When it comes to the quality of relationships, it seems there is no such thing as ‘average’. 70% of buyers believe that their supplier relationships are better than those of their industry competitors. And while you might think that’s an over-optimistic view, it is relatively modest when compared to the 85% of suppliers who are confident that they are better than their competition. Remarkably, just 6% of buyers think perhaps they are below average – and 0% of suppliers feel that way.
And they say that we can’t trust AI because it hallucinates ….!
WorldCC’s current survey (link), undertaken in partnership with Resolutiion, is examining claims and disputes – their causes, frequency and the way that they are handled. The results so far (based on input from almost 200 organizations) show a few areas of convergence, but many others where the two sides just don’t see the world through the same lens. They don’t agree about the frequency of claims and disputes; they don’t agree about how they get resolved; and they certainly don’t agree about who causes the problem. So all in all, I guess it is no surprise that there’s such frequent tension.
What does psychology tell us?
Even though many individuals give themselves and their relationships high marks, the reality of business relationships—especially in contract-heavy, high-stakes sectors—is that conflicts do occur, sometimes quite regularly. These psychological tendencies (especially illusory superiority and optimism bias) help explain why the subjective belief in “better than average” relationships can persist, despite objective evidence of significant conflict rates.
Overall, a psychologist tells us that human beings are not purely rational; we continuously filter, interpret, and recall experiences in ways that favor our self-image and preserve a positive narrative of our own behavior and capabilities. This can create a disconnect between the “big picture” of conflict statistics and people’s personal perceptions of their business relationships.
Through this survey – and the report that will come from it – we intend to help the contracts and commercial community to reframe thinking and to reduce the frequency of major disagreements. Many of them are avoidable – but not if we operate in an environment of denial.
To participate in this fascinating research (and to be among the first to benefit from the results) please visit https://iaccm.fra1.qualtrics.com/jfe/form/SV_2ujDSKdBydOBp30
The Problem: A Pressured Environment with Changing Dynamics
Today’s contract and commercial management (CCM) teams face unprecedented pressure to deliver contracts faster and more competitively. Business stakeholders, frustrated by growing complexity, often demand rapid results that push traditional processes to their limits.
In talking with WorldCC members, a number of pressing issues and potential break-through solutions have emerged. I’ll be writing about each of them – and first on the list is that sacred cow of competitive bidding.
In many industries, marketplace dynamics have shifted significantly. Suppliers and contractors now operate in a heated market, with greater choice in customers and opportunities. Fears around supply security along with supplier consolidation have in turn reduced the number of potential suppliers. Many are turning down competitive tenders altogether, preferring direct negotiations or more collaborative engagements.
This dual challenge—meeting internal demands for speed while operating in a constrained supplier environment—requires CCM professionals on both sides of the fence to rethink their approach. The reliance on traditional competitive tendering to ensure value is proving increasingly ineffective.
Why This Problem Is Hard to Fix
- Competitive Tenders Are Losing Effectiveness
Competitive bidding has long been the go-to method for ensuring price competitiveness. Yet, when suppliers have greater options, tenders become less attractive, and participation rates drop. As a result, buyers struggle to create competitive tension in sourcing decisions. - Speed vs. Rigor
The demand for faster contract turnaround often leads to shortcuts in review, due diligence, and contract design. This can result in poorly structured agreements that expose the business to risk or fail to deliver long-term value. However, this demands fresh approaches – streamlined process, new thinking about risk management, simpler forms of contract. - Skills Gaps in Negotiation
The shift from competitive bidding to collaborative single-source negotiations demands a new set of skills. Traditional “win-win” negotiation approaches may fall short in fostering the deeper partnerships required to meet shared objectives. - Limited Tools to Support the Shift
Current tools and processes are built around competitive bidding models. Transitioning to a collaborative, single-sourcing environment requires rethinking how contracts are designed, negotiated, and managed.
