I have written extensively about reputation and the role of the ‘commitment management’ community in supporting and enhancing their company’s image. This is achieved through ensuring the promises we make are kept; by making commitments that align with marketing statements; and by focus on ‘ease of doing business’ and honest, open communications. All these things relate strongly to contract terms and practices, as well as being enabled through strong supply chain integration and management.
And I have highlighted how the current business environment might drive us to extremely conservative risk positions that make us unattractive and uncompetitive in global markets (see, for example, Five Factors For Managing In An Uncertain World: Part III – Risk)
An article produced by ITSMA (IT Services Marketing Association) highlights this critical shift in today’s markets and suggests that ‘reputation’ is now perhaps the key differentiator. It makes worthwhile reading and I agree with its sentiments – but it also reveals the fundamental disconnect between Marketing and other key areas of business operations. Although one of the ‘5 Steps For Influencing Reputation’ addresses internal alignment, not once does the article point out the fundamental need to ensure that commitments match capabilities.
While this may seem obvious – and is perhaps the reason it is not mentioned – research shows that it is in fact the key source of failure. Far too often, marketing statements do not reflect organizational reality; and transactional sales activity then drives ‘customizations’ that are even further adrift from embeded performance capabilities.
Reputation is linked to trust and trust is linked to demonstrated performance. But trust also depends on consistency. Smart buyers can smell a rat very quickly, so if your marketing promise is undermined by risk averse terms and conditions, or if your service delivery is typified by confrontational disputes, or if your internal governance and controls are clearly inadequate, your ‘reputation’ rapidly withers.
Many organizations struggle with this issue of alignment between promises and capabilities. That is why IACCM has focused its Capability Maturity Model on an assessment of strategic alignment between commercial capability and market positioning. Most organizations struggle with reliable execution. And one key reason for this is that the value propositions developed by Marketing (and product management) are often not carried through into the ‘contract promise’. This failure at basic business assurance inevitably trnslates to breakages at the transactional and relationship level.
The article is worth reading; but it illustrates that is time for us to start beating on the executive doors and pointing out that reputation risk is not driven by marketing promises – it is managed through properly assured business capabilities. It is time that Marketing, Contracts, Legal and Procurement formed an alliance to ensure they truly are aligned in their development and protection of Corporate Reputation.
Read “The Missing Link of Differentiation: Reputation” by clicking here.
Overall, I have to say that Procurement has been far more organized in defining and describing its role and process than have those in sales operations. Concepts like ‘procure-to-pay’ have represented useful ways to ensure coherent definitions of activities and responsibilities – even if execution is sometimes lacking and measurements may be driving the wrong results (but that is a different issue and not my theme for today).
On the sales side of the house, if the transaction is b2b, the process is often far more vague. In the name of ‘flexibility’ and ‘customer responsiveness’, I still encounter many organizations where Sales seem to engage groups like contract management or Legal on a discretionary basis. This leads to all sorts of problems – poor commitments, shortage of time, the need to unravel badly constructed deals.
So I welcome initiatives like ‘quote-to-cash’, recently introduced at Pitney-Bowes, in the hope that this might indicate a similar disciplined approach emerging in the sales arena.
Of course, there are good arguments to avoid rigidity – and it would certainly not be helpful to mirror the negative ‘compliance’ mentality of some buy-side organizations with a similar approach on the sell-side. We already see far too much time wasted in these low-value confrontations over whose standards will win. But there are benefits from a better disciplined sales process. These include:
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Greater clarity for Sales over roles and rules should mean better commitments
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Earlier involvement of contracts and legal experts will often result in more successful – and higher value – deals
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Less ‘fire-fighting’ will enable resources to be applied to more strategic management of offerings and relationships
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Perhaps – and this is a big ‘perhaps’ – we might even see greater Sales accountability for the outcomes of their deals
As we face a world of increasing complexity, with relationships that have ever-greater strategic significance, the sales process must be more fully integrated with execution. A concept like ‘quote-to-cash’ certainly implies a much more holistic view that ensures commitments match capabilities. So I am looking forward to talking with Tom Fuchs, from Pitney-Bowes, on an IACCM ‘ask the expert’ call on February 14th. The Role of Contract Management in the Quote-to-Cash Continuum is at 11:00 Eastern US time.
