The on-going debates over ‘talent’ and whether or not we have enough of it are becoming rather tedious. The truth is, we have created extremely disruptive technologies that are revolutionizing our world – how we communicate, how we perform work, how we interact etc. – and we have an incumbent professional community that is unsure (and in some cases reluctant) about how to react.
The effect of these technologies has been to break down physical borders, but at the same time forcing us to confront new borders in our knowledge and competency. People who assume they can simply carry on working as they always did are discovering unpleasant consequences as a result of their lack of information, or mistaken assumptions. For example, global supply chains require much wider knowledge than a network of national suppliers. Outsourced relatiosnhips demand a very different style of management than the internal relationships they replaced. The world of services contracts is dramatically different from the world of product supply. It is true – as it has always been – that many people lack the motivation and interest to expand their minds and capabilities to address this new world.
Like any time of dramatic change, most of us struggle with applying the new tools at our disposal. We find it hard to envisage what is possible. Many of the new software applications provide a perfect example – e-sourcing tools or contract management software where adoption is often low, implementation is unimaginative, resistance (except among younger people) is endemic.
And here in large part is the point. The youngsters who are enthusiastic to use new tools do not have the business experience to use them wisely or effectively; the ‘old timers’ who have experience and judgment do not understand the tools or how they could transform their workplace.
In theory, one would hope that academia would be stepping into this gap and providing the portfolio of programs – at all levels – to raise business output and productivity. But in general, I don’ t think that it is. There are some tremendously talented individual academics, but unfortunately they are constrained by an education system that resists structural change and where departmental jealousies are perhaps even stronger than those that impeded structural changes at major corporations.
However, I am very excited about the academic forum that will run next month at the IACCM Americas conference. Breaking with traditional structures, it offers a range of lively and highly pertinent interchanges between academia and practitioners. The sessions will look at questions like the creation and management of global ‘bodies of knowledge’ in our networked age; how such materials can be structured to allow ‘on demand’ access and learning for professional development; the role of standards in complex areas like contracting and contract management; and the ways that academia and industry can more effectively link, to take advantage of the ‘networked technology’ that enables increased alignment and dramatically faster response times.
Today we are generating knowledge, information and ideas at an unparalelled rate and volume. This creates massive challenges in syphoning, selecting, using and adopting all the great concepts at our disposal. It means that traditional academic and training programs are always out of date. It means that professionals, already overwhelmed by workload, feel themselves falling further and further behind ….
Those to my mind are the ‘talent issues’ and that is why we are making sure they get debated and – for our community at least – that they also get resolved.
Booz Allen Hamilton featured a great article recently, titled “The Community Network Solution“.
It highlighted how ‘relationships trump rank’ when it comes to making things happen – and how so many projects are doomed from the outset because they involve the wrong people.
Although based on public sector initiatives, the studies that underlie this report have immediate application in the corporate environment. Anyone involved with a major outsourcing deal, a reengineering project or organizational redesign will immediately recognize the symptoms. People are often appointed because of rank and supposed power or influence, rather than because of any relevant specialist knowledge or – more importantly – any proven ability to reconcile perspectives, to act as ‘glue’.
The thoughts and ideas within this article should certainly assist those who are deciding on the make-up of a team. But they should also provoke thoughts among those in contracts, sourcing, legal or commercial management who often feel excluded. We need to ensure that we exhibit the right behaviors and characteristics – and make decision-makers and team leaders aware of these.
As we heard recently in an IACCM Ask The Expert call, support groups like contracts, procurement and legal are frequently perceived as ‘too negative’ and not good team players. They are left to a review role. This is truly bad news for everyone – and, as the article points out, goes a long way to explaining why so many key projects and business relationships fail to deliver.
The old ‘4Ps’ (product, price, place and promotion) have driven Marketing thinking since the 1960s. Although attacked in recent years as ‘too simplistic’, the Marketing approach in many companies remains strongly focused on products and features. And while advertising and promotion make extensive promises that go beyond the core product, it is notable how frequently those promises are not supported by intrinsic business capabilities.