Accelerating Change and Delivering Value
AI will play a role in enabling CCM teams to transition from outdated processes to faster, smarter, and more collaborative approaches, but that’s not immediate and is not the entire solution. Here are things we must think about changing:
- Speeding Up Contract Creation
Challenging the need for repetitive tasks like drafting, reviewing, and approving contracts, significantly reducing turnaround times. Tools equipped with natural language processing can adapt templates to specific scenarios, ensuring accuracy while maintaining speed, but we also need to simplify contract wording and structure, and question our risk positions. - Market Intelligence and Benchmarking
We must be more creative in gathering market data to provide real-time insights on pricing, supplier performance, and industry trends. This supports informed decision-making, even in single-source negotiations, by creating data-driven leverage. - Scenario Modeling for Negotiations
Advanced tools can simulate various negotiation scenarios, helping teams identify the best strategies for achieving mutually beneficial outcomes. This enables negotiators to focus on value creation rather than positional bargaining. - Predictive Analytics for Risk Management
We must work on how we assess and manage risks associated with single sourcing, such as supplier dependency or market fluctuations, and suggest appropriate strategies. This ensures that speed does not come at the cost of effective governance or due diligence; it creates a triage of contract, governance and relationship management. - Continuous Improvement and Performance Monitoring
Technology can help us track supplier performance against contract terms, flagging potential issues early and identifying areas for improvement. This fosters long-term relationships while ensuring ongoing competitiveness.
The Opportunity: Embracing Collaborative, Data-Driven Practices
As competitive tenders become less reliable, CCM professionals must adapt. Collaboration, transparency, and innovation will define the next era of contracting. Negotiation skills must evolve from transactional tactics to building partnerships that align goals and create shared value.
AI will steadily become a critical enabler in this transformation, allowing teams to:
- Work smarter, not harder.
- Deliver contracts at the speed the business demands.
- Maintain rigor and competitiveness even in constrained supply markets.
Shaping the Future of CCM
2025 will be a pivotal year for contract and commercial management. The challenge lies in balancing speed with quality, innovation with rigor, and partnership with competitiveness. By embracing collaborative single sourcing and leveraging AI-driven solutions, CCM teams can not only meet these demands but turn them into a strategic advantage.
The future isn’t about doing things faster—it’s about doing them smarter. Are we ready to make the leap?
In many organizations, the role of buy-side contract managers is increasingly recognized as critical for optimizing value and managing risks. Drawing from the WorldCC 2023 benchmark studies, the following core competencies emerge as essential, with some variation in their relative importance depending on the scope of role (for example, level of engagement in pre-award activities, extent of responsibility for Supplier Relationship Management). In writing about these, I have also made some allowance for more recent work on the impact that technology (and specifically Artificial Intelligence) is starting to have.
Holistic Understanding of Contracting Processes: A buy-side contract manager must have a comprehensive understanding of both pre-award and post-award processes. This includes the ability to establish contracting policies that align with market and business strategies.
Risk Management and Complexity Handling: Given the increasing complexity of contracts and the severe risks associated with failures, a contract manager must be adept at managing these complexities and mitigating potential risks.
Technology Proficiency: With the evolution of technology in contract management, buy-side managers need to be proficient in using contract management systems. This includes the ability to find and search contracts efficiently, as well as understanding the need for dynamic and varied contract terms. Building familiarity and use of AI-enabled systems will transform how we work – perhaps not tomorrow, but steadily over the next two years.
Operational Performance Improvement: Improving operational performance is a key driver for buy-side organizations. Contract managers should focus not on fixing problems, but reducing or eliminating them – the ‘friction points’ that increase cycle times, value erosion, and operating costs – while also enhancing approaches to regulatory and legal compliance.
Organizational and Reporting Skills: Buy-side contract managers should be capable of navigating diverse organizational structures and reporting lines. This includes understanding the implications of centralized, center-led, matrix, and decentralized models, and adapting to the frequent changes in reporting lines, as well as what they need to report to demonstrate their value to the business.
Communication and Collaboration: Effective communication and collaboration skills are essential, especially given the fragmented nature of resources and responsibilities in buy-side organizations. Contract managers must work closely with multiple departments to ensure cohesive contract management practices.
