Recession, supply constraints, sub-optimized relationships – whatever the forces that lie behind it, more and more organizations are talking about ‘collaboration’ or ‘partnering’ or ‘customer / supplier of choice’ as ways to improve business performance. But realizing such relationships is proving tough to achieve. There are some obvious reasons for this – but maybe there is a hidden factor that actually makes it impossible.
This week, I was at a meeting of IACCM members in Houston, Texas. We were discussing the many pressures and opportunities in front of those in Procurement, Contract Management and Legal. And of course, much of the conversation revolved around the question of how we could improve the quality and results from trading relationships. There is a lot of talk about the need to enhance performance management and relationship management, as well as growing understanding that somehow negotiations (and RFx procedures) must become less constrained / adversarial.
So of course, conversation naturally turns to concepts like ‘trust’ and ‘collaboration’ – words that are increasingly on executive lips as well. And we started to outline some ways that these attributes might be encouraged or achieved.
That was the moment that a critical question came from the back. “Why do you think that we can start building trust and collaboration when we have executives who destroy such principles?” (I do injustice to the exact words, but this addresses the principle). Our questioner (who is French) was making the point that the Anglo-Saxon model of business management has increasingly become suffused by lack of loyalty, lack of trust and an aura of greed and personal progress at the expense of corporate values or principles. So how can you reconcile this attitude -and the resulting detachment that many employees feel – with attempts to create ‘trust’ and ‘collaboration’ between organizations?
It’s a great question and in many respects goes to the heart of some of my recent comments on globalization. Collaboration requires levels of compromise and a readiness to sometimes forgo short term opportunity for longer-term gain. It also requires trust (if I forgo a benefit now, can I trust that you will do the same at some point in the future?). So where are the incentives for such behavior? Since markets demand short-term results and the speed of change makes future needs hard to predict, is there in fact any hope that organizations will invest in forming and nurturing longer-term relationships? Or like employees, are all things now dispensable?
What are your thoughts on this?
When it comes to contracting and negotiation, the software industry has proven one of the most frustrating for its customers. Now, it seems things might be changing.
There are good reasons for some of the complexity in software contracts. The need for developers to protect their asset and establish reasonable returns is well understood. But this has led to tortuous charging mechanisms and onerous terms and conditions – and it has also been accompanied by supplier reluctance to take meaningful responsibility for product performance.
So it is no surprise that Microsoft recently discovered that some two thirds of IT directors see software procurement as a cause of delayed implementation, increased complexity and a source of damage to the reputation of IT within their organization.
What is surprising – and to be applauded – is the fact that Microsoft plans to do something about it. Today, they have announced an initiative to ‘champion industry change in software procurement’. They plan to do this through three major steps:
- Deliver better terms that focus on speed, lower transactional costs, balanced allocation of risk and more customer-oriented contracts;
- Agree commitments that improve customer and partner alignment with Microsoft’s engagement resources;
- Reduce standard contracts from many unique forms to a rationalized few.
A key goal appears to be to build increased collaboration with customers, to agree fair and reasonable levels of accountability for outcomes. This approach not only puts Microsoft at the forefront of the software industry, but in fact moves it to a leadership position in many industries.
Of course, buyers will be waiting to see whether these sentiments are borne out in practice. But early customer experiences cited in the Microsoft press release support the value that is being claimed. Hopefully, customers will respond positively and show themselves ready to work in a collaborative spirit to develop win-win relationships. Microsoft has shown it is listening and is prepared to take a new attitude to risk – and there are many who will be watching to see if that pays off.
It will be excellent news for business everywhere if this succeeds and spurs new approaches to contracting and negotiation on a cross-industry basis.
Those who make it to become CEO of major companies – and the duration of their tenure – have changed in recent years, according to several research studies. A report in The Economist highlights that former CFOs are now the most likely to rise to corporate leadership, replacing the traditional Marketing route.
Today, more than 20% of US chief executives have come from Finance, more than double the percentage of 10 years ago. The research also highlights that ‘lifers’ (those staying with one company) still occupy 26% of the top jobs in the US, compared with just 18% in Europe. And these lifers also get to the top faster – they took 22 years on average, compared with a 26 year average for those who changed companies.
The study shows interesting contrasts between the US and Europe – perhaps the reverse of some popular stereotypes. For example, European CEOs are slightly yuounger than their US counterparts (54 versus 56) as well as being more likely to have worked for more than one company (82% versus 74%). Their tenure is less secure – on average 7 years versus 9 years – and 18% were replaced last year (against 15% in the US).