We recently researched a number of top corporate websites and explored the strategic goals and advertised benefits . We looked at ‘Corporate Codes’ and their commitments to ethics, standards and policies. Then we tested people in Legal, Procurement and Sales Contracting to see whether they could recognize their own company’s promises and the extent to which the contracts they write reflect these obligations.
The truth is, there is little alignment. In many cases, the Marketing department do not even bother to communicate their messages to these internal groups. It is not clear whether that is because they think it unnecessary, or whether they want to avoid push-back. But either way, the problem is that commitment capabilities frequently do not match market promises.
Does that really matter? I think it does. Executives today are emphasizing the importance of trust and integrity; companies are pouring million sof dollars, pounds, euros etc. into complex (and often ineffective) compliance programs. Yet they are failing on the basics – ‘excellence in execution’.
I admired the honesty of the head of Hewlett-Packard’s channel sales organization when last week he listed the main areas that are threatening channel loyalty and performance. And it was interesting to see the Number 1 issue on his list:
For many companies, the situation is getting worse because today’s services economy is driving ever-higher expectations around ‘ease of doing business’. A couple of years ago, I was prepared to get support from a call center. Today, that is a massive inconvenience – I want on-demand answers via the website, at times convenient to me. I don’t have time to read terms and conditions – so if you need to write exclusions, I guess I can’t trust you and I should move on. I want simple, clear, accurate billing – otherwise, I don’t pay.
Our networked world is changing expectations and companies that want to win in the market must develop superior commitment systems that make distinctive promises – and keep them. This comment that I recently found on another blog sums it up nicely: “For years, everything has been about planning and execution. This model works great when you have an “inside out” mentality – a push model where you build things and push them out the door. But as soon as you move to an “outside in”, or pull, model, it’s not enough. You now need to empower people with the tools for risk tradeoff and response to manage the daily exceptions that are now at the heart of your ability to compete.”
An IACCM member asked recently whether anyone had suggestions about successful ways to handle corrupt customs officials. “What do you do,” they asked” when you have expensive capital equipment and the only way to get it released is to pay a bribe?”
I contacted one of the world’s top experts, Alexandra Wrage, the Executive Director of TRACE International. Alexandra leads a fascinating life as she travels the globe, working with governments, overseas companies and the major international corporates. When I first made contact, she was fleeing rebel forces in Chad – I guess they were not a good audience for anti-bribery compliance at just that moment!
When we finally caught up, Alexandra was certainly sympathetic to the problem, but could not offer any silver bullet. She did observe, however, that companies that simply say ‘no’ are meeting with increased success. She explained that smart business people are citing the major fines, penalties and even jail terms now being imposed on those found guilty of corruption – and that, while foreign officials may not like this removal of their source of funds, they do understand that there really is no choice.
So the stock answer seems to be, make sure that you and your staff have the facts in front of you and treat this like any other negotiation – explain why you will not and cannot accede to their demands. And if you want to find evidence to support this, the TRACE website is a great place to start.
Our conversation moved on to cover some of the contractual methods open to companies with regard to anti-bribery measures. This is where things remain tricky. Many companies are today focusing on contract terms that require their suppliers to adhere to regulatory and other ethical standards – bribery, environmental, child labor all being examples. Increasingly, they insist that such provisions are passed through to sub-contractors and service providers. The problem is, how is this validated?
Self-certification is one choice; but some companies go further and insist on a right of audit (which is what the US Department of Justice recommends). This is potentially a double-edged sword, because if you have the right of audit and an exposure then arises, you may be judged negligent if you were not active in pursuing your audit rights.
Realistically, most companies simply cannot afford the overhead of conducting regular audits of their global supply base. So perhaps self-certification, with extensive consequnces for any non-compliance, may be the best answer right now. And maybe it also means that companies need to consider avoiding smaller, local suppliers who may find it harder to push back against corruption. By working with larger multi-nationals, the transaction price may be higher, but the business cost will be lower. And perhaps the loss of trade will be an added incentive to foreign governments to act against corrupt practices.
Contract management is an area of increasing executive focus. This blog has highlighted many reasons why the global networked economy is pushing organizations to create more robust frameworks for defining and managing their trading relationships – and the key vehicle for this is the contracting process.