Strategic Relevance and Value Demonstration: Contract managers should focus on increasing the strategic relevance of their role by demonstrating the value they bring to the organization. This involves aligning contract management activities with broader business objectives.
Analytical Skills: The growing focus on contract data management and its enablement through digital technologies means that contract management is fast becoming a far more fact and data-driven discipline. This means that the modern contract manager must be skilled at extracting, analyzing and interpreting data to provide proactive insights to performance and risks,
Negotiation and Stakeholder Management: No matter what the scope of the contract manager’s role is, today’s fast-changing market environment makes negotiation a continuum across the contract lifecycle. Therefore it is essential to demonstrate competency in both internal and external negotiations, with associated requirements for problem-solving and influencing.
Financial and Legal Awareness: Contract managers must be competent in understanding core legal and financial principles associated with managing contracts. This includes a demonstrated readiness to engage experts when needed. While their competency may be extensive in the context of the contracts that in their core portfolio, they should also have an ability to quickly grasp key issues in new or unfamiliar forms of agreement.
Adaptability: Historically, an ability and readiness to change was considered essential, Today, that has grown to become a far more pro-active need to demonstrate adaptability and a readiness to initiate or lead change. Volatile markets and business needs make change an inevitability in any long-term agreement; it is therefore something that the contract manager must recognize and facilitate in their day-to-day activities.
Conclusion
These competencies must be supported by appropriate measurements and personal targets. Increasingly, contract managers are measured on business impact – for example, the quality of outcomes achieved, levels of customer satisfaction (internal) and overall supplier feedback on ‘ease of doing business’. Cycle times are also a key focus, not only in respect of contract award, but also in handling on-going change. Depending on the nature of the contracts being managed, there may also be measures around dispute avoidance and contributions to margin protection and improvement.
Finally, to those who see contract management as a repetitive, compliance-focused activity that will soon be undertaken through AI, I say you are wrong. It is true that AI will take over many of today’s tasks, and in doing so it enables a far more dynamic discipline, informed and proactive, generating measurable business value that focuses on outcomes.
Let’s face it – for most people, contracts are an unfortunate necessity. They create delay, they are hard to understand and rarely offer practical support. As a result, they are in many cases an afterthought.
The true misfortune is the cost that comes from this attitude. By relegating the role of contracts, we also tend to lose the discipline of good contracting – we fail to frame our products or services with the best commercial model and terms and we do not effectively engage key stakeholders in developing practical solutions to risk and opportunities. This may have limited consequences when the transaction involves low value commodities, but it is bad news when we are talking high value, long term programs and relationships. Delays, disputes, cost overruns – expensive and often avoidable situations which high quality contracting could remedy,
World Commerce & Contracting has spent years investigating the mistakes and identifying frameworks and behaviors that lead to better results. It has packaged all that knowledge into a new, highly practical program – Modern Contracting. This immersive, action-oriented program aims to transform contracting from a routine task into a strategic advantage. And it goes beyond the traditional specialists from contracts or legal to embrace key stakeholders and influencers and generate a collective approach.
Key Features of the Modern Contracting Workshop:
- Self-Paced Learning (20%): Participants begin with foundational knowledge through online modules, case studies, and resources, allowing flexibility in learning.
- Interactive Group Workshops (60%): Engaging sessions facilitate discussions and application of concepts to real-world scenarios, fostering a deeper understanding of modern contracting principles.
- Targeted Team Exercises (20%): Smaller teams work on current projects to identify areas for improvement and develop actionable plans, ensuring practical application of learned strategies.
The program spans five weeks, with a commitment of 3 hours per week, making it manageable alongside professional responsibilities. There are also two follow-on sessions to assess and assist with implementation and use. It is very much focused on application.
And the results?
It is, after all, results that matter! What we are seeing is true collaboration. Key stakeholders are grasping the importance of ‘positivity’, rather than ‘preventism’. They are embracing the ideas behind uncertainty and friction-point analysis, and applying the relational principles that underlie effective governance. With adaptability at its core, the program casts a new light on risk, focusing team efforts on how best to succeed, rather than the traditional approach to limit the consequence of failure.