This week, IACCM released the results of its annual “Top Ten Most Frequently Negotiated Terms” survey. With responses representing thousands of b2b negotiators, it offers the world’s leading (perhaps only) insight to where negotiators spend their time and effort.
The list has shown little change over the 7 years in which IACCM has undertaken the study. And it shows most negotiations focus on ‘what happens when it goes wrong?’ One IACCM member wrote to me with the following observation:
“(Research has shown that) the top two perceived traits of respected leaders are Honesty and Competence, which – according to Covey – are exactly the elements required for trust. So, this means that successful leaders are those who inspire trust, but the question becomes “in whom are they inspiring this trust?” Their employees may trust them and they may trust their fellow-employees, but when it comes to dealing with the outside world, neither the leaders nor the employees are good at establishing trustful relationships. Hence they spend all their time negotiating terms about failure and exit strategies.”
These observations are important. I would question one aspect of the writer’s statement – and that is about fellow-employees. I think the core of this problem is that many negotiators do not in fact trust their own organization. They are protecting against bad commitments, promises that cannot be honored, concerns over true requirements and capabilities. Perhaps that is why CEO’s have highlighted ‘excellence in execution’ as such a high priority issue – they understand that their company must be clearer about its needs and its promises.
You can view the ‘top terms’ (the study in fact identifies the top 30) at this link.
The crisis in world markets, exacerbated by the ‘rogue trader’ at Societe Generale, simply illustrates the spiralling complexity of today’s trading conditions.Our networked world has enabled a massive new array of business offerings and transactions. Most of us – including it would seem the managers of institutions like the banks – appear completely bemused by their range and meaning. And the structure of these offerings, together with the manic motivation and measurement systems that accompany them, has resulted in behavior that is more symbolic of a casino than it is of responsible business management.
The London Times commented last week on work by Roger Steare, Professor of Organisational Ethics at Cass Business School. He put more than 700 financial services executives from major firms through integrity tests – and found that, as a group, they score lower than average in honesty, loyalty and self-discipline. This, according to Steare, indicates “a culture of greed and short-termism”.
With the massive investments by the financial services sector in risk-management systems and technology, plus all the regulatory oversight for the industry, it is shocking that such attitudes can prevail. Yet perhaps the two are directly linked. The industry rewards risk-takers at the same time as it tries to control them. It hires mavericks in order to drive growth and profits, using instruments that are incomprehensible to most people, and then tries to contain them with complex technology-based fences.
It should not be surprising when some of these mavericks find ways around the system – it is typical behavior for any group that is driven by lop-sided measurements.
What is interesting is that the problem facing financial services is not really so different from that facing any other company. We are talking here about trading commitments – or contracts. And what is needed is a system to monitor and capture those commitments, so that someone can see the portfolio and observe any specific trends or heightened exposures to risk. On one level, it seems remarkable that Societe Generale would not already have such an overview, enabling it to see the overall exposures to future market movements that resulted from M. Kerviel’s ‘bets’. And one presumes such insights might have prompted action.
What exactly have the banks been spending money on if they do not have even such a basic contract management system, or the controls needed to capture their external trading commitments?
And will this cause management in other companies to wake up and realise the risks they face through their failure to automate this critical – and increasingly complex – area of their business?
I recently came across a very interesting statistic. CFOs were asked “What is it that is most likely to make you believe in the accuracy of data that you have requested?”
The biggest single factor turned out to be the speed of availability. If the answer came within an hour, they were 43% more likely to believe it.
In this era of ‘on-demand’ expectations, that should not perhaps be surprising. But at a time when a growing number of our community face demands to justify their headcount, their cost, their performance, it left me wondering how many of us are prepared. Could you meet that one hour response time?
As a manager, I longed for that hard, factual data that could raise my authority and ability to protect my organization. But I could rarely find it. If there were providers, they were too slow or too expensive (they didn’t pass the speed test!). So at IACCM, I was determiend to change that – to ensure we became a source of fast, accurate and low-cost information. How many heads should you have? What roles should they perform? Where might you add value? What should your cycle times be? How many reviews should take place?