Last week I posed the question “Is globalilization the next mismanaged risk?” This challenged the wisdom of the 89% of CEOs who, in a recent survey, declared that globalization is ‘inevitable’.
While I am broadly a fan of globalization, I think it is rash of anyone to assume inevitability and therefore fail to consider alternatives when they undertake risk analysis. Many are threatened by ‘the flat world’ and their reactions will continue to be unpredictable, potentially violent. As others experience those reactions – and the broader effects of a more open society – they may also increasingly question the desirability of the globalization process. For example, those in the West have largely seen globalization as a way to export their values, open new markets and obtain cheaper sources of supply. They have rarely considered the extent to which their values might be challenged, or whether long-term success depends on compromise.
An excellent new book raises some of these tough questions. It is called Network Power: The Social Dynamics of Globalization and is written by David Singh Grewal. In it, Grewal makes the point that while we are tempted to think that globalization has fostered diversity (and is therefore non-threatening), the truth is that it has merely revealed diversity that was already there. As one reviewer commented, “It flushes diversity out from the places it was hidden, much as a hunter flushes his quarry out of a thicket, and to similar effect”.
The point behind Grewal’s work is that globalization proceeds through creating new networks. And in order to survive, networks develop and adopt standards. Over time, those standards start to narrow our choices – in fact, they become enshrined through rules and oversight – or ‘complaince’. And with compliance comes a reduction in choice, an imposition of values with which we may not always agree, or which puts us into conflict with our immediate colleagues or neighbours, who may be part of a competing network (or value system).
The power of globalization to break down existing cultures and societies is at this point only vaguely understood. We have welcomed such forces so long as they were affecting others, bringing reform to parts of the world that we consider ‘less advanced’ or less enlightened. But how do we feel when those same disruptive forces are turned on our own society and start to undermine its established values and standards?
Even CEOs might start to react – especially when those networks start questioning the moral validity of their pay packets!
This week I presented at the Association of Proposal Management Professionals (APMP) conference in Palm Springs, California.
Following my presentation, I participated in a discussion about the challenges of “collaboration and competencies in business development”. This was undertaken in partnership with Howard Nutt, Executive Director of the Business Development Institute, and Stacy Goff, Vice-President of ASAPM. It was very evident that IACCM members face challenges that are extremely similar to those confronting bid managers, proposal managers, project managers …… we are all wrestling with issues of speed, workload, cooperation, leadership, clarity of roles etc.
One question we sought to address was how to fix the dilemma of skills and talent. There was discussion around motivation and morale, of the difficulty in attracting and retaining the best people. It was all fairly standard stuff. Then a lady at the back spoke up. She recounted the story of a female business owner who had become her mentor in her student days and had left lasting memories that continued to steer her actions.
The business owner had built a very successful nail salon – so successful that she in fact expanded to running three of four salons within a very short time. She cared fervently about customer service and knew that the best way to achieve this was to invest in her people. But very soon, they became targets for every aspiring nail-salon entrepreneur. Some were tempted away, often at real inconvenience to the owner and her remaining staff. Yet this business owner never seemed to be upset – she did not remonstrate, or cut back on investment, or seek to control the departures.
The lady recounting this story had asked the salon owner why she seemed so relaxed about losing staff, to which the entrepreneur replied “I am not losing staff, the industry is gaining them”. She took the view that a thriving industry could only be good for her – so this was her way of investing.
In case you immediately think that this story is relevant only to small consumer business, it reminded me of my wife, another very successful female entrepreneur who operates in b2b markets. She too invests heavily in her staff and takes every measure to enable and empower them. They are also targets for many of the industry’s big-hitters who can offer larger salaries and dangle career prospects. Yet she ensures that employees depart on good terms and feel appreciated for their efforts.
These attitudes of enablement have interesting side-effects. First, it helps maintain employee morale – they are regularly reminded that they are among the best in the industry. Second, even those who leave remain remarkably loyal – in many cases they seek to return, in others they become powerful ambassadors for the company. Third, that spirit of excellence flows throughout the company, generating real enthusiasm to serve customers and gain their respect and trust. Even if at times they find themselves short-handed.
The key point from this story is that flourishing and successful organizations are open and sharing, they seek to enable their own employees and to empower their customers, they are built on trust and respect. Sure, there are occasional individuals who abuse that trust and they must be watched out for; but overall, it seems the benefits of attitudes that ‘contribute to the industry’ far outweigh the alternative view of ‘protect my turf’.
Quality of risk management is currently one of the most highly rated attributes of the business world – at least, that is what many management gurus tell us. And certainly, the recent financial services debacle would suggest that improving the management of risk should be high on any corporate agenda.