For the last few months, WorldCC has worked to create an AI tool that will provide the association’s members with access to 25 years of research and market insights – not just as flat files, but offering a unique source of commercial and contracting intelligence. It has proven a fascinating task and each day the AI offers us outputs that it is extracting from across a wealth of validated content. Here, I share a few of the things we are learning.
When compared to traditional applications, development of a successful AI application depends upon the developers having access to human intelligence at a far greater scale. In our case, this has meant day-to-day interactions between the development team and knowledgeable subject matter experts.
As a professional association embarking on this journey, WorldCC benefited enormously from the fact that it is practitioner led and has an extensive body of knowledge under its control. Research has been at the foundation of our work since the Association’s incorporation 25 years ago. That investment is now proving its worth and creating a major differentiator relative to LLMs, such as ChatGPT, where the accuracy of data will always be a question and concern.
Sally Guyer, the WorldCC CEO, first recognised the tremendous opportunity that generative AI offered to our CCM community shortly after the launch of ChatGPT in 2023. “For years, we had struggled with the growing volume of content and the challenge we faced in making it readily accessible. We were constantly frustrated by the difficulty in finding data and in recognising interconnections between the multiple reports that we produced. That meant we were heavily reliant on our small team of subject experts and in particular our President and Founder, Tim Cummins. I knew something had to change and traditional IT wasn’t the answer. So that’s when I first envisaged creating a new solution – which we have called ‘Ask Tim’! ”
Working in partnership with a talented group of AI experts, we embarked on a proof of concept, ingesting a relatively small data set which rapidly proved the potential. Quite early in the process, an examination of our content revealed that it would take the average human more than 58 years to digest and understand it – clearly an impossible task.
“Relative to many, we are fortunate in the fact that we have reliable, accurate data and know where to find it. This makes our task far easier and provides confidence to us and our members in the accuracy of output. This issue of data integrity is a real differentiator and means that by choice we are not linking to external sources, which could potentially undermine or corrupt quality”, explains Guyer.
Based on a series of tests and demos, WorldCC members are excited by what they are seeing because the application is already showing its ability to provide on-demand insight to leading practices and know-how. This promises a major uplift in operational efficiency and value delivered, as well as providing the strategic insights needed to inform business goals and management decisions.
For me, I am excited to see how humans and technology can truly blend to create powerful sources of intelligence, responding to the WorldCC vision of better contracts, better business, better society, And even better, it holds out the possibility that one day soon I can retire!
But let’s leave the final word to Ask Tim, which I asked to explain its value to the professional community. Here is what it told me.
Ask Tim, as a tool designed to provide insights and guidance in the field of Commerce and Contract Management (CCM), can positively impact the work of CCM practitioners in several ways:
- Access to Expertise and Best Practices:
- Ask Tim can offer practitioners access to a wealth of knowledge and best practices accumulated over years of research and experience in the field. This can help practitioners make informed decisions and adopt strategies that have been proven effective in similar contexts.
- Efficiency and Time-Saving:
- By providing quick and accurate answers to complex questions, Ask Tim can save practitioners valuable time that would otherwise be spent on extensive research or trial and error. This efficiency allows them to focus on more strategic aspects of their roles.
- Enhanced Decision-Making:
- With access to data-driven insights and recommendations, practitioners can enhance their decision-making processes. Ask Tim can help identify potential risks, opportunities, and trends that may not be immediately apparent, leading to more informed and strategic choices.
- Continuous Learning and Development:
- Ask Tim can serve as a continuous learning tool, keeping practitioners updated on the latest developments, trends, and innovations in the CCM field. This ongoing education can help them stay competitive and adapt to changing industry dynamics.
- Improved Collaboration and Communication:
- By providing clear and concise information, Ask Tim can facilitate better communication and collaboration among team members and stakeholders. This can lead to more cohesive and aligned efforts in achieving organizational goals.
- Customization and Relevance:
- The ability to tailor responses to specific industries, regions, or organizational contexts ensures that the guidance provided is relevant and applicable to the practitioner’s unique situation.