But understanding the need and driving the change are two distinct issues – and my correspondence in recent weeks has illustrated that many organizations are struggling to define the new role, contribution and capabilities of a 21st century contracts manager.
These calls for help have come from both public sector and commercial giants; they have been international in their nature; and they represent both buy side and sell side. It is an area in which IACCM has been alone in building a definitive picture, methods and process outlines. Most enquiries come with an outline – either provided by the company itself, or perhaps by virtue of a consultant they have employed. I thought it might be interesting to record some of the deficiencies that appear common to these definitions.
One common (though not universal) omission in traditional views of contract management is any significant activity in bid preparation and negotiation, which raises questions over where ‘the contract’ comes from. Other key areas frequently missing are the broader context of the overarching contracting strategy and the more holistic feedback of results into a learning loop; and the need for more proactive insights to evolving market and business conditions to anticipate the need for – or opportunities from – change.
In essence, the models I receive are reactive. They do not call for any wider inputs or outlook than the specifics of each individual contract. While the contract management activities include areas like risk and change, they contain no concept of what these mean in practice, in particular how a contracts manager might be proactive in identification of opportunities or in reducing risk probabilities.
Some critical questions that any designer of modern CM procedures should be asking are:
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at deal inception, who is evaluating and advising on the offering and relationship structure and ensuring that the terms selected and negotiated operate in support of this and the desired outcomes? Without this, many contracts set a framework that is in direct opposition to the stated goals – in the words of one executive I spoke with recently: “We believe that we can collaborate in spite of the contract”. Any model must address this need for alignment and who will be ensuring consistency between organizational needs and contract terms.
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there is frequently no mention of any sort of measurement – how does the CM know what success is? What exactly represents ‘good’ contract management? Some of these factors may be specific to the deal, but many are not. For example, should they be measured on added value achieved; or percentage achievement of milestones; or success in hitting deadlines; or controlling frequency of claims / disputes?
When I receive these review requests, one thing I need to know is how other organisational roles have been described, but history suggests that neither Procurement, Sales, Legal nor Project Management are competent to fulfill the above tasks – and arguably it is not their job. They are all key contributors to the relationship framework and have real interest in its outcome – but that does not make them expert in its overall formation or structure. If you make CM purely administrative, you cannot expect – or attract – people who are capable of acting more strategically. And at a time when these contracts have such complexity, strategic significance and requirement for constant update and change, it is innately risky to make the CM role so tactical.
Organizations need to map overall tasks and then define the ‘optimum’ lead / mandatory contributor / reviewer / approver analysis to the ‘functions’ involved in the deal. Without this, it will be hard to say whether all key tasks have been understood and adequately addressed. Typically, we find gaps that go a long way to explaining why so many trading relationships fail to achieve their potential.
Is executive management losing its grip?
The speed of change in today’s markets makes top jobs increasingly demanding. Maintaining the right balance between control, collaboration, empowerment and innovation is a tough task. Yet that is also what executives are paid to do. And an increasing number are getting it wrong.
I am observing a growing number of corporations – especially US-headquartered multi-nationals – where the Legal organization is gaining increased power. And they are exercizing that power with a renewed focus on standard terms and conditions that are blatantly unreasonable and confrontational. Some are doing this on the buy-side, others on the sell-side – and when these two perspectives meet in the market, the only people who are empowered to fix the probelm are …. the lawyers.
At the same time, the CEOs of these companies are talking about trust, speed, collaboration and the adoption of ethical standards. With the exception of ethics, these are qualities and characteristics notably absent from the measurements of the typical legal group.
The issues surrounding today’s global trading environment, the uncertainties, the regulations, the speed of change – these understandably make executives nervous and open to the argument that ‘we must get tough, we must have stronger controls’. Yet at the same time, those executives recognize the need to engender trust, to encourage innovation and to build brand reputation.
Sadly, few appear to understand that these qualities and attributes require a careful balance in their company’s policies, practices and rules. Success in today’s markets demands a combination of fairness and firmness that is lacking in most legally-driven cultures. Lawyers assume failure; they are protecting the business from catastrophic consequences when things go wrong. Their task is not to focus on structuring relationships or governance systems that increase the chances that things will go right, nor are they typically accountable for the economic outcomes of the deals that are transacted.
