When it comes to winning business, are contract managers a liability or an asset?
Interview any group of sales people and you will receive mixed answers. For some, contract managers are a key area of support, facilitating internal reviews and ensuring the production or negotiation of a timely and appropriate agreement. For others, they are a source of problems, an obstacle to be avoided.
These divergent views reflect differences in approach, personality, skills, process and organizational culture. But what about the customer view? In general, do they prefer doing business with companies that have invested in contract managers?
In recent days, staff at IACCM have spoken with a number of large corporations about their experiences working with major providers of outsourcing and IT services. They appear to have little doubt about their preference – and they increasingly see organizations which lack trained contract management staff as unreliable and unprofessional.
One major financial services company made the point that it isn’t just about having people with the contract management job title – it is also about having them working with a consistent role and professional skills. In this context, they cited the value they have observed in personnel that undertook IACCM training and certification. Several went further and mentioned how helpful it is when the contract managers from both organizations have completed the IACCM programs because that creates a common understanding of approach and generally yields a far more positive outcome.
This should come as no surprise. Professions generally do not distinguish between personnel who work in customer versus supplier organizations. One reason that lawyers or finance professionals are often able to reach speedy resolution is because they speak the same language and had similar core training and education. It seems obvious that having buy side and sell side staff operating with a common body of knowledge will accelerate the speed and quality of contract closure and performance. But several of these interviews went further because they cited examples of companies that are making no investment in their development of a contract management function – and how increasingly they are starting to avoid doing business with such companies ‘because they can’t be trusted’.
So the message seems to be, if you want to win in the market, adopt a certified Contract Manager!
It’s not uncommon for business functions to lay claim to ownership or proficiency in another domain – but that doesn’t make it right.
In the case of contract management, the procurement, legal and project management functions are among those who assert it is ‘theirs’, that it is in some way a sub-set of what they do. That is, they make that claim until things go wrong – at which point it conveniently becomes someone else’s fault.
i am making these observations because people frequently question whether contract management is a discipline in its own right. They do not immediately register its importance for each party in a trading relationship, its role in ensuring benefits are realised and obligations are fulfilled. Quite obviously, it is not about Procurement – it is about establishing an effective relationship under the right terms and then overseeing their performance – and that requires a contract manager within the customer and a contract manager within the supplier.
it is of course quite possible that this contract management role can be a sub-set of another job – such delegation occurs in many areas of business organization. The problem comes when those with a delegated authority fail to realise the limits of their knowledge and expertise.
It is attitudes and behaviours like this that cause so many contracts to go wrong or to under-perform. No one has ever prevented any of these functions building proficiency – indeed, I have personally made many efforts to rouse their interest. The fact is, contract management is not core to their perceived purpose or expertise. They mostly want to own it, rather than actually do it – because in reality, contract management today is a complicated field, requiring the sort of skills and knowledge that is not taught in the law, supply management or project management syllabus. And that is why contract management has become a discipline in its own right, with its own body of knowledge, tools and methods.
I am not suggesting that practitioners in law, procurement or project management know nothing about contract management, nor that they should have no role in it. They should simply appreciate that just because they know something about the subject does not make them an expert – any more than a contract manager (who is trained in aspects of their role) is expert in their disciplines.
Contract management aggregates across many specialist fields and interests and, in a sense, is a servant to all of them. One reason it is being claimed by these different groups is because, unlike many of them, it is less threatened by new technologies and job losses. It will therefore continue to be an attractive career path in its own right – and not simply a sub-set of another discipline.
For anyone wanting to pursue this path, IACCM offers a globally recognized portfolio of training programs and certification, backed up by extensive research and continuing professional development programs. They are available worldwide.
Category management is now a widespread approach within supply management. For some, it is about aggregation of spend and achieving lower prices. For others, it is about increasing the expertise and value delivered by their procurement function. As with so many initiatives, it is often hard to tell what precise benefits have resulted.
One concern that is often expressed is whether a category approach limits perspectives and creates a narrow focus. In this context, I was interested in a conversation today with a team from a company called New Information Paradigms (NIP). One of their projects contained the term ‘category leadership’, which they defined as ‘aligning capabilities through relationship assets’. The project had involved collaboration across a portfolio of suppliers, in which they had worked together to identify efficiencies and deliver savings to their customer. For example, they explored opportunities to align transportation and warehousing – even, in a few instances, to switch product lines.
The NIP approach had caused organizations to explore their relationship as a potential asset and to examine their mutual partnering capabilities. It led to key questions, such as:
- are we both prepared to adjust the way we do business to better align processes?
- how well do we share and manage information as a joint resource?
- how well do we understand relationship risks?
- how well are we leveraging the relationship asset to do business in a new way, to innovate and to protect or grow mutual value?
It strikes me that there is a further step in this approach – and that is to achieve ‘category integration’, where there are specific initiatives to develop collaboration across inter-dependent supply networks and to establish opportunities to optimize performance. We see this to some extent in approaches to relational contracting, where facilitated workshops establish common procedures, discuss relationship risks and generate a shared commitment to continuous improvement.
