recruitment and training.
On one level, suppliers must take greater responsibility to identify and describe their sources of value and why they offer a better return on investment than competition. In the example above, rival bidders should have known the industry cost structures sufficiently well to highlight the negative cost impact of a lower price.
But even when they have this information, is there an opportunity to share it? As a supplier, I have frequently been frustrated in finding a way to demonstrate differentiated value. It is rare for Procurement bidding processes to place value on innovative ideas or cost-reduction proposals. And with the increasing use of e-bidding, the chance of live conversation has steadily reduced.
Real value is mostly going to be achieved through a different approach. If the procurement process offers insufficient room to explore these different approaches (and their impact) then of course they stifle much of the innovation that the business claims to value.
So there is often a problem with both the method and the rules of the process.
In the past, I have written about other examples where suppliers and buyers together lose sight of value opportunities. The way contracts are structured and negotiated offers many examples. It is understandable that buyers need to force a rigid approach to bidding so that they can make legitimate comparisons. But this process does not need to preclude opportunities for providers to highlight ways in which they could offer higher value if the terms were altered. This then puts onus on the supplier to be clear about those added value areas – possibilities to reduce cost, increase flexibility, improve innovation. By partnering in this way, the buyer’s and the supplier’s commercial staff would have an opportunity to illustrate their contribution to the business.
Last week, I wrote about a panel discussion that I moderated at the Corporate United ‘Synergy’ event, consisting of three executives (a CIO, head of Sales and Marketing, and a Deputy General Counsel). Our topic was ‘Perspectives on Procurement’.
As a final question, I asked the panel to imagine that they had just been appointed CPO at their respective companies and to tell me whether they felt that Procurement has a positive future, and what they would do to ensure that future.
Each of them confirmed that they see Procurement having an important on-going role – but of course there is a need to adjust to the many changes affecting business today. Among their thoughts were:
- Technology enables selective involvement. Procurement must put technology into the business groups that enables them to drive the acquisition process, while Procurement can monitor activity and determine when and if to become involved in a particular project or transaction.
- Collaboration is key to Procurement success and this demands much greater attention to understanding requirements and offering value-add knowledge and ideas – and much less focus on understanding and imposing ‘the rules’.
- Commoditization continues to spread and Procurement will of course provide the tools and methods to ensure the business takes advantage of this. But they must switch their focus to the things that remain more complex – for example, take the opportunity to become more effective in international operations and market knowledge.
- Procurement tools and systems have brought great value by offering end-to-end process visibility, enabling greater speed and reducing non-compliance in areas such as contracting. The drive to continue improving performance through the right tools must be maintained.
Interestingly, although all the executives want Procurement as a strategic partner and to increase its understanding of their role and business, there was little support for Procurement taking on more of a relationship management role. Indeed, one panelist expressed the view that a key value of Procurement is their ability to be the ‘bad cop’ and allow the business or other functions to protect the supplier relationship.
I have just emerged from chairing a panel at Corporate United‘s ‘Synergy’ conference. The panel members – a CIO, Deputy General Counsel and head of Marketing – were giving their perspectives on the role and value of Procurement.
The good news – for those in Procurement – is that these three executives were united in their view that Procurement has ‘a really bright future’. And in general, each of them feels that their Procurement staff are doing a good job. But that doesn’t mean we can just sit back and relax. Their comments indicated the need for on-going change and improvement, in particular the fact that Procurement must get away from its image of being driven by price and process. A clear message was that ‘policing’ is a role for technology; the critical value for the practiitoner must be to enable the business through their knowledge and personal skills.
So what are those skills, what is it that an executive looks for when they see a high-value procurement professional?
Top of the list was project management. Each of the executives made the point that they are busy and often cannot pay attention to the implementation or execution of plans and strategies. So they need a Procurement function that they can rely on to execute and keep them informed. They also agreed on the importance of quantitative analysis, to support decision-making. Business acumen came high on the list, in particular the ability to look beyond price and advise on the optimum cost decisions and alternatives. Given the speed of change in business conditions, ensuring on-going understanding of what the business needs and also understanding of goals are critical to the quality and timeliness of advice and support.