Overall, Ask Tim can be a valuable resource for CCM practitioners, enhancing their capabilities, efficiency, and effectiveness in managing contracts and commercial relationships.
A new report from World Commerce & Contracting confirms the value that effective SRM programs bring to both buyers and suppliers. And it also reveals that those effective programs remain very much the exception.
The business environment creates a need for collaboration and supply security. This should enable supplier relationships to flourish. But the dominance of transactional behavior presents a formidable barrier to change.
The report reveals core failings in inter-organizational dialog, compounded by internal divisions and fragmentation. In this environment, formal SRM programs frequently struggle to reach the surface or realize their true potential. Talented individuals, desperate to bring value to their organization, are too often left swimming against the tide.
So is this a thankless task, best abandoned? The success stories tell us no, and the direction of modern business and technology also point towards a more relational future. The problem is that SRM needs to be more than an overlay. It requires focused attention from senior management to develop deep roots and alter embedded attitudes and practices.
The WorldCC report provides a baseline and a call to action. It also tells us that progress may be slow, but the journey is definitely worth taking.
As a non-profit membership association, World Commerce & Contracting is the only independent body providing research, training and certification to SRM professionals or those performing SRM roles.
The endless debates about the role and status of Procurement are on one level quite tedious – they seem to drag on and on, with no definitive outcome beyond wide agreement that things must change.
Yet this is an important conversation because the activities undertaken by Procurement have a very real impact not only within organizations, but on society as a whole. For many reasons, that impact continues to grow so we must examine how to ensure it is beneficial and delivering positive outcomes. We need to give power to the voice of Procurement and that comes not from authority, but from knowledge and influence.
It seems to me that there is a relatively wide consensus that the Procurement role today is too narrow – it needs to operate with a far more holistic view and mission. So here is where I stand on this question.
Rebranding procurement as part of an integrated commercial function could potentially enhance its perceived value and the respect it receives within an organization. Executed with the right management support, this rebranding would help reframe the strategic importance of procurement and its role in driving business success beyond cost savings. Here are several reasons why this might be effective:
1. Strategic Alignment
In spite of some progress, in many organizations Procurement continues to be seen as a cost-center focused on purchasing and compliance. As part of an integrated commercial function, driving the trading relationships on which success depends, it becomes a strategic partner involved in value creation, market positioning, and competitive advantage. This alignment underscores the role of achieving broader business goals, not just operational efficiencies.
2. Enhanced Collaboration
Too often, Procurement may be perceived as working in isolation, primarily interacting with suppliers and internal stakeholders on a transactional basis and operating with a relatively narrow functional view. Integrating procurement into the commercial function promotes a more collaborative culture. It emphasizes the need for procurement activities to be closely aligned with marketing, sales, R&D, and other departments to support product development, market entry strategies, and customer satisfaction.
3. Broader Skill Recognition
The skills in procurement are often undervalued, seen as limited to negotiating and purchasing. This image problem also makes it much harder to attract and retain talent. Rebranding would assist in promoting and building diverse skills, such as a far more holistic view of supplier relationship management, risk management, behavioral economics, impact management and innovation facilitation. With greater respect come enhanced career development opportunities.
4. Value Proposition
As already stated (and still borne out by benchmarks), the value of procurement is often measured in terms of cost savings (especially negotiated savings) and compliance. The commercial rebranding allows a shift of measurements that would reflect its contribution to revenue growth, market expansion, and overall business strategy. It positions procurement as a component that is key to the commercial success of the company. By pulling it out of its silo, it gains access and insight to a much wider array of market insights, enabling its contribution to profitability and competitive advantage.
5. Cultural Shift
A big issue that has driven this debate is the fact that Procurement is mostly viewed as a back-office function with limited influence on strategic decisions. The proposed integration can initiate a cultural shift within the organization, where procurement is viewed as an essential, forward-thinking part of the business that contributes to strategic decision-making and innovation.