So where was executive management when all those sub-prime decisions were being made? And where was executive management during the internet bubble? Or during the collapse of the telecoms supply industry? And where is it now on the issue of globalization?
According to a study on The Benefits and Challenges of Globalization, undertaken by the Economist Intelligence Unit on behalf of Equaterra, 89% of executives see globalization as ‘inevitable’.
These corporate leaders feel their focus must be on ‘streamlining processes, expanding markets, and hiring and retaining qualified local staff’. The executives certainly recognize risks – for example, the threat of new competitors from emerging markets, meeting the challenge of speed or facing the possibility of a global economic downturn. But not once does the report suggest that anyone is questioning the underlying platform for globalization – and hence they appear to be ignoring the greatest risk of all. It is rather like sub-prime – we had better jump on the bandwagon because everyone else is doing it.
I turned to one of my most respected sources for a counter-view. This executive shared some very different thoughts and possibilities and, while not suggesting that globalization will not succeed, I must say that this alternative scenario should at least feature in risk planning.
“Read ‘The War of the World’ by Niall Ferguson for the opposite view. He is an economic historian and Professor at Harvard and Oxford, as well as recently joining the board of Merrill Lynch. He charts the last great age of globalization and notes that economic prosperity is frequently the precursor to war. The reasons for this may be varied, but one possibility is that economic prosperity creates shifts in immigration and waves of people flooding from areas of limited opportunity to areas of more opportunity. Clashes of culture and massive disparities between rich and poor fuel the differences and the cheek by jowl visibility of difference fuels resentment and political upheaval, if not war.
Could this be true? Chart the theory against the Goldman Sachs ‘BRIC’ report that predicts GDP growth in India of 10% per annum for the next 20 years and inside India alone you are looking at 178 million people moving to urban poverty from rural deprivation over the period. That is a population the size of old Europe.
Look at the opportunity that the Olympics brings in an age of global communication for the people of Tibet to seek worldwide public support for their position, and the central Chinese response. This creates conflict, and the closing of borders (such as the challenge in Myanmar).
Look at the position in the Middle East and the rise in fundamentalism; is that fuelled by a rejection of capitalist values and a rejection of the western way of life in favour of a different set of values?
How many wars are there worldwide? And should we discount the lurch toward protectionism in the rhetoric of Obama, Clinton and McCain, or the French and German position on climate change as a mechanism to promote national champions and a vehicle for old fashioned industrial policy intervention?
Let’s cite some examples of areas where globalization is meeting reactionary forces:
3000 new crimes have been enacted in which western democracy since 1997? Answer at the foot of this page. And what about the fact that last year Sarkosy succeeded in his removal of Competition as a key preamble to the EU Reform Treaty, and his statement ‘ What has Competition ever done for Europe’.
In the EU and the US the lack of liberalization of any market that is of serious economic importance, from telecoms being partly open to energy, farming or the airline industry which are riddled with political intervention.
The US reaction to sovereign wealth funds as a mechanism for economic terrorism. Or the push-back on foreign ownership of the ports.
Gazprom’s position in world energy markets and Russia’s willingness to use energy as a political tool vis a vis Georgia: who is next? Big issue in Germany and Italy.
The US lurch towards despotism and lack of transparency and the rule of law (read Naomi Wolf ‘The End of America). Will this be fuelled by recession and fear of foreigners stealing your jobs? You betcha! I am surprised that no one has said that the US recession was all the fault of the Taliban.
No; it looks to me like tyranny exists everywhere; that nationalism and small mindedness prevail and the idea that the good of all that benefit from globalization is aspirational, heartfelt but taking a beating, and that the people in the survey have a limited appreciation of fact and risk and a high discount rate of the real risks involved.
The price of freedom is eternal vigilance.”
Extreme? Not really. If we think about a key impact of gloablization it is the fact that it creates new networks that threaten old power structures; it increases visibility of differences (especially ‘haves’ versus ‘have-nots’; and because it has no established governance system, it has led to a massive upsurge in corruption, illicit trade (drugs, prostituionn etc.) and lack of transparency and accountability (for example, the financial services debacle).
When Tom Friedman’s book, The World Is Flat, was first published back in 2005, IACCM acknowledged its great contribution, but challenged many of the underlying concepts. I wrote then about ‘the spiky world’ – the fact that the global networked economy was revealing and in some cases exaggerating the many differences that exist – and that not everyone wants to be the same, or ever can be.
So I want to know the names of the 11% of executives who do not share the view that globalization is inevitable. It is in their companies that I would first consider investing my money.