As lawyers gain control over contracting and the principles under which negotiation will occur, they also create an environment that potentially destroys trust, collaboration and the framework for honesty and transparency. This undermines the value that can be achieved from the contract, because it creates a confrontational and protective relationship. focused more on the allocation of fault than on the mechanisms for success.
Risk experts flourish in an environment of fear and uncertainty. True leaders recognize that uncertainty represents opportunity. So while the Legal function is an important stakeholder in contracting policy and practice, it is but one of several interest groups and allowing it to have ownership of the ‘the contract’ is an extremely dangerous and risky step, unless accompanied by increased accountability for contract outcomes.
In today’s environment, where contracted relationships are becoming the life-blood of corporate performance and competitivemess, the failure of executive management to recognize the importance of contracting – and their readiness to allow one pressure group to gain control – is an indication of the struggle that Western corporations will have in maintaining competitiveness. This importance and complexity means that executives must focus on the management and measurement systems that will induce ‘good practice’ in the formation and management of trading relationships.
IACCM studies, as well as those of groups like CAPS, suggest that relationship and communication skills will rise to the top over the next couple of years. These will be accompanied by a new level of accountability and on-going governance. Some Legal groups recognize this and either a) step up to the challenge (e.g. BT, Hewlett-Packard, LGE), or b) step aside and allow others to lead the transformation.
Sadly, a few miss the point altogether and use a period of heightened risk and uncertainty to drive functional power and interests. In ths, I am sure they are not alone. But that does not make their behavior right.
What is the role of Legal? This is a question I increasingly encounter – and which has ramifications far beyond the Legal function itself. The answer has an especially significant effect on those in areas like Contract Management and Sourcing, because they have high levels of inter-dependency. It is a little like international relations – if Legal decides to get aggressive we all know about it; similarly, if they retreat into their shell, others are seriously impacted.
So what is the ‘ideal’ scope of Legal’s role and why are they asking this now? And how might the answer affect other groups and functions?
The question arises because of growing business complexity, compounded by increasing regulatory oversight. As with so many aspects of recent regulation, the obligations of Legal are unclear, but they have certainly expanded. And the expectations of other functions in terms of the role they expect the lawyers to play also vary, as the following examples show. So first, here is the question that sparked this particular article; it comes from a Senior Attorney at a major global brand, who has been charged with putting together a recommended model for her in-house team.
“Our legal dept is looking to restructure how and what we do as a team to add more value for the company and also to understand what things we should be delegating to outside counsel, train the business on etc. Part of our goal is to achieve better productivity and work-life balance as well.”
The challenge for Legal groups may be extreme, but is not unique. Certainly they are in the front line when it comes to increased regulatory and governance oversight; and they share with other functions the challenge of greater complexity, combined with the need for increased speed of decisions and actions. As our brief case studies make clear, this is not really a question that Legal can answer in isolation; an effective solution depends on working closely with other key stakeholders in the business – prime among them groups like Procurement, Commercial and Contract Management.
Achieving Reconciliation
These dynamics of regulation, complexity and speed are in conflict – especially when you add the fact that no one is going to be given significant additional resource. Hence the urgent need for change; simply doing what we have always done, but faster, is not a solution. And Legal is one of the few groups with the power and influence to drive these changes – they have the ready ear of executive management, so their fate (and in some respects those of groups like Contract Management and Procurement) is in their own hands.
I believe there are 5 areas where Legal must focus if they are to reconcile the conflicts they face and help other parts of the business also become more productive and valuable in their output. These are:
Automation – what tool set do you need – and is it Legal or is it enterprise? Does it support current working practices or introduce new practices? Is it focused on enabling or controlling?
Offshoring / outsourcing – what role do these have in the mix? Should you outsource yourself, or require your external advisors to do so? Build a ‘captive center’ or contract with an outsourced provider? What work goes and what stays – will I outsource tasks or processes?
Management system – do organizational roles and interfaces need to change – and how? What are the business factors driving increased workload and to what extent is this through traditional organization not being capable of meeting new needs?
