While there are multiple publications addressing the operational aspects of contracting and negotiation, It is interesting to observe that there is no existing book providing a holistic view of commercial and contracting strategy. Is that because it’s not needed, or it’s too complicated, or perhaps it reflects the fact that commercial and contracting activities are too fragmented, that there is typically no natural ‘owner’ equipped to compose or use such a work?
The growing complexity of trading relationships has resulted in a new and more urgent need for organizations to develop a planned and integrated commercial and contract management capability. This has steadily become more evident in the volume and nature of questions being received by IACCM (many of them from consultants who are seeking answers for their cleints). While IACCM research and benchmarks have provided many of the answers to these questions, there has been no single volume or guide that organizations can use to plan, test or implement CCM capability.
A new guide
This last week, seven dedicated practitioners (supported by two designers) have collectively spent more than 300 hours conducting a ‘book sprint’, composing the world’s first Strategic Guide to Contract & Commercial Management. We discovered that even experts in this field have significantly different views of terminology, of role and process, of contribution and value. The finished work therefore itself tackles one of the essential foundational principles identified within the book – the critical role that contract and commercial management must play in identifying stakeholders and then aligning or reconciling their perspectives and interests through establishing common interests and understanding.
As first in the field, the Guide represents a major advance in defining the important discipline of contract and commercial management as a core organizational capability. It provides executives and commercial leaders with the rationale and methods with which to assess, design and build a ‘fit for purpose’ process, supported by an appropriate set of people, technology and skills. To produce this content in the course of a week feels like a major achievement and we look forward to releasing it to the IACCM membership as they maintian their drive for excellence.
For 20 years, IACCM has been at the forefront in identifying and quantifying the impact of good contract management on business results. Value is achieved in several ways – for example, reducing contract value erosion, supporting contract growth, contributing to reputation and ensuring ethical practices.
i am excited by the work now being undertaken by the IACCM Research Forum and the impact this is having on value realization and delivery. Working with a group of top international corporations, we are elevating the role and practice of contract management to a new level. For example, our continuing work on ‘as a service contracting’ is revealing the challenges and importance of this fundamental shift in business models and the critical role it can play in sustainability. More recently, our development of the VCU Framework promises to revolutionize planning and execution of post-award contract management and governance.
The reason this is exciting is because the research is not simply theory – it is delivering real impact through implementation and in the process generating fresh understanding and respect for the role of contract management.
Why it matters
Few people would disagree that business continues to become more complicated. The speed of change, disruptive technology, increased regulation, geopolitical uncertainty – multiple factors contribute to the challenges we face in our decisions and market relationships.
Contracts are put in place to bring a level of definition and certainty to our dealings. Contract management is the discipline through which we oversee performance. This is clearly an important discipline – LinkedIn tells us that there are more than 8 million people who have Contract Manager as a job title. The problem is that, for most, it isn’t really a discipline at all – typically they are untrained and either self-taught, or taught by colleagues. For many, it is an oversight role, reacting to events rather than shaping them.
Making a difference
By coordinating and overseeing research activity, IACCM is increasingly able to provide its members with the methods, the data and the facts needed to turn contract management into a proactive and influential discipline. What this is showing us is that the overall scope of contract management spans the entire lifecycle of a trading relationship, from inception of the opportunity to termination or close-out.
Businesses make or lose money based on the performance of their trading relationships and most of these are defined by contracts. Smart leaders are increasingly investing in people with the skills, knowledge and training to oversee the management of value from those contracts, including the deployment of tools and systems that automate and streamline organizational competence.
We have all witnessed it. Whether it’s our kids and their obsession with computer games and mobile phones, or the way that email has come to dominate our working day, or the extent to which physical meetings have been replaced by conference calls and webinars … technology continues to transform communications and the nature of human interactions. And that has very real consequences for the quality of life and the value that is generated from relationships.
Economic research shows that, as advanced technologies become more prevalent, relational skills and competence decline.
In the world of contracting, perhaps the most obvious example of this decline is in the area of negotiation. Something that was once almost exclusively conducted face to face is now primarily a remote activity. New research by IACCM reveals that in approximately 75% of contract negotiations, the parties never physically meet. This results in a far more formulaic approach to negotiation and constrains understanding and investigation of options and alternatives. Too often, it creates a rigid, compliance-driven framework that demonstrates little concern for the interests or aspirations of the counter-party. This must in part explain why we often find that transactions finish up with the wrong form of agreement, or with misunderstandings over requirements and scope, or with inappropriate allocations of risk.
