As we enter 2019, what are the key focus areas for improving contract and commercial management? IACCM gathered data from approximately 750 organizations to discover their plans and priorities.
Number one on the list, being tackled by 61%, is contract management tools and systems. Many have yet to take the plunge on meaningful automation and others are back in the market either to replace or augment existing systems. But the range of tools now being considered is also becoming more diverse, as some organizations look at deploying ‘apps’, ‘bots’ and other enabling devices, such as dynamic playbooks and clause libraries, or more specialist applications, such as machine-based negotiation.
In second place, scoring 59%, is the development of new terms and updated contract standards. This traditional housekeeping task is becoming much more frequent; the speed of change in markets means that some corporations are undertaking review as often as every quarter to ensure competitiveness. Others are recognizing the need to innovate their commercial offerings or to develop new contract templates, for example for cloud services or to support performance-based agreements.
Coming third, at 49%, is contract simplification. There are several potential drivers and the perception of ‘simplification’ can take several forms. For some it is may be about greater standardization. For others it may be increased alignment of contracts with RPA (robotic process automation) initiatives. But for the leaders, it is potentially much more than this; it is about fundamental re-assessment and re-design of the way their contracts are structured and worded. For these organizations, there is recognition that contracts should be designed for users because this reduces risk, cuts cycle times and increases ease of doing business.
Given the changes that these focus areas indicate, it is perhaps not surprising that almost 50% highlight a priority for skills development. Contract and commercial management have tended to be overlooked areas for training investment and senior management is awakening to the issues this creates, both for their dedicated CCM staff and more broadly for those across the business with a need for greater commercial awareness.
Looking down the list, it is interesting to note that 40% are seeing an expansion of their role (reinforcing IACCM’s view that automation is actually increasing the relevance and demand for contracting and commercial skills). For almost a third, this is accompanied by a change in reporting line – though interestingly there is no great consistency in the shift being made (IACCM has issued a more detailed report on this topic).
| CM_Tools | 61.1 |
| New Terms_Contract Standards | 59.0 |
| Contract Simplification | 49.1 |
| Skills Development | 48.5 |
| Contract Analytics | 47.2 |
| Risk Mgmt_Corporate Governance | 44.0 |
| Role Expanded | 40.5 |
| Reporting Line Change | 31.4 |
| Knowledge Mgmt System | 27.1 |
| External Benchmarking_Research | 25.5 |
Overall, the list illustrates the growing focus on raising contract and commercial competence and business contribution. While technology is an enabler of these improvements, there is increasing demand for talented individuals who can lead change and interpret trends and opportunities. This is why topics such as analytics and benchmarking now appear on the list – they were not in the top ten 5 years ago. It also indicates that the role is becoming steadily less transactional and more strategic.
Over coming weeks, IACCM will be releasing more detailed data on the state of contract and commercial management, and continuing its work with members to assist them on this important journey.
An article in a legal journal recently hailed the rise of new specialisms within the legal community, implying that these represented a sign of health for the overall profession. As an example, it cited the emergence of a handful of specialists in the use of e-mojis in contracts or legal judgments. It might equally have pointed to others who are striving to make contracts intelligible through the use of graphics, or perhaps those who push for standards in style. Such individuals are actually at the forefront in trying to address market needs and realities. Although they are often dismissed by their colleagues as odd, quirky, perhaps even viewed as a threat to professional norms, it is these individuals who keep a profession healthy and relevant. They are key to its survival and, arguably, are the ‘true professionals’.
In fields such as medicine or engineering, there is similar churn as new specialisms arise and old methods and beliefs are replaced by fresh knowledge and research findings. It is in fact the mark of a profession that it provides something of unquestionable social value and proves capable of adapting its standards over time to deliver innovation and sustained benefits.
The challenge of ‘professionalism’
The challenge for any profession is that it tends to have a long tail. For every one of its members who is at the forefront of change and innovation, there are typically hundreds who cling to traditional ways and approaches, viewing their professional standing as a mark of personal status and a route to economic gain. It is these individuals, mostly undertaking routine tasks which could be delivered far more efficiently, who try to stand in the way of progress. Sometimes, professional bodies have such power and influence that they resist change successfully for years.
It is natural for people to welcome a sense of belonging and there is definite merit when specialist work activities become better defined and standardized. For this purpose, formal ‘associations’ of workers who perform similar tasks and have shared goals are of tremendous value. The problem is that these groups tend not to like their jobs or personal specialism to disappear, so the associations (which often represent themselves as professional bodies) become confused in their purpose. They shift from developing and maintaining socially beneficial standards, to resisting change. Some prove extremely effective in impeding progress, especially when they have successfully campaigned for their community to be granted special status and some form of monopoly rights to particular activities. Trade Unions are a classic example of organizations created in a different era to drive important changes, but in most cases evolving over time to create ‘closed shops’ that stood in the way of wealth creation and economic advance.