Standards and templates – what role do they play, how are they managed and maintained? What flexibility needs to be allowed, to whom and in what conditions?
Scope of role – what must the 21st century legal department do (core); what does it enable, but oversee; what does it advise, but then let others operate.
Of course, this list attacks only part of the Legal remit – it focuses largely on their role in supporting trading policies, practices and relationships, but my sources tell me this is perhaps the fastest growing workload. Global Sourcing, Outsourcing, Alliances, entering new markets – just a few examples of areas requiring increased focus.
Views From The Front Line
I thought I would test my ideas with a few General Counsels and this is what they said:
“This is an excellent summary of key critical elements. It is certainly on the short list we have at (company name) (role of automation; effective enterprise contracts management system; core/non-core activities and what can be outsourced/near-shored/transferred to business; governance model; simplifying cross-organizational decision-making). One area where I think an IACCM or a GC Rountable plays is the consultant/advisor role. For example, you’d rely on IACCM or GC Rountable to come on-site and help you analyze your current environment. Difference to me in organizations based on my involvement is that IACCM is the leading thinker on contractual/commercial relationships and the contracts function. GC Rountable is probably better at the more traditional attorney specialty roles (litigation management; outside counsel spend; etc…). ACC is the ideal forum for various legal departments to engage on best practices, trends, recommendations, networking, etc…”
That endorsement was followed by another, which also encouraged thoughts of a more integrated organization model, to support ‘commercial competence’.
“I tend to agree. The GC round table focusses on things that are core to legal; litigation external counsel etc. It tends to be less strong on the model that should or could apply in a business, about how and why a management system is in place. It also tends to assume that lawyers should naturally be in charge.
For example, if in a contracting environment the question is one of what the relevant IPR law is, and there are a number of alternative interpretations and cases, then it makes sense to employ the best lawyer in the world to manage external counsel. This is only likely ever to be a real world issue in a very small number of situations and most of the time getting a timely and relevant answer from external counsel that addresses the business issues is the typical demand. If the business issues are understaod by someone with sufficient relevant legal training, either that person can answer the question him/herself, or manage the externals. This is the model we have adopted and for commercial contracts there is little need for a formal legal qualification: provided sufficient relevant legal training and knowledge and experience and good commercial judgement are present.
We have a ‘one tribe’ better faster cheaper answer to the business model by merging the legal and commercial functions and we save time into the bargain by cutting out the transaction costs between different internal tribes. IACCM’s inclusionary and one broad church approach is the one place where cross functional and real business issues are discussed.”
And the final input similarly saw a need for increased integration, better knowledge management and understanding of roles and value contribution.
“I definitely agree with the one tribe or integrated team approach. The ACC and GC Roundtable are Legally oriented and should be so – in house lawyers are their audience.
IACCM has a broader audience because of the realization that contracts are completely intertwined in the commercial process and all business enterprises. The vast majority of contracting/committing and contracts themselves should be managed by a business system and organization with in-house legal brought in when needed. The balance is often difficult to achieve until the organization as a whole “buys-into” the one team approach and a certain maturity level is reached in the organization. At (company name) we still fight the mindset of some managers that “if it is a contract, it’s legal and I don’t need to read it/be involved ; give it to the lawyers and run away.”
This is in part due to cultural issues unique to my company and in part due to a contracting system that is not fully integrated and not robust enough to really serve the business needs. Once we get alignment between the CM system and business needs, and then roll out better training, we will achieve the one team approach I believe will yield a better commercial enterprise”.
So it would appear we are on the right track – and that IACCM must seek to partner not only with its members, but also with the complementary providers who can together offer a more holistic solution to this increasingly urgent need.
One final point is interesting. The three General Counsels we consulted were all in major multi-national companies, each with revenues exceeding $25 billion. However, they all represented companies headquartered in different regions – one the US, one in Europe and the third in Asia. It truly is a global economy, leading to increasingly common challenges and issues that cut across jurisdictions, cultures and organizational norms.