My belief is that category management in isolation delivers limited benefits. As with any segmentation, it needs approaches that offer incentives and methods for integration and cooperation that go beyond single transactions or individual suppliers.
” All large IT organizations now need to consume services from an increasing array of Service Providers to remain competitive and keep up with the rate of change in the industry. This means that IT organizations are now required to integrate and orchestrate services provided by others, as much as deliver the services themselves. This requires organizations to change; change their processes, their skills and their culture.”
This extract describes a new book that outlines the changes needed in today’s delivery of IT. It is targeted at project managers, service delivery managers, IT professionals – and it covers critical aspects of contract development, contract management and relationship management. The authors have identified the point that this new world of service provider interdependence requires “collaborative working relationship between organizations and their Service Providers to maximize the benefit of multi-sourcing” and addresses the mechanisms that “govern and manage the linkage of services, the technology of which they are comprised and the delivery organizations and processes used to operate them, into an operating model.”
Oh, you might say “That clearly reflects the role that Procurement and Contract Management will fulfill”. But you would be wrong, because the authors clearly see no particular role for these functions. Indeed, they reflect more the findings of a recent survey that discovered 78% of CIOs see Procurement as ‘a hindrance’.
I know that some contracts, legal and procurement professionals are rising to the needs and challenges of a fast-changing world in which traditional thinking about the role of contracts and the management of risks must alter quite dramatically. But studies such as IACCM’s ‘Top Negotiated Terms’ show that old habits are hard to eliminate and far too many contracts remain focused on battles over transactional risk allocation. More importantly, staff in contracts, legal and procurement are not acting as champions of change – and that is what ultimately makes them of limited relevance to CIOs and other business executives who depend on contracts to achieve their business goals.
As this new book on Service Integration and Management clearly shows, if we do not step up to providing the changed ‘processes, skills and culture’ that our interconnected world demands, others will simply step into the gap … and we will be victims of the change.
$2.6 billion over budget, 7 years late in delivery … and that’s just the revised estimate. If only the Department of Homeland Security and the IBM Corporation had studied IACCM’s guidance on ‘the 10 pitfalls of contract management’ before they embarked on their project to automate major elements of the US immigration process.
Once again, we have the story of a technology project going badly awry. From initial cost estimates of $500 million and a completion date of 2013, the current projections have now climbed to $3.1 billion and delivery around 2020.
Reports in the Washington Post (November 9th, 2015) associate the problem directly with two of the IACCM top causes of value loss – failure to agree scope and goals and failure to employ the right form of contract. One can only assume that other principles of good contracting were also breached – for example, the quality of transition and on-going contract performance management must have been lacking for such a large problem to have remained hidden for so long.
Perhaps the only way to avoid these costly blunders is to convert the 10 Pitfalls into the 10 Commandments of Contract Management and to require obligatory sign-off of each element by the responsible contract owner in both buyer and supplier before they can proceed. It is otherwise remarkable that we see so many projects push ahead without clarity over goals or how they will be achieved or what governance and performance process is in place. I am sure there are many excuses – political pressure, the need to secure or retain funds, the good intentions of the parties to get started and sort it out later, the confidence of DHS in their supplier …. The thing is, we have seen and heard this so many times before and there are ways these pressures can be handled without jeopardizing success.
Good contract management is very cheap compared with losses and reputational damage on this scale.
Today sees the launch of IACCM’s ‘massive open online course’ (MOOC) on contract management. Some 20,000 students are enrolled for this 3 week program and already the chat boards are filling with comments and discussions from around the world.
Due to its popularity, this is the second running of the program, which was developed in partnership with Southampton University and FutureLearn. The inspiration behind it was the UK Government, which is leading the world in its appreciation of the essential role that contract management plays in today’s complex business environment.
The MOOC reflects the UK Government view that contract management matters to an audience that goes far beyond lawyers, procurement managers or commercial specialists. It is something that has been massively under-rated as a business discipline and contributor. The participants on the course mirror that opinion. Many are from areas such as project management, HR, marketing and operations – people who have felt disadvantaged by their lack of insight to contracting process and practices.
It’s not too late to join the program – and it is free. Simply go here to register. All sessions are recorded so you can quickly catch up!
All too often, the phrase ‘strategic relationship’ seems to mean ‘Do as I tell you’. As with words like ‘collaboration’ and ‘partner’, when they come from the mouth of a powerful customer, it is simply an attempt to make demands for concessions sound more reasonable.
That at least appears to be the view of Adrian Gonzalez in his article about Walmart’s latest cost-cutting initiatives. Based on the reports that are emerging, it does indeed seem that the claims by Walmart that it wants to “do right by our suppliers because we want to create strategic relationships,” is perhaps somewhat disingenuous. But as the article points out, this simply brings Walmart into line with most others in its industry – and arguably almost all major corporations.
I agree with Adrian’s comment that it would be nice if Walmart acted as an industry leader in finding new ways to handle the cost-based challenges that it faces. GE CEO Jeff Immelt seemed to support such a view in recent comments when he explained that ‘the first 20 years of my career were all about achieving advantage through low cost. Now they are about speed to market, productivity, integration and data”. Though GE and Walmart are in different markets, might there be opportunity for a similar shift in value and strategic advantage?