“I need Procurement to help me stay on top of things”, commented one executive. “I don’t have enough time”. Agreeing with this, the head of Marketing said that for him, a major value is resourcefulness – finding answers, bringing ideas. “I want to see professionals who are applying intelligence to business problems and opportunities, not pen pushers and paper-chasers bound by their own process”. The Legal executive agreed strongly with this. “If Procurement want to be trusted, if they want authority, they must make my job easier. I want to see evidence that they question things in an intelligent way and bring value to the process. For example, if there is a statement of work, I don’t expect to have them just acting as a communication channel – I want to see that they have analyzed it, understood the business goals and made sure that the terms or the responsibilities are going to work, to protect our company and its goals”.
The Economist has a thought-provoking article entitleed ‘Globaloney‘, highlighting a new book which apparently ‘at last talks some sense’ on the the topic of globalization.
As the name implies, this book (by Pankaj Ghemawat of IESE Business School in Spain) largely argues that globalization is a myth and that far less has changed than most commentators make out.
Several years ago, when Tom Friedman started declaring that the world is flat, IACCM countered that view by suggesting that the world was in fact increasingly spiky. By that, we meant that global forces had combined to make us far more aware of the differences between cultures and nations. And while in some ways it was breaking down barriers, in others it was causing them to be put up.
I am sure that any statistician. economist or political oberver can make a compelling case for or against the theory of globalization (whatever that may actually mean). But for those of us in the world of commerce, there is no question that the last 20 years have seen dramatic changes and that these include far more exposure to international issues. In part this is down to the speed of awareness; in part it is the immediacy of the pictures delivered by the news media; but it is also because far-off incidents have a very real effect on business.
Mr Ghemawat cites interesting, but selective, data to make his case. But the truth is that modern technologies have opened world markets to many countries – if they wanted to be open. For those that did not adjust, the growth in world trade has thus far passed them by. According to the IMF, about 75 countries have been net losers from today’s international trading patterns.
The opening of world markets has proven a major learnign experience. It has driven issues such as ‘commoditization’ and, probably, ‘category management’, as buyers need to be increasingly aware of the counter-balance between low cost, supply options, and levels of risk. It has also resulted in many major corporations reshaping their business – for example, most major corporations now have more overseas employees than they do in their headquarters country. These impacts alone have forced many of us to work across borders, across languages and cultures.
Mr Ghemawat points out that ‘countries will engage in 42% more trade if they share a common language than if they do not, 47% more if both belong to a trading block, 114% more if they have a common currency and 188% more if they have a common colonial past’. These statistics illustrate that ‘borders’ take many forms and that there are many degrees of risk and complexity. Perhaps one of the most interesting points as we analyze the data is that ‘old style’ global markets were driven by colonialism (and his data shows it lingering effects). New-style globalization is driven by collaboration – that is, the voluntary adoption of a common trading block, or a common currency. And the signs are that other barriers are in fact reducing – for example, the extent to which there is a growing consistency of business language and the creation of more consistent financial rules and legal regulation.
In the past, globalization was driven by physical conquest. Today, it is about a greater meeting of minds for common benefit. Of course that will mean compromises, and requires everyone to be ready to respect alternative values. But in my experience, I think the existence of global communications technology is steadily creating a desire for greater harmony and increased openness to other views. However, this does nto change the conclusion we reached several years ago: it is a spiky world and that generates real challenges and opportunities for those of us who wish to be experts in commerce.
On the IACCM Learning site, a student has posed the following question:
“In practice, I have negotiated both the commercials and terms and conditions in parallel. However, in some cases where there is an absence of an RFP and terms and conditions are more complex, I believe that it is probably more advantageous to negotiate the terms first. Simply put, if we cannot get the terms and conditions met, the commercials become irrevelant. On the other hand, where there is flexibility on terms and conditions, this flexibility can be used as a good bargaining chip for exchange during negotiations. I welcome any thoughts regarding best practices in this area.”