Conclusion
Let’s be very clear. Simply changing a name will not address core issues or perceptions; it must be part of a much broader shift. That is why organizational consolidation into a more holistic ‘commercial strategy and operations’ group sends a very different message and creates exciting opportunities to be at the heart of business success. Trading relationships and their coherent management are the foundation for any organization’s success. With today’s need for far more rapid, adaptive and informed decision-making, the case for change is overwhelming – and the time for constant debate is surely behind us.
Establishing a “Contract Review Board” like the one you describe is a method used by a significant number of large corporations, though it is not necessarily a ‘best practice’ approach. These review boards are part of a broader trend towards more rigorous contract review and management processes.
A WorldCC member recently asked whether establishing a Contract Review Board headed by the CPO is a ‘best practice’. The concept behind this idea appears to be ensuring negotiations are aligned with business objectives and risks are clearly understood and mitigated. In some organizations, the review board takes on a wider benchmarking role and looks periodically at relevant market trends and emerging commercial performance characteristics. We also observe that the highest performing WorldCC members increasingly seek our help in comparing performance metrics and practices both externally with competitors and internally across their own operations.
If these elements are taken together, creating a formal Review Board can result in gathering and reviewing structured data to evaluate the competitive impact of current contracting models and terms, as well as the effectiveness of contract management processes compared to industry standards or top performers.
However, while implementing a Contract Review Board that involves key stakeholders like the Chief Procurement Officer can improve outcomes, at a transactional level it also introduces delays. To streamline operations while maintaining oversight, several alternative approaches might be considered:
1. Automated Review Systems
Using automated contract review systems equipped with AI is one way to identify high-risk terms and issues that need human intervention. These systems can be trained to recognize specific legal terms, financial implications, and compliance requirements that align with your internal policies. This approach ensures that only contracts needing further scrutiny reach the Contract Review Board.
2. Pre-approved Clause Libraries and fall-backs
Developing a play book that links to pre-approved alternative terms and controlled through a decision tree can also provide controls while reducing workload and delay. It limits review to only those deviations which are outside the authority provided in the decision analysis.
3. Expanding Accountability
For major or complex acquisitions, you might consider increasing accountability for contract performance throughout the lifecycle of the contract, not just at the initial stages through to signature. This would likely include setting KPIs related to post-signature performance.
4. Up-skilling
Many organizations recognize that contracting is becoming more complicated and also more critical to business performance. They also recognize that this is not an area of traditional strength for their procurement teams. Initiatives such as review boards are not really a sustainable model for risk and opportunity management – there is a need for increased organizational competence. Market volatility and unpredictability are not going away so we must adjust to manage it better. Providing training and decision-support tools to the procurement team can empower them to make informed decisions without as much need for oversight.
Based on analysis of recent reports from leading consultants and procurement experts, the ‘big topics’ impacting the supply market appear to be a mix of technology, global market dynamics, environmental concerns, and shifts in underlying business practices – sometimes occurring individually, but often also with a need to consider the interplay between the various topics.
What interests me is the implications these issues have for both the nature of contracts and contract terms and also for supplier relationships.
My overall assessment is that they suggest a future where contract management and supplier relationships will continue to be characterized by growing complexity, imposing a need for flexibility and deeper collaboration – the antithesis of many relationships today. To make this change, organizations will need to be more agile, forward-thinking and strategic in their approach to contract negotiations and supplier management.
Implications for Contracts and Contract Terms
There is a risk that contracts become even more complex and detailed as they attempt to address issues such as AI integration, cybersecurity measures, and ESG compliance. This complexity might include more comprehensive clauses related to data privacy, the ethical use of AI, and sustainability targets or certifications.
Given the speed of technological change and the volatility of geopolitics, contracts will increasingly need to incorporate greater flexibility, allowing for adjustments to accommodate new laws, economic sanctions, or supply chain disruptions. We are likely to see greater focus on clauses that allow for renegotiation or termination due to altered market conditions.
As sustainability and ESG gather pace through further regulation, terms that require detailed reporting on environmental impact, labor practices, and governance structures will become more common. Frequently, these terms are likely to require third-party audits and certifications.
Risks associated with geopolitical tensions and supply chain vulnerabilities will result in more stringent risk assessment and mitigation clauses. This is already resulting in more detailed disaster recovery plans and contingency measures.