(Answer to question about new crimes: Great Britain)
Confidentiality agreements and NDAs seem to have proliferated in recent years, doubtless another manifestation of our information society. This has led to growing focus on ‘best practice’ (IACCM in fact has a Wiki on this subject with some model terms).
In response to a question he received, drafting expert Ken Adams has now weighed in on this subject and his blog has attracted a range of extra comment. So for anyone interested in the niceties of confidentiality agreements – and in particular the question of whether there should be a specified term – you should visit http://adamsdrafting.com/system/2008/05/21/duration-confidentiality-agreements/. It offers some useful hints and tips for those who find themselves negotiating such agreements.
While protecting information is of course important, it is in my opinion sad that many legal groups seem to have moved to a fail-safe position of requiring such agreements with virtually anyone with whome the company speaks. In many cases, this has proven not only an expensive process to manage, but also adds significant delay to business operations and is an example of the lazy thinking that brings the contracts community into disrepute. Our research has also shown that most companies have no centralized – and commonly accessible – repository, so the business people themselves have no knowledge of whether such documents exist or what terms should apply – rendering much of the effort a waste of time.
If we are indeed fated to be in a world where discourse can occur only under specific rules, companies should at least follow the example of corporations such as Cisco and Intel, which have fully automated the process (including electronic signatures) and can now execute Confidentiality Agreemetns and NDAs in a matter of hours, rather than the multiple days that remains common to most.
Over on Supply Excellence, Jason Fogarty wrote a short report from the Ariba LIVE event, highlighting a presentation by Reema Alzoubi from Pfizer.
Reema spoke about the cultural challenges in driving application adoption across a global enterprise, both internally and – in this case – with external suppliers.
This reminded me of a similar situation we encountered at IACCM last year, when a member in the oil and gas sector contacted us for help. We did some diagnosis and finished up with the problem defined as follows:
“An e-sourcing application has been in place for 2 years and rolled out across the business – multiple geographies, multiple business units. There has been classroom training for all users and the system is multi-lingual. But adoption levels vary and many people still prefer to use manual methods. Although the most obvious divide is geographic – countries like the US, UK and South Africa have relatively high adoption levels, resistance in other parts of Europe is especially high – there are also variations across business areas. For example, some of the more mature businesses, with older age profiles for procurement staff, also show lower utilization rates.”
It was this point about segmenting the problem that proved key. When we brought together a roundtable of similar large, international companies, we found everyone had the same issues. Most had adopted similar solutions and met with mixed success. They had expended a lot of time and expense in training; they had often absorbed the efforts of many of their top performers in becoming application experts; and they had frequently failed to break down resistance in certain locations or divisions.
As Reema suggests, communications is key. We must recognize the value of picking up phones, of meeting with those who are reported to be ‘the resistance’. But we should also do this intelligently. For example, younger people will mostly be enthusiasts for technology; they do not want to do boring manual tasks. So set them free on the system and let them be your champions. Research the profile of different business groups – do not assume a ‘one size fits all’ roll-out program.
Our roundtable participants provided a wide range of additional hints and tips, among them:
Participants agreed that a module-by-module roll-out typically makes more sense, in terms of facilitating training, driving use and gaining wider acceptance.
Management has an active role in ensuring success. They need to communicate that the system is important and has their backing. The project ‘owner’ should visibly report on progress to a senior level (e.g. CPO). It must be clear that management receives regular reports on progress, the value of savings etc.
Supplier resistance is an important factor in delaying or frustrating roll-out. In some cases, this may be an excuse used by internal staff, but there is certainly evidence that suppliers do push back, often because of their own lack of the required technology or associated skills. One common reason for resistance was concern over data protection and the ‘storage’ of supplier inputs in the system. Another – especially among larger suppliers – is the effect that e-sourcing has on ‘commoditization’. In creating a more level playing field, they fear it reduces their ability to justify price differentials. This is a legitimate concern and it is important that implementations take account of the need to allow suppliers opportunities to describe sources of value or differentiation.
Make sure the system is applied appropriately. For example, if it is an e-sourcing application, do not allow blanket implementation. The system might be used for a Business Process Outsourcing bid, but in that case might only be suitable for the RFI element. In other complex relationships, it might be used just to drive acceptance of ‘core’ terms and conditions.
Metrics are important, but care is needed in setting objectives, to ensure they do not result in negative behavior. For example, again drawing on e-sourcing, a simple quota or system based on growth in use can result in bids being broken into several contracts to reach the quota. Also, too much detail can create conflict with managers.