I am pleased that IACCM today undertakes more thna 200 research projects a year. On average, they are completed within 7 business days – and many are achieved in 2 or less. These provide information that enables our community to drive change as well as determine its relative positioning and effectiveness. But I am disappointed – and that is because so few of our community really make effective use of this on-demand service. When they get the call from the CFO, very few will be equipped to answer at all, let alone within an hour.
For a community that prides itself on risk management skills, it is quite remarkable that we are so careless with managing the risk to our own future and that of our department. Especially when it doesn’t have to be that way.
One IACCM corporate member faced the challenge this week – and was fortunate enough to be attending an IACCM breakfast meeting when they received the CFO’s note. Within 30 minutes, I had been able to provide her with a report on typical headcount in her industry and the variables that should be considered. But the data also helped her position ways that savings and efficiency improvements could be achieved – not by cuts in her department, but by expanding its role and activities.
Of course, I was pleased we could help – but that was just a matter of luck. The same presentation that quoted CFO data also had a great chart on world-class risk management. It said that top performers manage risk through headlights, not tail-lights. In other words, they anticipate the risks and prepare for them, rather than panicking when bad things have happened.
That’s the choice many function managers now face – prepare, or wait for the call and panic.
IACCM has the information waiting, or the capability to gather it. If you are not recession-proof, then maybe you should be questioning the quality of your risk management!
The issues of compliance and regulation are of growing significance worldwide. Yet it is evident that there is a continuing mismatch between contract terms and supplier capabilities. In today’s environment, can we rely on the old approach of simply ignoring or paying lip service to performance standards that go beyond product and service quality and tackle wider aspects of company performance or ethics?
In recent years, we have witnessed a steady expansion of the terms that buyers seek to impose – expanding from areas like Most Favoured Customer and levels of insurance to embrace political, social or ethical values. But for both sides, there has typically been little monitoring. However, now we see sophisticated software tools that will enable more rigorous oversight. Will this simply generate increased conflict in negotiation, or will some suppliers see an opportunity to create competitive advantage? And are these incremental commitments something for which buyers are prepared to pay, or simply ‘a price of entry’?
What new terms or contracting practices might this trend generate? This article offers a few ideas. Let’s start with an example of the problem that was sent by one of our members in New Zealand (just demonstrating the universal nature of the issues now facing us as a community):
“My company provides consultancy and software services to businesses, giving visibility and best practice processes to their vendor governance. At the moment we are focusing on IT and FMCG companies and we are seeing an upward trend towards compliance requirements being imposed by their customers although virtually zero awareness from stakeholders within these businesses of those compliance requirements. An excellent example is with one company in the FMCG sector where we reviewed their top 21 suppliers which accounted for more than 80% of their spend, 11 of these suppliers required Food Safety Authority compliance or the equivalent and we were staggered to discover 9 suppliers did not comply. Had they been audited, the site would have been closed down and operations terminated immediately until compliance was achieved.
We have also noted that awareness amongst executives, management and stakeholders is low, to the extent that someone else is expected to have completed appropriate due diligence associated with each external supplier engagement which includes SLA/ KPI and contract negotiation prior to execution. However, in its simplest form, we are finding the business representatives are committing the organisation to almost anything so long as it meets the buyer’s immediate criteria of what is it, how much does it cost and when can I have it. Ultimately this occurs through a lack of visibility and governance responsibility and awareness training.
We are introducing to these companies stakeholder awareness and supplier surveys that consider various elements of supplier excellence, such as performance, communication, responsiveness, flexibility, ROI, technology or service capability and competence.
Significantly, we are also seeing in some businesses that whilst the executive and finance areas generally support greater visibility and management of their suppliers, some procurement teams and/or long serving individuals (especially where they have operated in silos) are approaching such change as a threat to their controls or perceived power over suppliers and have been very resistant.”