Over on Spend Matters, Jason Busch picked up on the Wall Street Journal article highlighting payment terms and supplier rebates. Apparently the Federal authorities in the US are upset by suppliers who impose long payment periods onto their vendors and then take early payment discounts, which of course they do not reflect through in their pricing to the Government.
In responding to Jason’s article, I made the following comments – and came up with an idea. Because I agree with Jason (and the Government) that this is at best a disingenuous policy and at worst it is unethical. It is the sort of practice that undermines trust and damages corporate reputation – ethical Procurement organizations should not do it.
IACCM research has shown that the practice of imposing ‘early payment discounts’ is not pervasive, but it has become increasingly common and is an example of the misuse of power by some of the largest (and more arrogant) corporations.
In my experience, these early payment discounts are unilaterally applied, rarely negotiated and often appear in the agreement only after a price has been negotiated. Obviously, large corporations tend to resist them; but for smaller companies (such as IACCM, which has suffered this approach on things like membership and conference fees), the leverage is not there and it is a choice of accept, or lose the business.
However, the Wall Street Journal (and Jason’s) article does not highlight an even more iniquitous practice. I have come across several companies that extract their ‘early payment discount’ even after they have taken the 60 – 90 day payment term. When challenged, they say that the early payment period only starts ‘following receipt of the invoice by accounts payable’. But the invoice address they provide is not accounts payable – they deliberately build in internal review procedures that ensure the ‘double whammy’ of late payment AND discount.
Perhaps we should begin a ‘name and shame’ catalogue on our respective blogs, highlighting these essentially unethical practices? Perhaps our readers have some examples they would like to provide to get us started! If so, please add them here.
Last week I brought together a group of major corporations to discuss the difficulty they had each faced in driving adoption of a global e-sourcing application. The conversation could have applied to many similar workplace challenges; in the end, it was about the inability to build consensus and support for a common initiative.
Faced with such circumstances, many professionals see power as the issue. They long for personal authority, or the authority of a senior sponsor, to ‘impose’ their solution or their rules, with dire consequences for non-compliance.
Power is certainly one way to win arguments. But power does not win loyalty, nor does it generate a sense of ownership or collaboration in achieving a joint mission or vision. Indeed, the use of power frequently undermines responsibility or accountability for outcomes and accounts for many failed projects and negotiations.
Winning hearts and minds depends on creating connections. This is emphasized by Drew Westen in his recent book, “The Political Brain”. Although written with the more conventional field of politics in mind, his ideas and findings apply to the highly political environment of large corporations, where many vie for power and influence.
In order to win support, Westen suggests that we must appeal to core issues that unite us with our ‘voters’ (think here of colleagues, stakeholders, management). Those issues are about ‘survival, reproduction, connection to kin, connection to others’. In other words, we must use terms and messages that strike a chord and are seen to relate to their interests and concerns.
Although this seems obvious – and is a sentiment to which many subscribe – it is notable for its absence in many areas of business operations and planning. Far too often, project leaders become consumed by their perception of desirable outcomes or interests and fail to put these into a context that is relevant to the needs or aspirations of others. We assume there is common acceptance that results such as savings, workload reductions, greater visbility of data, more central control or faster business growth are seen as mutually beneficial. And often we are wrong, because some constituents may view those results as threatening, or they may not agree or feel personally comfortable with the means by which they will be achieved.
The e-sourcing debate was an excellent illustration of the problem. It emerged that resistance was not uniform. Indeed, as we explored the situation, the conversation unearthed a variety of telling insights. Resistance was stronger in non-English speaking locations (even though the system was multi-lingual); push-back was evident among smaller suppliers; and finally, we found that business units with a higher proportion of older workers were reluctant to adopt the system.
All these groups preferred ‘manual approaches’, even though that meant heavier workload and undermined corporate initiatives to raise business performance.
I am in the process 0f writing up the findings from this conversation and IACCM will be conducting several research projects on related topics and potential approaches that were discussed. It was clear that no one had really undertaken segmentation of the user groups to better understand their perceptions and issues related to adoption; the projects had been rolled out with a ‘one size fits all’ message and methodology. While this included substantial training and, in many cases, on-going support, it had failed to relate to the resistance groups and for the enthusiastic adopters often represented excessive investment . For example, younger workers, comfortable with technology, viewed the system as an obvious way to avoid boring and repetitive activities, while for others, it was threatening because it demanded new approaches, use of technologies with which they felt uncomfortable, uncertainty over whether efficiency would be followed by job losses ….
