We move in cycles …
The South Sea Bubble, Tulip Mania …. during times of great change, we experience great scams. Get-rich-quick schemes from which the perpetrators generally escape with tremendous riches, the late-comers get the blame and the investors carry the cost. And the politicians – well, wise after the event, they pontificate and promptly take action to close the stable door.
The financial services ‘bubble’ burst, with an air of great inevitability. Of course no one believed it would last (at least not in retrospect), but the truth is that it was simply too complex for most people to understand what was going on.
The situation today is just a taste of the complexity that will challenge all of us in this fast-changing networked world. We do not know what will happen. So we must focus on how we can best manage uncertainty, not how we can create certainty. Rigid rules are not the answer – unless the solution to bad business is to have no business.
The rules for risk management are being rewritten – and I will write more about that in a future blog. Today, I focus on the fact that many industries, many companies have not got it wrong. The ills of a few big names in one specific sector should not be allowed to drive public policy. The politicians – quite rightly – feel embarrassed and stupid. They are paid to oversee these things; sadly, many were either lacking the expertise, or they were paid by the perpetrators, in campaign fees and political funding, so had no incentive to understand.
So now they feel obliged to exact retribution. But if we are not careful , their retribution will simply damage competitiveness and punish only the people it is meant to help.
Let’s look on the bright side. Today. IACCM released the results of its study of the 25 Most Admired Companies in post-award contract maagement. As this study shows, most corporations have simply been moving ahead wih increasingly responsible risk management and governance regimes. The last thing they need is more regulation. They are already suffering from the credit crunch and drying up of demand – let us hope that the ignorance and populism of most politicians does not now turn a crisis into a catastrophe.
This week, IACCM members from Europe will assemble in London for our conference – where the topic is risk management.
In light of recent world events, this subject is of course especially appropriate. But unlike many conferences (where the focus tends to be on compliance), IACCM is discussing the best way to achieve balance between risk and opportunity.
The truth is that business must find a way to reconcile these twin imperatives for success. Thus far, key sectors of the economy have failed to structure their operations in a way that balances responsible decision making with pursuit of ‘opportunistic business’. The biggest issue right now seems to be adequate monitoring and control over sales activity that is driven by commission.
Sales commission has long been the bane of corporate performance and mature businesses have used contracts and commercial staff to oversee the worst excesses. This has not always worked – especially in emerging markets where commercial skills are almost unknown. But in many mature markets it can offer real success. A high performing – and appropriately missioned – commercial group will achieve the balance between identifying risk and enabling opportunity. Their job is to find ways to pursue attractive business without jeopardizing the company or its reputation.
What a shame that the financial services indutry did not develop such a governance model.
Earlier this week, I presented to a large – and highly regarded – supply management team. One of the questions that was posed related to the question of whether there can ever really be trust between buyer and supplier.
“In your presentation there was a slide relating to the focus of relationships, with “cost” on one side of the spectrum and “innovation” on the other. One of the points discussed was that we need to carefully consider what type of relationship is appropriate for each area. We have often over-commoditized our thinking by focusing too narrowly on cost, at the expense of commitment and innovation.
In my experience, I have seen a tendency to swing back and forth between the extremes. For a time the focus is on cost, but we end up with suppliers that are so lean that they cannot keep up with new trends. Then we shift to building long-term relationships based on trust, but after a while we discover that the partnerships have become too comfortable, and we find ourselves at a competitive disadvantage.
How can we utilize our contract management tools to foster commitment and encourage innovation, yet maintain a competitive edge? Can we nurture long term partnerships that do not become complacent?”
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Why the swings back and forth? Often we find that these are driven by leadership changes, rather than any real shift in strategic needs of the business. If we are to build and sustain trust, it is critical that supply management leadership understands the impact of inconsistent behavior and is ready to deal with its consequences. Trust, once corroded, is awfully hard to rebuild.
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How are you choosing the partners for long-term relationships? When I talk with organizations – buy-side and sell-side – they often highlight their desire for closer relationships with the other side. When I explore what they mean, they are in fact often expressing a desire for collaboration based upon relative power. In other words, where they feel relatively less powerful, they want collaboration, but in those relationships where they feel powerful, they don’t care. The point here is that collaboration has to be a mutual desire, driven by mutual self-interest – it cannot be manufactured.