I replied to this note with the following observations and suggestions:
“Your findings certainly mirror the lip-service that is frequently paid to compliance obligations. Obviously the rigor with which review is occurring depends significantly on the jurisdiction and the extent of corporate governance oversight. The other – and increasing – driver is summed up by ‘reputation risk’ – and this is probably more powerful right now in most jurisdictions than any government oversight. As highly publicized cases like Mattel, BP or some of the financial services exposures demonstrate, the speed and extent to which governance failures become evident has been transformed by today’s networked economy. Global information flows mean instant awareness and a growing inability to blame others.
Certainly, such exposure can have a range of negative impacts, both long and short term, such as loss of stock price, loss of customers and potential for litigation or fines. However, as you indicate, management in many companies appears to prefer to turn a blind eye and hope for the best, rather than spend the time and money to develop effective oversight. IACCM recently ran an Ask The Expert call on this subject. While the focus was information security, the conversation applied to pretty much any aspect of compliance – and the case studies confirmed the reluctance of senior management to develop a policy that goes far beyond “Let’s hope for the best”.
So what can be done?
Clearly the work of consultants and software providers can be fundamental in spreading awareness and perhaps having management consider the risks they face by failing to monitor their obligations. As a customer, if I feel it is worth requiring a commitment, it would certainly seem smart to then monitor compliance.
Another approach to this might be to cite significant consequences for non-compliance – and to include as a requirement that the supplier self-certifies on a periodic basis (failure to self-certify being a cause for the specified consequences to come into effect). The advantage of this approach is that it places responsibility and cost at the door of the organization making the commitment.
Otherwise, I am seeing early development of software tools to support compliance monitoring. Aravo (www.aravo.com) is a leading example and IACCM featured their CEO on an interview just before Christmas. Others – for example, from the Legal compliance area – are also developing applications and I have encountered several more (including in Australia and New Zealand.
I think the key to improvement is the need to offer realistic and actionable solutions to management, so they can make a balanced decision on the relative costs of effective versus ineffective oversight. The two methods I mention could bring us to this point, where either suppliers or their customers could estimate the cost of implementing a program versus the risk of not having one. But cost avoidance is never an easy sale and I suspect that we will need more exposés – and perhaps more regulatory involvement – before the majority of companies take action.
In Summary: Think The Opposite?
Technology is a key element in any solution, but it must be an integrated application. There are just so many partial solutions out there and either they represent an integration and maintenance nightmare, or they require groups like Procurement to flop between multiple systems both for data entry and extraction.It seems to me that much of the responsibility for compliance needs to be pushed back onto the supplier and we need to think more creatively about their overall certification of performance and the consequences if a) they cannot certify or b) they are found to falsely certify.
At present, many ‘commitments’ are just empty promises because everyone knows they won’t be monitored and if they are, then either a) fault can be disputed or b) there are no tangible consequences (‘sorry, won’t do it again’).
It seems to me that a requirement for periodic certification compliance with tangible consequences for failures might attract the interest of management at suppliers and change their attitudes. And if those consequences were even more severe if they were found to be untrue, or if they failed to submit the certification, they might actually start to monitor and ‘systems assure’ their performance. The point here is that it might shift the responsibility for checking performance back to the person who made the promise, rather than as it is today – on the recipient of the promise.
Liquidated Damages are a good example. Our research suggests pervasive use, but that collection occurs in a minority of cases. There are many reasons for this – but key is the fact that it is up to the customer to monitor, call out failures and battle for collection. But maybe the onus should be the other way round, with rights of audit on a selective basis and consequences then doubled or trebled for either failure to provide accurate information or for dishonest reporting – in other words, let’s reward honesty and punish dishonesty and evasion.
Continuing my theme of picking up on recent correspondence, I received the following observation from one of my contacts earlier this week:
“As in-house legal counsel and contract professionals, our primary responsibility is to protect the legal interests of the corporation/entity that we represent. It is not to maximize profit, minimize losses, or ensure a healthy balance sheet. We certainly can and should play a role on the business/finance side, but this is secondary to our key function which is to always ask, “how does X, Y or Z impact our legal interests”? We meet our primary responsibility by minimizing and, where possible, avoiding risk. And, when a company is in the business of developing, manufacturing and selling consumer products, risk is all around — from identifying intellectual property issues in developing new technologies, adhering to appropriate manufacturing standards, and meeting consumer expectations based on our advertising and marketing materials.”