Driving the adoption of new applications is a change management program – and as with any change management, it is going to be more successful if it takes account of the varying perspectives of those who will be impacted. It isn’t culture, it isn’t communication, it isn’t training – it is in the end sensitivity to the range of emotions that change creates. And in our networked world, those who drive such implementations have many tools at their disposal to gain insight to the affected community and adjust their approach accordingly.
Anyone can tell you that outsourcing contracts are complex. They are also typically very long. And if the press is to be believed, frequently not very effective.
I have observed two interesting – and apparently contradictory – trends in recent months. One is the fact that customers are increasingly developing their skills and capabilities in both negotiating and managing outsourced relationships to adopt a less confrontational and legally-driven style. And at the same time, within the supplier community, the grip of the lawyers is increasing.
So what is going on?
On the buy side, led by some of the top advisory firms such as TPI. Alsbridge and Equaterra, there is growing understanding that confrontation and risk allocation lead suppliers to a culture of margin recovery and blame. To succeed, outsourced relationships must be built on a collaborative foundation and this requires a much more holistic approach to negotiation and post-award governance.
But on the supply-side, there has been a noticeable tightening of control, with the erosion of many business-minded contracts and commercial groups. For example, at both IBM Corporation and Siemens Business Services the contracts and negotiations staff have recently been absorbed into Legal, with substantial job losses. EDS has never shifted from its legally-dominated approach and, while the trends at Accenture remain unclear, they have also typically had Legal lead the negotiation.
My speculation is that this trend is a reaction to the push for ‘commoditization’ of outsourced services. With margins under pressure, we may see growing risk aversion and increased tightening of contract terms. Most suppliers may become even tougher in their post-award change management procedures, seeking to maintain and increase margins throughout the relationship lifecycle.
It promises to be a painful period of adjustment. And it will be interesting to see what contracting model emerges from the new HP / EDS consolidation. Given the importance of contracting in both winning and executing deals, the newly amalgamated group has an opportunity to put some clear blue water between its approach and that of its competitors. Whether it will spot the opportunity, only time will tell ….
My son called this week, pleading for help with one of his university assignments. He had to write about the challenges faced by Western companies in entering the Indian market, with particular reference to financial services.
He had been a member of a team that had undertaken a PESTLE analysis and now had to critique their work. It seemed to me that a good approach to this might be to look at the actual experiences of major Western corporations in their efforts to build market presence in India.
Fortuitously, I was helped in this by an article in this month’s Chief Executive magazine, “Lessons for the Indian Market”. This warned: “Legions of big-name companies have failed in India”. It highlighted the dangers of seeing similarities (extensive use of English, legal system based on common law, parliamentary democracy, Western-style education and judicial system) and overlooking major differences in social and economic values. “It can create a feeling that the market is easy to assess, as well as easily conquerable by transplanting business techniques and products that work elsewhere in the world”.
As I dug deeper, it became steadily more evident that a fundamental issue for any company entering new markets is its competence in commercial innovation – and in particular the dramatic impacts that new technologies will have on the needs and expectations of the market. What is needed is a tight coupling between market analysis and strategy and the ability to execute through new forms of relationship and business offerings.
For example, behind the similarities mentioned above is the fact that over 20% of the population remains below the poverty line. The average age of the population is still only 24 (and is forecast to get younger over the next few years) . Middle-class income is in the range $4,000 – $15,000. When looking at financial services specifically, Indians are moving fast to change traditional methods of trading and saving, but this may never result in structures and delivery methods like those in the west. For example, unreliable power supplies prevent the expansion of physical bank branches and undermine alternatives such as electronic banking. So as with many fast-growing economies, alternatives such as the mobile phone are emerging to allow credit exchanges. Phone minutes are becoming a form of currency and phone companies are becoming financial services providers.
So the research report written by my son observed: “The implications to a financial services provider are therefore significant. First, they may well find themselves partnering with non-traditional sectors like telecommunications in order to reach their customers. They will need to package their offerings in new and different ways and this will raise major questions over issues such as pricing and methods of revenue collection.”
In previous posts, I have written about the way that networked technology is transforming internal functional roles and organizational models; and also the impact more broadly on trading relationships. But what this research illustrates is the way that traditional industry segmentations are changing. The networked revolution truly does break down virtually every assumed boundary and opens endless possibilities – and uncertainties.
It is challenges such as these that can make the world of commercial management and contracting so fascinating, for these are the vehicles that underlie business growth and effective management of risk. Unless the contracts and commercial staff are open to and aligned with these new market challenges and models, they are inhibitors to change; but if they get out onto the front line, they can be a powerful source of innovation and business development.
I know where I want to be!
Commitment Matters 