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Building from this point, the onus is on the party proposing collaboration to identify the reasons why it will be mutually beneficial. In the end, this is a question of the economic benefits that can accrue – but the driver for these could be reputation, innovation, cost benefits, reduced risks etc. The key is to discover the formula and to have both sides convinced that a long-term, stable relationship has benefits that outweigh the traditional ‘stop-go’ approach of power-based negotiation and supplier management..
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Once the formula is understood, there is something specific to be regularly discussed and monitored. And if the benefits are truly there, it will be in the interests of both parties to demonstrate to the other that they are still ‘playing the game’. With today’s technology, you should unearth ample means to enable free information flows between the parties. After all, if it is truly a relationship of trust, there will be nothing to hide.
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It is also essential that the parties are mature and honest enough to understand that relationships do not stay the same for ever. The original drivers may change – new products, new markets, new technologies, new competition could erode the original basis for the collaborative arrangement. The key here is to have a fair and equitable basis for its dissolution and this should be embedded into the agreement (essentially, a pre-nuptial).
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So bottom line, a key shift here is to stop thinking about your need to gather evidence of wrong-doing and instead focus on the way you will each provide on-going reassurance to the other.
From these observations, I am sure you will readily see the point I made about the negotiation and contracting process creating a governance framework for high-performance relationships. But of course, it is not every relationship – and while collaborative instincts should permeate all long term relationships, there will be matters of degree, driven by the scale of the economic gains.
The press yesterday carried three stories that revealed mixed fortunes in Government and Federal contracting. A major project success in the UK was counter-balanced by two examples of where things can go wrong if governance fails.
Public sector projects are rarely highlighted for their success, so it is good to see that a major contract to transform the UK’s employment and social security offices has been commpleted on time and under budget.
The $3.5bn project ran for 5 years and merged 1,500 separate offices into a streamlined 800 Jobcentres. It has been hailed by the UK parliament’s public spending watchdog.
The elements that generated success are not complex, but are frequently missing or compromised. They were:
- Leadership was consistent throughout the project. Changes in leadership are frequently associated with failure.
- Project teams were appointed and sustained throughout the progam. They brought extensive experience to the task.
- The project took guidance and drew heavily on materials and advice on past big projects from the National Audit office and Office of Government Commerce.
Moving across the Atlantic, the long-running saga of a $35 billion contract for flight refuelling aircraft shows no sign of ending. Despite the apparent threat to national security that on-going delay implies, the US Government decided to make no decision on progressing this award, leaving the in-coming administration wth the problem.
This story began in 2002, when a contract awarded to Boeing unravelled followign exposure of improper practices during the award phase (actions which resulted in imprisonment for both Boeing and Government pesonnel). Subsequent competition resulted in a major win for EADS and their US partner, Northrop. But now it was the turn of Boeing to cry foul – and to whip up nationalistic fervor among politicians with claims of job losses and decisions contrary to the national interest.
Will the EADS contract be re-affirmed? Will the bidding process be re-opened? Despite promises to reach resolution before November’s election, yesterday’s announcement revealed there will be even more delay – and meantime, the US Airforce continues to operate with a seriously outdated fleet of re-fuelling aicraft.
Another sad example of the extent to which politics can so often get in the way of good governance.
Back in the UK, the stream of Government embarrassments over data loss claimed a victim when PA Consulting had a three year contract terminated because of its falure “to live up to contractual obligations”. An employee had ignored security rules by downloading data to a memory stick which was then lost.
The Government is reviewing other, more lucrative contracts with PA and some other private sector providers. However, a series of incidents have revealed the challenges of maintaining control over sensitive data. And as an Opposition spokesman observed: “It is not good enough to claim that the clauses in the contract were robust, and pass the buck to a consultancy that (the Minister’s) department hired and was responsible for supervising.”
In other words, many of these hard-fought contract clauses offer no more than a worst-case scenario fall-back. They do nothing significant to recover a bad situation. As with so many instances of failure, the real issue is increasingly the inadequacy of governance procedures to encourage and oversee performance related to complex risk issues. Perhaps if we were all less focused on imposing rigid terms, inflexible rules and compliance, we might spend more time discussing and designing robust and shared responses to risk and creating innovative approaches to performance monitoring and management. Just as this problem has in large measure been created by modern technology, it seems likely that technology will play a major part in its resolution.
For PA Consulting, the blemish on reputation will prove far more damaging than the withdrawal of a specific contract. Certainly, future business for PA and other service providers is likely to depend on their ability to demonstrate far more robust capabilities in data protection and security. All contract negotiators can expect increased emphasis on these aspects of contracting. Will we respond by more entrenched battles in the negotiation, or by developing reliable solutions and associated commitments?