Now this is a common perspective, but is it right? And more importantly, does it work in today’s fast-changing business conditions? In my reply, I commented as follows:
“You say “We meet our primary responsibility by minimizing and, where possible, avoiding risk.” To many in the business, this might be seen as a negative statement, suggesting that you are not interested in meeting market requirements. Another way to express the same sentiment could be “We meet our primary responsibility by assisting the business in its ability to accept risk.” The implication of the latter is that Legal / Contracts staff have a key role in ‘business enablement’, by spotting trends, competitive initiatives etc. that may challenge the accepted policies, practices or performance capabilities that are reflected in the contract standards. The question is – does good risk management wait for bad things to happen, or proactively seek to understand and anticipate those bad things and therefore equip to manage them? And to what extent is it our job to explore the outcomes that are generated by the words we write or the policies we protect.”
Perhaps the real point here is that the old model of managing risk through narrow functional perspectives and groups that were committed to maintaining the status-quo was great in an era of low-cost manufacturing (for which the typical organizational model today was designed); but it is useless in servicing a fast-moving economy where the need for flexibility and change to meet market and customer needs is paramount.
Functional specialisms were established to ensure and maintain high levels of quality in a standardized output. They were designed for efficiency and speed in an environment that sought to eliminate ‘deviations’. Today, ‘deviations’ are fast becoming the norm, but they need to be handled in a standardized way to ensure they are planned and capable of fulfilment. That’s why views like those expressed by my correspondent actually increase risk. And that is why at IACCM I have been promoting new organizational models to address the needs of business today.
What do you think?
Today I received this note from a frustrated manager, trying to drive an improvement project in a large corporation.
“Measurement has always been a challenge for contract management to create a management dashboard. In all my previous companies this measurement was not a high priority area as the business case for other areas were stronger. But, I am glad that my current company has made it a high priority area, although they are not very optimistic of the results.
I have taken an approach of using the Quality methodologies to study the presales, sales & marketing, legal, project delivery, project maintenance process and procedures. The study shall give certain meaningful database. Another database shall be created by Risk analysis of the Contracts at Clauses/ Sub-clauses level. These database when read with the Company policies and International standards may give a dashboard that can detect, prevent and predict according to the management’s goals and objectives or Judgments and assumptions.”
“According to me,” he continued, “the biggest hurdle in creation of dependable dashboard has been the Legal team seeing the Contract management process in isolation. They have not succeeded in integrating other process equations which either feed contract management or Contract management feed them. “
This resistance to metrics is at the very least unfortunate – and is a key factor in preventing management seeing real value from the process. Without such data, it is of course viewed as a transactional activity, as good or bad as the last story they heard. And unfortunately, many of those stories are negative. In my response, I commented as follows:I endorse your comments. In part we face the challenge of strong internal parties resisting discipline or change because they feel secure in their traditional ‘professionalism’ and able to protect themselves based on extrernal ‘fear’ issues, like regulation and compliance. That in itself suggests an inadequate understanding of risk management – it seems like a very risky strategy for self-preservation!
I have a range of metrics that I recommend to get things started. At this point, many of these are directed at information gathering so that broader change initiatives can be identified and evaluated. For example, what do we spend most time negotiating? What are the most frequent internal roadblocks on review and approval? What are some of the key deal outcomes and what factors in the bidding and contracting process influence those outcomes (good and bad)? Measures of this type can range from things like levels of discount through to failure to meet commitments or percentage of errors. Many times these ‘outcomes’ track straight back to business policies or offering strategies owned by legal, finance or product management. The complexity (lack of quality) comes out in the contracting process – and by capturing this, we can use the process as a driver for core improvements (‘waste elimination’) around the business more generally.
Measurements – far from being threatening – are in fact a source of fascinating new ideas and approaches through which we can enrich our jobs and raise our strategic value. I wish more of our community shared my excitement!
‘Sourcing Innovation’ has produced a good summary of recent research on future trends in sourcing and supply chain management. The latest article focuses on the challenge of overseeing multiple supply networks – a topic that should interest both buy and sell side professionals.