A need for clarity
As a society, this means we need to be clearer about the role and status of ‘professionals’, distinguishing them from people who are ‘specialists’ and those who are simply ‘workers’. Traditionally, this divide has been defined by the extent to which there is required learning to perform the role. The problem with this is that the speed of change often means that historic learning becomes irrelevant, perhaps even dangerous. That is why some professions mandate continuous update and even periodic re-examination to retain credentials. In the case of ‘specialists’, new technologies or advances in methodology have a habit of making them redundant unless they have this commitment to continuous learning.
So what should we take from this? First, that society should not allow any group to hold a monopoly over particular work activities unless it can demonstrate that its members embrace change and are at the forefront in making their specialism more useful, more efficient and more accessible. Second, for individuals, we should learn to welcome change as an opportunity for personal development and self-worth. Continuous learning and discovery are fundamental to the human mind. Our professions and associations must be a key source of such learning and discovery, as well as satisfying our need for belonging.
+
Tomorrow, January 30th, is an important date in my personal calendar. It is the 370th anniversary of the execution of King Charles I of Great Britain, who fell victim to a fundamental disagreement over scope and obligation management. Many would argue that he also suffered from a lack of negotiation skills. Unfortunately for him, neither he nor his followers were members of IACCM and the records suggest that in any case he would have ignored advice. Ultimately, he paid a heavy price for his failures at dispute management.
What should he have done differently?
The 17th century was a turbulent era, with levels of social discord growing as the economy shifted from largely agrarian to early industrial. Traditional relationships and loyalties became fractured as values altered and new skills came to the fore. As trade expanded, wealth increasingly moved from the land to the merchant classes.
Charles saw it as his duty to maintain many vestiges of the past and was influenced by his belief in the divine right (and duties) of kingship. These led to core concepts around the preservation of power, protection of assets and resistance to change – concepts that resonate with much that is happening today. New forces, driven to a large extent by economic and social interests but dressed up as religious belief, increasingly challenged the scope of a king’s role and the established order. Those forces were often unclear and divided over what they wanted to achieve, but were united by opposition to Charles’ view of his rights and obligations. Eventually, the country split, descending into civil war. Charles chose not to negotiate, essentially stifling efforts to achieve peaceful change. Instead, he insisted on compliance – and lost.
The contract between king and people may not have been in written form, but it existed none the less. Those in positions of power, whether as governments or as large corporations, ignore the fundamental principles of good and fair contracting at their peril. To maintain position and status, there needs to be an underlying consensus over a common purpose and roles and responsibilities in its performance. There need to be effective mechanisms for review and change, with a readiness to make adjustments for altered conditions. King Charles failed to grasp these fundamental elements of contracting and in consequence became seen as a tyrant. His experience provides a critical lesson for those who are charged with developing, negotiating and managing key stakeholder relationships – and even more for the leaders who wish to flourish and survive.
How effective can public procurement be in achieving social and political goals?
The leadership of the Australian Labour Party is just the latest in a long line of politicians promising a boost to the national and local economy through imposing requirements for the use of local firms and workers when awarding public contracts. It’s a policy that grabs headlines and is in many ways laudable, but is it realistic?
First, there is the challenge of the international trade rules that apply to public procurement and seek to prevent anti-competitive selection criteria. Whether or not one feels that the current rules are appropriate to the modern economy (and in general I don’t believe they are), it is pointless to deny their existence. Indeed, the Labour Party announcement acknowledges this when it says that “public service departments would still be required to prioritise value for money in major government contracts”. In practice, this always tends to mean ‘the lowest price’, since public procurement officers seem to struggle with finding an objective measure of ‘value’ that would avoid competitive challenge.
Understanding the numbers
Second, there is the issue of capability. It would certainly be nice to find small and medium enterprises and pockets of highly skilled local labour both available and with the capacity to fulfil major government contracts. But this is a real chicken and egg situation and in general those capabilities simply don’t exist. Where they are present, we run into the third problem, which is the unattractive nature of much government business. The time, cost and complexity associated with bidding and performing on public sector business is daunting. In general, small and medium enterprises simply find it impractical to engage. The United States has superficially been one of the most successful countries in driving SMB activity and social inclusion through public procurement policies, yet research shows this is often misleading. For example, many small businesses are owned by former government employees who know their way around the system and have inside connections. Many of the larger awards are fronted by a small local business, yet actually performed by a major enterprise as a sub-contractor. Too often, the numbers may look great, but the reality is very different.
A waste of time?