Today’s economic conditions have certainly got many politicians and business leaders worried. So as he heads towards his annual user conference, it seemed timely to ask Upside Software CEO Ashif Mawji how he is feeling about the prospects for contract management applications.
Overall, he is feeling buoyant. The economic downturn it accelerating efforts to reduce costs, and also to add value, The right CLM solutions offer both, so demand is high. But Ashif made some more interesting observations, which accord with our experience at IACCM. He commented that Legal is more and more the drive behind CLM acquisition. In addition, the ‘richness’of the solution they are seeking is growing – to incluce performance management, sophiticated reporting and advanced complaince management. And finally, the realization of this need for CLM to be an enterprise application (not just a legal process tool) has led to a high level of migrations from some of the early implementations that simply cannot address today’s needs.
Finally, what about the user conference itself? it is open to Upside customers, prospects and others who want to learn and it runs September 10 – 12. The agenda includes:
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Case study from Alcon Labs discussing their implementation, lessons learned and value received.
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Case study from United Healthcare discussing their implementation, lessons learned and value received.
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Andrew Bartels of Forrester will go through the four stages of CLM deployment and what to expect in each stage in terms of resource commitment and value received
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We will showcase our v6.1 (due Sep 2008) which amongst other things has the following key enhancements
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enhanced collaboration with Microsoft Word and also the world’s leading redlining engine
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enhanced document management functionalities now included in our software
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enhanced email collaboration, including enabling automated email processing (e.g. external emails can be sent to the system and they will be automatically attached to the relevant contract record, etc.)
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We will discuss the roadmap and have an interactive dialogue with the users to decide what we should focus on (in essence, our customers shape our roadmap)
The only thing that is missing is me – no invitation this year. I guess I am a victim of the market moving on!
I was interested to read an article in the GeoLearning newsletter regarding the growing role of ‘Communities of Practice’ in the overall learning process. They observe: “Communities of Practice (a.k.a. CoPs) exist all around us whether we realize it or not. Whether a group of parents sharing ideas on bedtime rituals for toddlers, or more formal knowledge sharing in the workplace, CoPs are a way to share what you know and to learn from others.”
This is of course an area that has been recognized at IACCM for several years and has generated some remarkable results fdor those who participate in our assessment and training programs. The ‘on-line communities’ that feature as part of our managed learning solution have proven effective in raising the value and contribution of staff groups not only as a result of the training, but during the learning experience.
IACCM’s networked groups operate at two levels. One is within the company team or function undertaking the web-based training. This is enabled through both message boards (mentored and overseen by IACCM experts, as well as internal experts) and live webcasts. But the IACCM use of communities goes further. Our 10,000+ members are also divided into ‘communities of practice’ and act as an instant research base. So when we are not sure about the right answers, we have instant recourse to an amazing body of knowledge – supplementd where necessary by our experienced research staff.
I have to agree with GeoLearning when they say “Communities of practice that are technology-enabled take the idea of managed learning to a whole new level. A Web-based collaboration tool … can power CoPs with a rich set of discussion tools that enable users to wrap conversations around content.” But in our experience, the potential benefits go much further. Those conversations can become the driver for visible and immediate change and improvement. IACCM member companies have recorded rapid savings and cost improvements as a direct result of the ideas and research generated from the interactions during a learning program.
So why isn’t everyone leaping at the opportunity? Once again, the limiting factor is primarily the reluctance that many have to see technology as a key tool in personal and organizational development. This is especially true of the older generation that primarily make up senior management and senior professionals – the types of people who need to support such programs with both the decision to implement and a readiness to act within them as mentors and experts.
Communities have an energising and potentially transformational role in the learning process. Unfortunately, for many companies, it seems they will have to wait for the Facebook generation to rise to the top before they will understand the benefits and move to effective deployment.
A recent study by McKinsey confirms that senior executives are increasingly concerned about the risks facing their supply chains. They also feel that supply chain management is failing to deliver adequtely against top strategic goals.
The fact that risks are perceived to be increasing is scarcely a surprise. However, the extent of regional variations in the areas considered to be influencing supply chains is interesting. For example, in North America the top three concerns are rising energy prices (39%), financial volatility (38%) and increasing complexity of products and services (35%); in Europe, product and service complexity is cited by 60%, followed by rising energy prices (33%) and increasingly global labor markets / rising wage costs (25%). Developing markets select the same three issues as North America, though in different sequence.