Drawing from a recent report published jointly by ISM, AT Kearney and CAPS, the article starts with the observation:
In tomorrow’s world, the ability to respond to change will just be the price of admission. Competitive advantage will require agility, while supply chain excellence will be defined by the ability to:
- Anticipate changes in customer requirements, product offerings, supply conditions, regulations, and competitor actions
- Adapt to the changes by deftly reconfiguring existing supply chains or creatively assembling new ones
- Accelerate implementation of change to capture the new opportunities ahead of the competition
These comments are perhaps a longer and more detailed way of expressing IACCM’s recent comments that “in the future, we must become ‘Managers of Uncertainty'”.
The real point, of course, is that change is happening ever-faster and our systems and capabilities must mirror this new reality. And one area where that has dramatic impact is in the contract relationship. Since so much is unpredictable, we can increasingly forget about things like volume commitments or rigid supply forecasts. Clearly , we have to get comfortable with the fact that customers cannot accurately forecast requirements in any sense – they won’t know what they are. Trading relationships will have to be based on an understanding of mutual interest in each other’s success and a commitment to work together in dealing with an uncertain – and fast-changing – world.
But on the other side, if suppliers can no longer expect such firm commitments from their customers, what is reasonable in terms of what customers can expect from them? Clearly (and as recent IACCM case study articles have shown), traditional buyer behavior of shifting risk to the supplier while taking none themselves is not the type of ‘flexible partnership’ that this new world demands. You cannot expect a supplier to invest in ‘anticipating changes’ and ‘deftly reconfiguring’, nor providing the latest innovations, if the core of your relationship is constant – and unilateral – focus on cost reduction and an atmosphere of blame for any shortcoming. If you cannot accurately define your requirements, how can they possibly make firm commitments – except commitments of fidelity, of integrity and honesty.
This ‘new world’ points to the critical need for more collaborative relationship structures and that in turn suggests a focus on outcomes, rather than inputs. While those involved in structuring and negotiating the relationship remain fixated on short-term objectives, that tend to assume dishonesty, it is unlikely that we will see emergence of the capabilities indicated by this article.
Since the bidding, negotiation and contracting phase precedes the relationship, or shapes its governance framework, we will only build these more integrated and collaborative structures by re-thinking our approach and policies in the set-up phase. In addition, if we are truly establishing networks, we must start to look at the interplay between contracted relationships and create models that encourage transparency and cooperation.
Today, such discussions are far too often taking place between groups and individuals who are outside the contracting process; functions such as Legal, Procurement and Contract Management are seen as obstacles to getting the right relationships in place. The words of one executive always ring in my ears at moments like this: “We believe that we can collaborate in spite of the contract.”
While true, is this not an indictment of our work and is it not a threat to our future relevance?
It is time for both buy-side and sell-side to consider the impacts of reports such as Succeeding in a Dynamic World: Supply Management in the Decade Ahead and to work on developing the practices, procedures and policies needed to ensure competitiveness in this emerging business environment.
(See the Sourcing Innovation commentary at http://blog.sourcinginnovation.com/)
It seems that everyone is writing about talent management. Surveys from consultants and academia regulary highlight the dramatic shortages, the threat to business operations, the impacts on innovation. For example, a recent report by McKinsey showed that executives see the battle for talent as the #1 trend in the global economy.
Perhaps they are right. Certainly, I do like the work that McKinsey has done on ‘tacit knowledge’, in which they distinguish those who contribute to ‘efficiency’ (and can largely be automated or outsourced) and those who contribute to ‘effectiveness’ (knowledge workers and integrators who bring added value). This analysis says that tacit workers are growing in volume – and it is the shortage of people with these advanced analytical, communication and coordination skills that lies at the heart of the talent crunch.
These broad, cross-industry findings are reflected in the results of IACCM’s surveys of the commitment management community (contracts, procurement and legal staff). Managers and senior professionals bemoan the shortage of new recruits and the inability to plan for the future.
I agree that there is a talent issue – but I do not think it is a shortage of talented people, I think it is a failure in their deployment.