This does not necessarily mean that political efforts to drive policy initiatives through public procurement are a waste of time. Indeed, the need for innovation in service delivery means that public procurement has a key role in identifying suppliers and solutions that can deliver social benefit. Encouraging local enterprise, growth and employment are important and laudable goals, but they require a level of analysis and understanding that is typically missing from politically-inspired initiatives. If the Australian Labour Party – and indeed Governments more generally – are serious about expanding the mission of public procurement, they must recognise the need for fundamental reform of the role and its underlying policies and practices.
Contracts ‘set the tone for the relationship’, especially in more strategically important interactions. The design of the contract, the way it is worded and negotiated, all have a psychological impact on the parties, influencing the way they perceive the counter-party and subsequently behave.
The research is available
For at least 30 years, academic research has indicated the importance of the contract to subsequent performance. IACCM’s studies, especially those related to ‘The Ten Pitfalls’, have confirmed both the elements and the impacts of poor contracting. In one study, ‘Using Psychological Theories to Shape Partner Relationships through Contracting’, the authors observed: “if a firm can develop specific competencies in the contractual process, particularly in the more complex end of the contract spectrum, then it is possible for it to create a competitive advantage based on these contracting capabilities. This idea is akin to that of alliance capabilities, in which some firms develop competencies in creating and managing alliances that other firms cannot imitate (Kale, Dyer & Singh, 2002). One way for firms to develop a contracting capability is to first identify what type of relationship it desires with the partner, whether arms-length or a trust-based relationship, and then use psychological theories to guide the framing that it uses in the contract. Although this process seems straight-forward and therefore imitable, it is, in fact, difficult to determine the type of relationship that is most appropriate and the best approach to accomplish this end”.
I have highlighted the sentence regarding the type of relationship because it is remarkable how frequently businesses fail to give this adequate consideration. Indeed, a mentality that is based around standard templates and compliance almost inevitably results in a failure to address – or even care about – the psychological impact of the contract. Far too often, behaviors are driven by narrow views of efficiency and risk, rather than the economic or business outcome to be achieved.
Getting things wrong
IACCM’s work regularly confirms the pervasive nature of this issue. For almost 20 years, the annual study of ‘The Most Negotiated Terms’ has indicated the divide between the terms that are most important versus those that receive greatest attention. This in turn explains why many in Sales or within business units consider contracts to be negative or even destructive in the formation of relationships. One result of this is that the type of relationship – and the appropriate contractual framework – is often ignored. Indeed, a common complaint by contracts and legal staff is that they are involved too late, meaning that often they have little or no influence over the contractual framing.
In many cases, technology makes this situation even worse. ERP and P2P Systems in particular typically relegate the contract to a point of little significance, imposing a cookie-cutter standard, almost regardless of its applicability or suitability.
Avoidable costs
All this sums up to the fact that most organizations fail to build robust contracting capability. This results in a whole host of avoidable costs – not only is it intrinsically inefficient, but it generates extensive downstream operational costs, as well as lost revenues, missed opportunities for innovation and damaged reputation.
Unfortunately, the pervasiveness of these failings makes it hard for enlightened organizations to break the mould. Even those who wish to develop sound, productive relationships typically find themselves frustrated by the contracting practices of their counter-parties. This goes a long way towards explaining why the stories of highly successful contracts are so rare and why they are then so hard to replicate.
Achieving change
Although the evidence is compelling, achieving change is not easy. One major factor is education. The facts about contracts and their economic impact are simply not taught. Hence a multitude of stakeholders emerge with little or no understanding of the way that contracts frame their business relationships and as a result, few organizations make the investments needed to build a true contracting capability. Things are improving and new technologies will accelerate the change, but it remains frustratingly slow and sadly is often perpetuated by people who really should know better.
It’s time for all those who care about business results to start shouting the message. If you want successful relationships, contracts matter!
Are you feeling uncertain? Do you watch the chaos of politics, the tensions over world trade, and wonder where we are headed?
The volatility of today’s business and economic conditions is no accident and it isn’t temporary. We are undergoing a period of transformational change, a transition into a new era. Just like the evolution from the agrarian to the industrial world, there is no sudden shift – there is an extended period of large-scale, often unexpected, social disruption.
So what does it mean?
Supply relationships are especially vulnerable at a time like this, with the capabilities of both individuals and organizations facing challenges. This year will bring rapid acceleration of trends that are already underway. Among the most important characteristics of business relationships will be:
- Greater pressure for committed performance, outcomes – buying results
- More flexible, agile, adaptive processes and relationships that focus on value
- Competing on quality and reliability at low cost
The implications are that there will be a greater need to anticipate change, monitor markets, analyze results, proactively improve performance. Contracts will increasingly be designed to avoid problems, which means their terms will include far more focus on active management and their design will assist user understanding. The emphasis for contract and commercial teams will shift to value delivery through reducing operational cost and reducing risk likelihood. The contracts portfolio becomes an invaluable source of management information, key to driving business decisions. Competitive analysis will include focus on benchmarking terms and conditions and comparing commercial policies and practices.