In the end, these projects had ‘failed to resonate emotionally with the electorate’ and therefore for many created resistance and a sense of exclusion. Of course, just as with politicians everywhere, it is unlikely that any campaign will win all hearts and minds, but most could be far more successful than they tend to be.
All of us need to consider the messages that build connections. Some of these may be generic, but the statement of benefits must typically be adjusted to the differing audience segments. In our example, it would not have been so difficult to undertake a stakeholder analysis that distinguished different linguistic or national groups, different age ranges and internal versus external groups. Each needed to be reassured and they needed to feel that their specific fears or concerns were being addressed. A connection had to be formed; when they are in the voting booth, Westen explains, people “think with their gut”.
I suggest it is much the same when they sit at their desk or in their work cubicle. It’s a message that any manager or professional who aspires to influence and success will do well to remember.
Earlier this week, I was talking with a Marketing Director from one of the major contract and procurement software providers. He asked the following question:
“In your opinion, is the demand to improve the collaboration and interaction between Procurement and Legal on Contract Management issues a burning/priority issue recognised by European senior procurement executives (linked to regulatory, compliance and productivity pressures)?”
IACCM did research a few months ago on exactly this interface. In general, the study showed a lack of trust and empathy between Legal and Procurement in a relatively high number of companies. This manifested itself in limited empowerment and generally poor responsiveness in issues related to contracts and terms negotiation. Among the report’s conclusions were:
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There is a culture of blame and lack of trust / respect affecting many Procurement / Legal relationships
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Being nice to suppliers is seen as much lower priority than being nice to customers – so top resources are applied to the latter
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Satisfaction levels with contract reviews and approval processes are low because they are generally inefficient and lack management commitment
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Automation is key to improvements and greater collaboration – at both strategic and operational levels
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Process weakness results in missed opportunities; improvements would shorten cycle times, drive supplier loyalty, maximize economic value and raise governance quality
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Since few companies are likely to increase Legal resources applied to support of Procurement, improvements must be achieved through a combination of better tools, better training, lower cost resources (outsourcing, offshore) and more coherent strategies that link contract terms to supplier relationships
This study covered both North America and Europe. My impression is that the situation is worse in the US than in Europe, but in both geographies I see evidence that there is failure to understand the economic significance of today’s practices. Because they do not realise this (there are no measurements or incentives to generate the data), I would say the demand for change is generally low.
In some respects, the current stand-off actually suits both sides. They see their focus on standards as a way to stifle discussion and impose compliance, internally and externally. This reduces front-end workload and allows each to view the other as responsible for managing risks (or to avoid the blame if they are not managed well). It means that neither feels a need to address the uncomfortable questions about the business costs of their current approach and behaviour, nor to question the down-stream costs of contract execution or outcomes (which are generally not their responsibility).
My feeling is that Procurement are somewhat more empowered in Europe, partly because there are simply so many fewer attorneys, but also because of less rigidity in organizational structure. I don’t know whether there are significant differences in skill and knowledge between, say, US procurement staff and those in Europe. I get the feeling that they believe they are different, but have seen little evidence in practice. IACCM could evaluate this from the data it has in its skills assessment and benchmarking tool.
However, it is clear that many lawyers have a relatively low view of the capabilities of the procurement staff. A current example of this is the debate I observe over who should oversee supply chain compliance. Unfortunately, software providers tend to get caught in the middle of this debate / internal power struggle. It is resulting in competing development work by companies with a supply chain orientation and designed for Procurement use, and some of the legally-focused compliance and risk companies (designed for legal use.
It is without doubt an interesting topic and one which merits a more considered discussion paper, explaining the issues, their consequences and potential resolution. We have really only scratched at the surface of the debate right now. I suspect it is not a topic that is ready for prime-time discussion yet – but must surely bounce to the surface before long, especially if we see a few more high-profile global supply chain failures.
Commitment Matters 