Other factors influencing supply chains show wide disparities. For example, 25% in North America see the adoption of increasingly scientific, data-driven management techniques as significant, against just 4% in Europe (and 16% in developing markets). Similarly, 20% of North American and Developing Market participants are concerend about exposure to differing regulatory environments in overseas markets, versus 9% in Europe.
The strategic goals for supply chains reflect the findings of a recent IACCM survey. Reducing costs is the number one priority, followed by improving customer service and getting products to market faster. For suppliers, assisting with these goals woudl represent a source of competiive advantage, since executives are far from satisfied with current progress.
To improve performance, they are focused on increasing the efficiency of supply chain processes (71%), actively managing supply chain risks (56%) and increasing inputs from low cost countries (47%).
The survey also reveals a continuing trend towards centralizing the management of supply chains. In part, this is to address talent and knowledge issues – indeed, ensuring that different locations share knowledge emerges as the number one challenge in global talent management (again a finding in common with the wider IACCM membership). Other major challenges are managing communications and cultural differences and attracting and retaining entry level talent. The issues of communications and knowledge sharing are to some extent attributed to the (lack of) integration of IT sytems and vendors on a global level (these pre-requisites were highlighted in a recent story about P&G’s success in developing global shared services).
Executives do not identify any one’big issue’ in globalizing the supply chain. However, the importance of increased cross-functional collaboration is highlighted as a dependency in meeting strategic goals. This suggests that organizations adopting the IACCM ‘best practice’ service delivery model will gain a competitive edge on their more traditional rivals.
Writing in the Opinion column in The Times this week, Libby Purves exhorts us ‘to break the rules’.
Her article cites a number of recent instances where ‘bureaucracy’ has either caused or threatened to cause disaster and loss of life. These include disciplinary action against a lifeboat crew for launching their boat and the sad stories of call centers that failed to despatch medical help because the caller could not give the postcode.
Her point, of course, is not that rules are unnecessary, but that petty bureaucrats often misunderstand or misapply them. Her words almost echo those we have been using at IACCM: she talks about people who “get the traning, tick the right multiple-choice boxes and refuse to think there might be another choice, not listed”.
This brings to mind the whole balanced scorecard syndrome. It reminds me of procurement and contracts staff with checklists of standard terms and conditions. It reflects a conversation I had with a General Counsel this week: “Wouldn’t you think that the purpose of a risk register is to induce action?” he asked me. “For many people, they seem to think that they have done their job just by filling in the boxes.”
Let’s not pretend such stories are unknown in our organization. The image of lawyers, contracts and procurement staff as slow, risk averse and unimaginative is not a creation of fiction. It reflects real experiences. Even today, I see the battle raging in many companies between the champions of compliance and the champions of innovation and change – as if these were somehow alternative states, rather than mandatory conditions for business success which must therefore be reconciled.
Why does this happen? Why do some people just apply rules in this mindless way? Sometimes it is simply lack of time or lack of caring. Others it may be down to fear of making decisions or enjoyment of petty power. No matter what the cause, it is the duty of those who care about their image to ensure it does not happen. Any ‘profession’ is tarnished by those practitioners who fail to demonstrate empathy with their clients and lack the intelligence or ability to exercise judgment. They should be trained or they should be removed.
Once again, Libby Purves sums this up in terms that mirror the IACCM message: “Real training lays down a framework of expertise and safety not to prevent initiative, but to free it. If you really know the rules and their purpose, you can judge when to make an exception and break them.”
In today’s business world, where creativity and the ability to adjust to rapid change are such critical elements of corporate and personal competitiveness, this ability to make good judgment is at a premium. Yet all around us is a growing body of rules, both internal and external. These run the risk of creating growing inertia and conflict – but alternatively they offer the opportunity for talented managers to demonstrate their ability to apply judgment and imagination in their application.
And lest you read this and think “this does not apply to me”, let me pose one final challenge.
Bureaucracy is not just about the way we personally behave. For example, many lawyers are great at exercising judgment. But they often believe that they are the only ones with that ability, so they force their surrogates to become bureaucrats by demanding that situations be referred to them. They should instead be thinking about how they could empower others to make better decisions. Forcing people to gain permission for their actions is just another form of bureaucracy. Making yourself into a funnel slows things down and often forces people into the bad decisions that you claim you are trying to avoid.
Hence Purves’ point about training. Our task is to manage the complexity of a rules-based culture by empowering others to make good decisions. In a perfect world, we would in fact make ourselves unnecessary! (But don’t fear, perfection still looks a long way off.)