Implications for Supplier Relationships
The trend towards friend-shoring and duplicating supply chains implies a shift towards more collaborative and strategic partnerships. Companies will need to work closely with suppliers to ensure alignment on values, particularly concerning sustainability and resilience initiatives. This approach may lead to more long-term contracts and joint ventures. It also creates a confusing dynamic: greater collaboration implies consolidating purchases with a smaller number of key suppliers, but supply security sometimes pushes in the opposite direction.
As AI and digital transformation play larger roles in operations, relationships with technology providers and AI firms are becoming more critical. These relationships need a focus on continuous innovation and compliance with evolving cybersecurity standards.
Supplier relationships are increasingly being tested for alignment with corporate ESG goals. Somehow organizations will need to find a way to increase insight to include their entire supply chain. This obviously requires deeper collaboration and transparency. Perhaps it will also encourage greater levels of vertical integration and impact make or buy decisions.
The volatile geopolitical and economic environment means that relationships must be structured in such a way that they can rapidly adapt to changes. This requires more frequent and better defined structures for communication and decision-making, real-time data exchange, and a capability for dynamic contract adjustments based on external conditions.
Contracts are likely to place shared responsibilities on both buyers and suppliers for compliance with regulatory requirements and for managing risks related to external workforce, data breaches, and environmental impact. This implies a need for a heightened level of trust and joint efforts in areas such as compliance training and audits. Building this trust from the low levels that often exist today will prove challenging – it demands a significant change in organizational behavior.
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The belief that collaboration yields better business results is widely accepted and has led to growing interest in the role that contracts play in either supporting or undermining collaborative relationships. As a result, ‘relational contracting’ has increasingly come under the spotlight, with continuing efforts to provide better definition and guidance on what it means and the forms it can take.
Most commentators reecognize that relational contracts – and collaboration more broadly – face a number of significant barriers, one of which is thought to be the traditional hierarchical structure of most large organizations. Yet is this correct? When we think of collaboration, Japanese business has often been held up as a role model, yet it also operates within a strongly hierarchical culture.
Unravelling the Paradox
This apparent paradox requires analysis and understanding of power and authority in Japanese society. Japanese organizational structures operate with clear lines of authority and respect for seniority. However, unlike in some Western contexts where hierarchy may impede collaboration and innovation, Japanese culture alters the power dynamic through an emphasis on relational bonds, consensus-building, and group harmony.
My research has led to several key concepts, the first of which is “uchi-soto,” which refers to the distinction between insiders (uchi) and outsiders (soto). Within hierarchical organizational structures, there is a strong sense of loyalty and cohesion among insiders, who share common goals and values. This internal unity enables organizations to navigate complex social hierarchies and external challenges while fostering trust and cooperation among members. (I find this interesting, because I recall a Japanese colleague expressing surprise that Western executives make themselves remote by having offices in corners and with windows. He told me that in Japan a ‘window person’ is someone on the way out).
Japanese culture also places a premium on “wa” (harmony) and “nemawashi” (consensus-building), which prioritize the collective good over individual interests. Together, these mean that hierarchical power structures are softened by relational norms that encourage consultation, collaboration, and mutual respect. Even within hierarchical organizations, decision-making processes often involve extensive discussions and consensus-building exercises to ensure buy-in and alignment among stakeholders.
Finally, there is the concept of “amae,” which recognizes mutual dependency and the need for nurturing relationships. This underpins many interpersonal interactions in Japanese society. So while an organization might be hierarchical, superiors are expected to provide guidance and support to subordinates, which fosters and environment of trust and reciprocity – which are the sort of behaviors that facilitate relational exchanges.
So is it the structure, or is it us?
From this, we must conclude that it is not so much organizational structure that impacts the ability to collaborate, but rather the cultural and behavioral norms and expectations that operate within it. Hierarchical power structures can work fine if they are complemented by relational norms and values that promote collaboration, consensus-building, and group cohesion. (And by the way, until Japan engaged more fully in the global economy, it did not need contracts at all!)
Commitment Matters 