The same is true when it comes to other areas of the contracting process – for example, multi-stakeholder contract review meetings are increasingly replaced by individual stakeholders undertaking review and issuing redlines in isolation. Post-award, events such as performance reviews are also largely conducted using technology.
Of course the impact of technology is not all bad. It allows better and faster data flows. It enables greater inclusiveness. It assists in managing across time zones. But when it comes to fundamental human traits such as empathy and judgment, or establishing deeper and more collaborative relationships, technology is actually a barrier. It has become the silent destroyer of loyalty and ethics because it supports a transactional, commodity-based view of the world, where trade easily becomes a matter of self-interest rather than mutual interest.
One of the top employee complaints is “My company fails to invest in its people.”
But today, what exactly does that mean and what’s the right balance of responsibility for achieving personal development?
To begin, I think we must distinguish three quite different tiers of investment. Tier one is simply maintaining existing skills and knowledge, to be up to date with the latest thinking and methods. Tier two is upskilling – adding to existing capabilities through either broader or higher level skills. And third is reskilling – becoming equipped to operate in a completely different field of activity.
I would argue that responsibility for tier one skills lies to a large extent with the individual. So much learning material is now freely available, there are few good excuses not to remain current. And this is at least partly true for tier two, though certainly there are limits to how much upskilling an individual can achieve without some investment of time and money. Tier three is clearly different, both in scale and in the need to gain new credentials. Individuals typically need support to make such a switch.
Recent surveys suggest that there is a strong core of discontent among people who would like to reskill. They either don’t like their current role, or they feel it offers few opportunities for progression. However, for a significant number the issue is about investment in upskilling, in particular to support career advancement.
Both represent reasonable expectations of an employer. But I’d suggest responsibility starts with the individual. As an employee, we must demonstrate that we merit investment, that it will result in both personal and business benefit. And to do that, we must show a hunger to learn and to apply that learning in our daily performance. With so much business-related information freely available – media, webinars, podcasts, MOOCs, resource libraries – there is no good excuse for failing to keep up to date. Much of that information then equips is to show real knowledge and expertise, to offer insights that others may not have. And it’s by getting noticed that we gain investment.
The field of Contract & Commercial Management still has some way to go in creating equality between male and female professionals. It begins with the finding that overall just 32% of the community are women and is compounded by the fact that they are less than half as likely to be in a senior management role. This is especially the case in Procurement, where the ratio of women is just under 30% (compared with 40% in sales contracting).
Geographies and Industries
There is substantial variation in the male:female ratio between geographies, with North America standing at 58:42, compared with 64:36 in Europe and 89:11 in the Middle East. Asia, Oceania and Africa each show an approximate 80:20 ratio.
As with other professional groups, there are substantial differences between industries, with the health sector being closest to equality (53:47), followed closely by the public sector (55:45) and aerospace and defense (57:43). Bringing up the rear are engineering and construction (82:18) and manufacturing (78:22).
Education and Attitudes
The groups show broad similarity in background education and professional qualifications, with 57% in each case holding a professional qualification and 81% of women with a bachelor’s degree or above, compared with 90% of men.
Attitudes about CCM as a career path are also very similar, with over 70% in each case expressing some concern about its limits while at the same time saying that they like their job. The things they like are mostly similar – for example, challenging work, flexible hours, the work environment and feeling that they are contributing to business success. There are differences. For women, being able to work from home is a significant benefit, whereas men are more motivated by the level of pay. Primary dislikes for each are failure to invest in people and company culture.
Men and women agree that communication is the number one skill for performing the CCM role, but in second place for women is relationship management and interpersonal skills, whereas for men it is analytical skills. However, women are not dismissing the importance of analytics because they identified ‘An increased ability to work with data and analytics to drive change or value’ as the number one priority for the future. Men selected ‘An increased ability to influence senior management’ as their priority.
Conclusion
Overall, the findings from the 2019 IACCM Talent Survey show that the differences in attitude, approach and background between male and female professionals are minor. The only big difference is in the numbers being attracted to the role and the opportunities for growth that it then provides. In this, we are not alone and nor is the situation as bad as in some job roles – but it is clearly an area we must continue to challenge and improve.
The IACCM Talent Survey was conducted in the period July – September 2019 and this article is a small extract from the overall findings, which will be discussed in greater depth in a Thought Leadership webinar on December 9th (visit the events section at http://www.iaccm.com for more details and to register to attend).
IACCM has today issued the results of its latest survey into payment terms. This multi-jurisdictional, cross-industry study attracted input from 393 organizations and gathered data from the buyer community, therefore reflecting terms and policies in business-to-business transactions.