You aren’t alone
At IACCM, with insight to thousands of corporations and public sector agencies, we have the ability to observe trends at their inception. It drives our change agenda, our strategies for member services. Next week we meet with executives from a range of leading organizations to review and sign off the strategy for 2019 – and already we are working with many member corporations and governments, providing input to their change agenda.
It’s big. It’s exciting. It’s important. Are you ready?
As the world’s only non-profit Association for Contract and Commercial management, IACCM leads the way with research and advisory services for its members, who represent more than 17,000 organizations in over 170 countries. Discover more at www.iaccm.com
In 2018, the International Association for Contract & Commercial Management grew by more than 25%. Growth came from multiple sources – so what are the factors that have resulted in a total membership now exceeding 53,000?
Trade is at the heart of what we do
In simple terms, there are four forces driving the evolution of trading relationships and forcing increased focus on contracting and commercial capabilities.
The most significant is the continued disruption caused by the evolution to a global networked economy. Not only has this destroyed many traditional trading patterns, but it is creating dynamic and unpredictable market and geopolitical conditions, including the rapid formation and dissolution of complex supply networks.
At the same time, society and business are increasingly focused on the quality of outputs and outcomes, as we move from a world of traditional products to one of customer experience, services and solutions.
There is also continued growth of regulation and associated levels of transparency and accountability. In all cases, organizations have recognized they need to make better decisions in selecting their trading partners and they need to improve the oversight and segmentation of those relationships. Commercial judgment and contracting competence are fundamental to financial returns, business controls and management visibility.
Finally, the digital revolution is having an impact on all businesses. For example, the growth of connected devices through the Internet of Things (IOT) is forcing businesses to rethink how they are structured and organized, and the growth of social media is challenging the way businesses deliver to customers and how they interface with, and work with, their supply chains.
Consequences
Commercial and contract disciplines are shifting towards a greater balance between their legal and compliance focus and their contribution to economic value and financial returns. This need – and the solution – is embodied in the increased volume of Capability Maturity Benchmarks that IACCM has undertaken for its corporate members, supporting process and system updates and improvements.
This fast-changing environment is stretching the skills of existing practitioners, many of whom lack the access or the influencing skills to make effective representations to management about the needs or impact of change. In some organizations, a new breed of commercial executives is emerging, often drawn from other business disciplines. Many are flourishing because of the training they receive from IACCM learning programs and continuing professional development.
As for 2019, it promises to be an even more exciting year … about which I will write more soon.
If your job involves writing, negotiating or managing contracts, should you be worried about automation?
IACCM set out to answer that question by first analyzing the major tasks associated with contract management, then exploring how new technologies are starting to impact them. The conclusions – shared in a new thought-leadership paper – are that there will be fundamental changes to today’s procedures and extensive opportunities for new sources of value-add. That means significant change to the nature of the role and the skills needed for its performance.
One of the most significant points to come from the research is the extent to which so much legal and contract work is highly repetitive, yet practitioners delude themselves into thinking each situation is unique and requires human judgment. Substantial workload is generated by things like inconsistent terminology or personal preferences that determine contract structure. Machines quickly spot similarities that are invisible to the human eye. Modern systems are also more objective and are happy to work 24 hours a day, undertaking tasks such as performance monitoring and automated payments.
In a webinar last week, I co-presented on this topic with IACCM CEO Sally Hughes. Many found it helpful, giving them greater understanding of both the speed and nature of the changes automation is bringing. Some, however, remain in denial. One webinar attendee made the comment “There was too much about technology”.
The webinar and the research paper are both available on the IACCM website.
As we enter a new year, it is a time when many people wonder about their future. The holiday period causes many to reflect on whether they are doing the right thing, in the right place, with the right people.
So for those who are already working in Contract and Commercial Management, or those interested in entering this field, it is a good moment to consider not only what this role looks like today, but also how it will develop this year and beyond.
To assist your thoughts (and personal development plans), IACCM has published a new fifteen page guide “Contract & Commercial Management: Role & Direction”. It draws from IACCM’s extensive research and insights from its 52,000 members, who represent more than 17,000 different organizations around the world.
As the guide explains, there is no question that these roles face a time of major change – a characteristic in common with many other job roles. But with change also comes opportunity – especially for those who are willing and ready to adapt. Many IACCM members are already progressing on the path to a higher value, more influential role, having invested in IACCM training and certification programs. From the number registering over the last few days, it is clear that many more have commited to a New Year resolution to raise their skills and profile!
The guide sets out a useful table, showing the typical tasks that are performed by contracts and commercial staff today and describing how those will change and be enhanced by new technologies. Overall, it describes an environment that will for many be challenging, but which offers exciting prospects for the future.
“Contract & Commercial Management: Role & Direction” is available to IACCM members and can be downloaded from the website.
Commitment Matters 