I observe more and more people wasting more and more time on low-value and highly repetitive activities. Decision making is in tatters. People are running ever faster and often going nowhere. And this issue goes right to the heart of this series of articles. It is symbolic of so many revolutions. Old systems and methods are breaking down. They have not been replaced by any coherent alternative. Some elements of the new world are present, but they are running amok, with no real control (e.g. e-mail, networking, global supply chains etc.). Management is out there following every new approach, yet because it is new, no one really knows what they are doing. Chaos is the result – and it doesn’t really matter how much talent you have, it cannot flourish in such an environment. Indeed, having too much talent in a chaotic environment is probably a bad thing; at least untalented people just sit there and wait; those with talent try to fix things.
There are many examples I can cite to support my conclusions. For example:
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lengthening lead times to get deals negotiated and closed, due to increased reviews and approvals and fear of making commitments.
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inability to compile effective requirements or to define desired outcomes.
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reluctance to automate or outsource traditional work, because of uncertainty over its replacement.
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growing organizational conflict over roles and responsibilities.
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reluctance by professionals to share information and knowledge, to enable the performance of others.
I had a typical conversation on this today, with a very senior manager from one of the major outsourcing providers. He was the latest in a long line who complain that deals frequently fail to meet expectations because those expectations are so unclear. He highlighted how most customers seem unable to define requirements and revert instead to imposing onerous contract terms, as if penalties somehow substitute for meaningful defintions of performance. I pointed out to him that this is not likely to be because customers are in some way holding out on him; it is because they don’t actually know what they want. They can’t reach agreement because the systems and procedures are not there to involve the right people; they are restructuring the enterprise with no plan; and they have no real sense of the characteristics needed for future competitiveness in a global economy.
And that is typical in a revolutionary environment, where uncertainty is the main reality.
But maybe it’s true that the people left in the corporate world aren’t very smart. Perhaps everyone with talent has become an entreprenuer, or retired, or moved to India. Well, we see no evidence of that. In fact, I have been amazed by the commitment shown by IACCM members to raise their knowledge and gain further qualifications. Five years ago, less than 17% of our members had an MBA. Today, that proportion is approaching 40%. Clearly, people in the developed economies are personally commited to raising skills and knowledge – but many feel their organization has no appreciation of this. They seem to be doing it as a defensive measure to remain employable, rather than because their company then makes real use of their enhanced capabilities.
So that leaves many talented employees extremely disillusioned and yes, many do think about moving into less stressful or more persoanlly rewarding roles, perhaps self-employed or in a different business sector.
In the end, there is little question that businesses are operating inefficiently and it must be very frustrating to be a top executive right now. That same McKinsey survey mentioned in the opening paragraph revealed that, while CEOs know that change is needed, well over 50% have no idea who in their organization is responsible for making changes happen! And 72% feel that they must hire from outside to get the right people as their key management team.
None of this is a strong indicator of a talent crisis. But it is a very powerful illustration of a world that is changing so fast that we have the wrong people in the wrong places, we have procedures and policies that inhibit change, we have a control culture in the West (reinforced by an unimaginative regulatory environment) that constrains the very change on which our future prosperity depends. And there are certainly education shortfalls in the developing world that means a potential shortage of talented people with know-how (and therefore a potential crisis for the labor arbitrage model of outsourcing).
So although I have entitled this article ‘Talent’, what I really think we face as a challenge is an issue of leadership – people who will step forward, establish credibility and accept accountability for taking their organizations through these turbulent market conditions. And those leaders will of course establish for themselves and their teams a high-profile, strategic position in their organization. Those leaders will be the ones who make sense of today’s technologies (the source or our revolution) and really understand how to deploy networked capabilities that enahnce both efficiency and effectiveness. Our crisis is one of productivity more than availability of good people.
One final piece of evidence to back up this assertion. When IACCM undertakes benchmarks and talent surveys, we see consistent feedback that individual professionals have a good sense of what they need to do to enhance their skills. We see graduates emerging with talents far beyond those of previous years. And we see a distinct lack of confidence in functional heads; their people simply do not believe that their top management has the vision necessary to navigate them through these fast-changing times. Management does not – in general – understand technology and therefore it tries to do new things in old ways. And that simply does not work.
Commitment Matters 