Highlights
Compared with IACCM’s previous survey in 2017, there are three items of particular note:
- The trend towards increasing payment periods appears to have reversed
- Delays in payment have reduced by a significant amount
- The use of third parties – for example, supply chain finance or outsourced accounts payable – has stalled
Summary of Findings
Across all participants, the average contractual payment term specified by buyers is 43.5 days (an improvement since the last survey in 2017, when the average was 47 days). A 30 day payment period remains the most common, specified by 53% of respondents. The trend observed in 2017 towards longer payment periods appears to have stalled and, in some cases, reversed. Reasons cited include the impacts of regulation (particularly within the European Union) and reputational damage from adverse publicity.
On average, late payment occurs in 19% of transactions. This results in the average actual payment being 47 days (again, a significant improvement on 2017, when the average was 55 days). A further factor in this reduction is that a number of organizations have reduced their payable period.
26% say the payment period is non-negotiable. As in the last survey, the readiness to negotiate increases among the organizations with longer payment periods.
68% of respondents operate with consistent standards across worldwide operations, though for 46% that standard may differ across different types of acquisition.
Just under 20% are currently planning to change their payment terms and of these, almost 2 in 5 are considering a reduction in the payment period.
In terms of use of external resources, only 10% have outsourced accounts payable. 20% have introduced supply chain finance and almost half of these did so in conjunction with an extension in payment terms. The percentage offering supply chain finance has not altered significantly since 2017.
Conclusions
In general, the survey results suggest that the trend towards longer and more onerous payment terms has either ended or is in abeyance. At the same time, there appears to have been a strong focus on improving efficiency through automation, resulting in more timely payment of invoices. The fact that a significant proportion have either reduced or are considering a reduction in the payment period suggests increased sensitivity to regulation, reputation and issues such as supplier loyalty.
A copy of the full report and survey findings is available to members in the Resources section of the IACCM website at http://www.iaccm.com
Contract and Commercial Management – it’s a great job, but is it a great career?
Almost 1,000 IACCM members contributed to the 2019 talent survey and their input should act as a wake-up call to senior management, as well as practitioners wanting to progress their career. While there is extensive evidence that the need for highly skilled commercial experts is growing, the survey shows attrition rates are increasing and many in the community are disillusioned by the failure of their business to invest in its people.
Most contract and commercial managers love the challenges associated with their work and they recognize the need for up-skilling, especially with the twin threat and opportunity generated by increasing automation. But many feel they are not receiving the support they need to develop those skills and there is widespread concern about the absence of a clear career path.
It is clear from the results that professionals and their managers each need to give careful thought to resource and personal development plans. Today’s challenging markets demand an adaptive, committed body of contract and commercial staff, applying their skills to deliver increased business value. Right now, the pace of change is too slow.
On December 9th, IACCM is offering a webinar to present the findings of this important research, to discuss its implications and how market leaders are responding, for both practitioners and their executive management. Register at http://www.iaccm.com/events/register/?id=3528
A recent article in Harvard Business Review added to the long running debate on ‘relational contracting’ and advocated ‘a new approach to contracts’.
As a long-term proponent of relational contracting, I welcome the advocacy for their use, but question the article’s proposition that such agreements should rely on legal enforceability. Indeed, while acknowledging that this is an option the parties may wish to pursue, my experience to date is that it is not necessary and often may be undesirable.
For many years, practitioners and scholars have mused over the relative importance and influence of ‘the contract’ versus ‘the relationship’ in generating positive outcomes. Most business people have tended to argue that it’s the relationship that matters; contracts only really become important when things are going wrong.
In this context, contracts have been viewed by both scholars and practitioners as ‘formal’ and ‘fixed’, whereas relationships have been seen as ‘informal’ and ‘adaptive’.
In the modern world, there are many reasons to challenge this traditional view and to point at the importance of the contract in establishing a platform of certainty, without which disputes are almost inevitable. Much has been written about what constitutes a ‘good’ contract, particularly since today they are far more pervasive and comprehensive than in the past.
My experience (which accords with the article) is that relationships require greater formality because of the scale of adaptability that is required in today’s long term or high value agreements. But if that formality is made contractual, there is a risk that it results in a loss of adaptability or is simply ignored by the post-award operational team. Indeed, it also entails the inevitable involvement of legal teams, which often means that momentum and the essential elements of collaboration are lost.
There are solid grounds for considering recourse under relational contracts at several levels which include:
- renouncing legal enforceability for the entire contract and utilising some form of mediation, such as an independent neutral
- developing relational principles that are separate from the contract and not formally incorporated within it. Mediation may be incorporated as an initial step in issue resolution.
- incorporating relational principles in the contract and agreeing some form of ADR.