I have long been an admirer of the quiet, yet effective, way that Procter & Gamble have weathered the challenges of their markets. They seem to be one of those organizations that establishes good practices, but does not become boastful about their success. Perhaps they understand how temporary success can be.
Those charged with contracting and sourcing are among the groups I admire, so I was interested to discover an article in McKinsey Quarterly that recorded an interview with the worldwide head of Global Business Services, Filippo Passerini. Having read it, I believe there is much that members of our community can learn from the approach.
The article focused on the process that P&G had followed to develop the Global Services organization and then to move it from the role of ‘service provider’ to that of ‘strategic partner’. It is a status to which many in our community aspire, but relatively few reach.
So what can we learn from P&G? Passerini set out a number of areas that he believes fundamental to success. Perhaps unsurprisingly in a global organization in the networked age, number one on his list was to establish a common IT platform – to make sure the various groups can talk to each other, share data, ensure seamless process support. It was this that enabled ‘the eleimination of duplication’ – locally based services teams were replaced by global centers that offered 24/7 support.
He also attacked the traditional functional model -Passerini understood the need to destroy silos. So he was delighted to integrate functions and achieve economies of scale through improved integration. The move here was to create process-based operations – so for example, a single group handling procure-to-pay, rather than the original split between procurement, accounting and finance. Without handovers, conflicting measurements and incentives, complexity could be reduced and cycle times improved.
Passerini did not immediately start a process of outsourcing (though he did move quite rapidly to offshoring to captive centers). He is convinced that cost-based outsourcing will often fail – because the process won’t work. Therefore his philosophy is to get the process right before you outsource (and in the case of Procurement, they actually decided not to outsource at all). The result is that, when outsourcing occured, the provider was delighted to receive the P&G staff – and rapidly used them as a source of competitive advantage.
“‘By outsurcing the the more repetitive commodity work … we could in effect de-commoditiize our shared service business and allow it to focus on innovation and developing new business capabilities”, commented Passerini. This approach has ensured that the relationship with outsourcing providers remains collaborative and strategic. And it has led to the shared services organization not only being highly valued as a source of competitive advantage, but also viewed as a positive career opportunity.
To protect this vaue-add, P&G have separated the resources focused on continuing cost reduction from those focused on innovation. Passerini recognized the danger that ‘a one-sided focus on costs could undermine the building of business capabilities’.
There is so much in this message that is relevant for our community. The approach and model aligns directly with the service delivery model promoted by IACCM. And the challenges that Passerini outlines are precisely those that we find inhibiting progress by many in our community. The benchmarking we offer through the Capability Maturity Model has demonstrated the constraints that many face as a result of inadequate technology solutions and the weaknesses of process, as opposed to transactional, perspectives. This traps many or our members in transactionally-focused groups that are limited in the value they can deliver or demonstrate to the business.
Research by Infor suggests that Supply Chain managers in the UK “spend up to 52 days a year dealing with regulatory compliance”.
Even allowing for the fact that these results may be somewaht exaggerated (Infor provides technology solutions), there is little doubt that compliance monitoring has become a significantly greater task for many of those in supply chain, legal and contract managemet jobs.
Infor’s findings suggest that compliance monitoring comes at the expense of other activities – such as work that will “unlock cost savings, optimise productivity and add all-important value to the business”. And the fact that manySupply professionals feel there is no robust risk management strategy covering supply operations obviously suggests that relief is not at hand.
Since compliance is by nature a rules-based activity, it is manifestly suited to automation. But of course that depends on sufficient analysis and recording, rather than reliance on the awareness and competence of individual managers.
Among the other interesting findings in the Infor research were the following:
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Other major concerns include the need for better supply chain visibility (96 per cent), shrinking margins (90 per cent), introduction of new products (89 per cent) and escalating consumer expectations (89 per cent).
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82 per cent of supply chain managers said they were concerned about reducing their carbon footprints. But 47 per cent stated cost as a barrier to implementing green initiatives and 32 per cent claimed that an inability to measure results hindered progress.
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Three quarters of those polled said that their supply chain’s geographic reach had increased in the last two years. Almost half (43 per cent) claimed that their supply chain now incorporated the UK, Asia-Pacific, the Americas and both Eastern and Western Europe.
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67 per cent said that they were more likely to offshore parts of their supply chain compared with two years ago. While Asia-Pacific would be the offshore hub of choice for 47 per cent, 53 per cent leant towards Eastern Europe as their preferred destination.
Commitment Matters 