The question reflects a common dilemma for negotiators, regarding the best sequence for planning and reaching a conclusion. This question reflects the view that ‘if we can’t agree on the fundamentals, what is the point of getting to the detail?’ But others might question ‘What are the fundamentals?’ – if we can’t get close on price and scope (‘the commercials’), then why would we want to talk about our underlying philosophies on things like risk allocation and payment terms?
It seems to me that there are multiple factors that might influence the relative sequence and prioritization of the negotiation. These include whether the parties are familiar with each other, whether the deal or transaction is a one-off, whether there are or will be a ‘master agreement’, whether there has already been significant validation of the supplier’s core capabilities to perform ……
But this question of how best to plan the negotiation is important and many times, organizations appear to get it wrong. So what hints or tips do you have regarding good practices?
On the blog ‘husdal.com’, there is an interesting article related to supply chain risk. It highlights a book written some 10 years ago, Acts of God or Acts of Man, which questions why people apparently ignore known hazards when deciding how and where to site or build key infrastructure.
The book observes that modern society is generally well aware of the potential for disasters when it builds in areas subject to earthquakes or flooding or volcanic activity. Yet not only does it choose to continue siting cities, factories, power plants etc. in such areas, it also chooses not to improve design to take account of such risks.
I suspect there are a number of answers as to why this happens. In part, as the author points out, catastrophic events in any particular region are relatively rare, so there is doubtless a degree of risk acceptance, based on an assessment ‘it won’t happen in my lifetime’. Today, there is probably a further factor, which is the belief that people will be protected from the consequences of their decision. They have faith that somehow new technologies will arrive that will make their surroundings safe; or that government would not put them there if it was really dangerous.
As for those governments, they see cheap land, or local politicians push for development, or entrepreneurs see opportunities – and all of them know they will never be held to account. As for safer designs, there are several reasons that doesn’t happen. One, it would be acknowledging the risk and might lead to more questions about the wisdom of building in the first place. Second, it would cost more money and third, it would take more time – and all for a risk that probably won’t occur during my period of control.
So catastrophic risk is no different from other forms of risk. We base decisions on probabilities and we hope for the best. After all, another way that these high risk locations would be avoided (or safety practices would change) would be if the buyers of goods and services stopped buying from such regions. Why are they so willing to put such risks into their supply chain? The answer, of course, is because of relative cost or convenience. Humanity tends to deal in realities, not possibilities. And it is generally reluctant to pay extra to safeguard against those possibilities until the economic case for doing so becomes overwhelming.
I guess the book might just as well ask why the buyers of goods or services similarly ignore such perils
In its latest report on public sector procurement in the UK, the National Audit Office once again highlights the absence of the commercial and contracting skills needed to support successful procurement, especially related to projects.
“The NAO welcomes the current plans of the Treasury and Cabinet Office to strengthen project assurance. The NAO highlights the need for independent challenge capable of stopping projects which do not give the prospect of value for money. This is particularly important as there is still a shortage of the skills needed to manage and oversee complex major projects. Better contract management skills are particularly needed to obtain best value during the contract period, including by ensuring the public sector shares in cost efficiencies achieved in existing contracts.”
For those who engage with public sector bodies in most parts of the world, this will come as no surprise. Major investments in traditional procurement skills and methods have done little to stem the under-perfromance of many project acquisitions. To be fair, it has taken quite some time for the private sector to grasp this issue – and even now, they have invested far more on the oversight of supply contracts than they have on buy-side skills and capabilities. There is a universal tendency to see performance as a supplier problem, rather than a shared objective and challenge.
With regard to the public sector specifically, IACCM has increasingly been selected as a provider of training and skills development precisely because it addresses the challenge of improved collaboration. ‘Adversarial relationships are still embedded in Procurement thinking’, comments Jim Bergman, IACCM’s VP of Training Services. ‘There is a big difference between an adversarial approach which focuses on blame, and a collaborative approach that focuses on resolution.’
It is clearly foolish to believe that long-term collaboration comes naturally to any organization. Their needs and priorities are always subject to divergence and change. But failure to develop the right people and systems to oversee contract relationships leaves both suppliers and their customers blind to what is happening. Good relationships understand that change is inevitable and set up the structures needed for its management, rather than ignoring it until there is an explosion.
Commitment Matters 