- incorporating relational principles and retaining resort to legal enforcement.
Such a discussion seems to me an important element of the process when seeking to build a shared accord and mutual trust. By recognising this type of adaptability we truly do start to introduce ‘a new approach to contracts’.
Back in 2017, IACCM published a report on the state of contract management software. Since then, its findings have been much cited by analysts and consultants. This is what we said:
”A March 2017 survey by IACCM revealed that levels of satisfaction with current contract management automation systems is low, with a rating of just 4.2 out of 10. Organizations have struggled to gain adoption and for many, integration with other systems is proving problematic. As a result, functionality is generally limited – for most, the repository functions of accessing and having visibility into agreements is the primary benefit.”
Have things improved?
Our latest polling of IACCM members does indeed reveal growing levels of satisfaction – a significant increase to a score of 5.1. But is that because the value of the systems is improving, or that expectations are changing? The answer seems to be a little of both.
Certainly the technology being deployed is now in some cases more mature and vendors are becoming more realistic in setting expectations. Functionality is also improving as digital technologies and early forms of artificial intelligence are incorporated. In addition, both customers and suppliers are learning from past mistakes. Increasingly, they understand the weaknesses highlighted in our 2017 report and are more likely to address the issues around process fragmentation, integration and disrupted data flows.
Reduced expectations are a threat
In lowering their expectations, the buyers of contract management technology are becoming more pragmatic. But there is a real risk that they will lose sight of the bigger picture and, as a result, invest in systems that deliver only short-term benefit. This is indicated by analysis of those who have been using the IACCM Contract Automation Comparison Tool.
In more than 3,000 searches over the last 3 months, the primary functionalities being sought are for repositories, approval flows and drafting. These core capabilities are of course essential ‘plumbing’ for any contract management tool, but they are not the things that generate real market value over time. Analytics, portfolio management, obligation management and inter-firm collaboration are examples of the things that offer potential for competitive advantage – and in almost 50% of cases are being ignored.
Plan for the future
Given the history of contract management software and the many false starts, it is understandable that the ambitions of buyers have reduced. They are right to focus on the basics and ensure a practical, working system. But they should not lose sight of the longer term and the functionalities that, within 2 to 3 years, will become the norm. By narrowing their search, buyers could focus their choice onto a group of rather basic suppliers, who may lack the resources or broader understanding needed for long-term survival. The winners here will be those who develop a clear vision of the potential value from streamlined and intelligent contract management – not those who continue to see the challenge purely in terms of administrative efficiency.
Listen to IACCM’s webinar “Technology – how much, how soon?”
A new decade is almost upon us. It’s the decade of RRP – Relationship Resource Planning – when a great wave of efficiency and cost reduction will be achieved through streamlining the management of external relationships.
Automation is key
Just like ERP (Enterprise Resource Planning), RRP will be driven by automation. In developing this term, IACCM identified how a new wave of technology is starting to provide the platforms and intelligent systems that are needed as an overlay to, and interface between, existing enterprise software. This increased flexibility is already starting to impact attitudes towards commercial and contract management and generating a set of ‘big themes’ for 2020 and beyond.
1. From documents to data. The traditional view of contracts as ‘documents’ is fast giving way to an appreciation that they are in fact a critical source of ‘data’, at both transactional and portfolio level.
2. From Risk transfer to Economic value. Traditional approaches to contracting and negotiation focus on contracts as mechanisms for risk transfer. Over the next decade, as research and analytics help us better understand the balance between risk and opportunity, we will witness a shift to contracts becoming instruments for economic value.
3. From boundaries to pathways. Contracts today tend to set boundaries, often influenced by an approach that seeks to impose responsibilities and establish protections for when things go wrong. Our new era of increasingly open, transparent data flows will see contracts establishing pathways through better structured and more formal relationships that place greater emphasis on creating the conditions for success.
The broader impacts
Underlying these major changes will be a number of important enablers, for example in areas such as contract design and structure. Current trends towards visualization and graphics will accelerate. Similarly, advances in the use of blockchain will create platforms that generate visibility across supply chains, while initiatives such as Robotic Process Automation will hasten the push towards ‘self-service’.
Perhaps the biggest change that’s occurring is growing appreciation that contract and commercial management are frequently out of step with corporate goals and strategies. They often lag behind shifts in priorities. For example, while executives may promote speed, flexibility and collaboration, such initiatives typically take time to be reflected in commercial and contract terms and practices. In the 2020s, supported by dynamic market intelligence and contract analysis, commercial management will increasingly inform and shape corporate strategies, assuming a position of leadership in the execution of change.
Commitment Matters 