It seems to me that there are several commercial barriers to driving meaningful change in supplier – customer relationships. One is the impact of short-termism. So often, cost reduction initiatives seem to be driven with great urgency, almost as if they are a surprise. In such an environment, arguments regarding potential for longer-term value are simply drowned out by the immediate demand for savings or cash. Once the crisis action has been taken, everyone goes back to business-as-usual until the next time. In this context, Procurement is just the hammer being wielded by the executives in Finance. Suppliers effectively have no representation, no one standing up for the quality or value of ‘a relationship’.
But does this mean suppliers are free of any responsibility for the cycle of negative behavior? I think not. Relationships always involve more than one party and unreasonable demands and bullying are ultimately sustained by the behavior of both participants. Walking away is obviously one option, but there are many others. An obvious approach (which I suspect many actually take) is to anticipate these cycles of demand and be prepared for them. In collaborative industries, suppliers share their innovations and improved processes with their customers. In industries such as retail and automotive, they mostly keep them hidden – storing up their savings for the day when inevitably they will be demanded.
At IACCM, where we study trading relationships on a cross-industry, international basis covering both buyers and suppliers, we gain insight to the variety of behaviors and cultural attitudes. Many of the embedded practices are simply a game – and that includes the inevitable squeals of protest. After all, if I don’t squeal, the demands will become even more onerous.
Is that game productive? Does it lead to the sort of benefits that Jeff Immelt is seeking? Probably not. But in the battle for corporate survival, everything is a balancing act – and most suppliers simply will not be ‘strategic’.
It has been 10 years since IACCM conducted a mock trial over the legality and enforceability of electronic signatures. Our panel of high-status lawyers came out in favor of electronic signatures – but then almost nothing happened. It is therefore great news that a top corporation like IBM has moved forward with global adoption – and you can learn more in a webinar this week – for details and to register click here.
Lawyers tend to be risk averse and, in the case of a subject like electronic signatures, they are unfamiliar with the law between jurisdictions. So the simple answer, when asked to change, is ‘no’.
And that’s the way it has been in most of the intervening 10 years. But now it is different. The IBM Corporation has moved to adopting a universal electronic signature. Along with this initiative, IBM has simplified the contract wording and structure as part of its efforts at ‘ease of doing business’. It is all part of its work to enable simplified commerce and a recognition that most transactions will steadily move to mobile devices and hand-helds.
The announcement by the U.S. Administration that too much school time is absorbed by testing is just another indication of the revolution in how we look at knowledge, its value and application in a networked world.
Increasingly, the people who are valued will not be knowledge workers, but application workers – that is, those who grasp the context of the issues or challenges they confront and can apply knowledge to achieve the right solution or result.
Why is this happening? Quite simply because knowledge itself is embedded in technology. To know things is of reducing relevance because it is so easy to look things up. The value comes in appreciating when knowledge is important, understanding where to acquire it, how to validate it and then in applying it.
In this emerging world, where access to mobile technology is fast becoming ubiquitous, ‘experts’ will no longer be those with great depth of knowledge. Rather, they will be people who show their capability in applying knowledge to great (and often innovative) effect across diverse conditions and circumstances. Initiatives such as those at the Minerva schools are an example of what is to come.
In recent IACCM member meetings, we have been challenging our community to think about the implications of these changes to the nature of the skills they need to prosper. Their enthusiastic response reveals that many are excited and energized by the prospect of escaping from the task-driven environment of today. They welcome the prospect of applying their knowledge to drive business improvement and innovation. Already we have been adjusting the IACCM training and certification programs to reflect this shift from imparting knowledge to supporting and teaching its application. Over coming months, we will be sharing insights to the attributes and competencies that underpin success – and, of course, reflecting these in our many member programs.
I was reading an article on CNN that ranks the world’s worst (and best) airports. Travelers ranked them on criteria of comfort, convenience, cleanliness and customer service.
Most of those at the bottom of the list are in emerging or highly troubled markets. For example, I doubt many people go to Kabul or Karachi airports with high expectations on any of the named criteria. Poverty and political instability clearly do not help when it comes to rankings for comfort, convenience or cleanliness.
The top of the list is dominated by facilities in Asia, holding 6 of the top ten spots. The remainder come from Europe (3) and Canada (1). In most – perhaps all – cases, I think these winners see themselves competing with alternative airports, both for originating flights and as destinations / transit facilities.
Continuing on the travel theme, I then noted a message from the Business Travel Coalition, bemoaning the state of competition in the US airline industry. It cites efforts by the four main carriers to disempower their regulator, prevent competition and eliminate distribution channels, backing this up with comments by Presidential candidate Hilary Clinton:
“Over the past year, oil prices have fallen from over $100 a barrel to under $50, and the price of jet fuel has dropped more than a dollar per gallon. But the four major airlines—down from 10 airlines just 15 years ago—are charging as much as ever for tickets, even as they hit travelers with extra fees, for everything from checking a suitcase to picking a seat when they fly home at the holidays.”
These articles caused me to think about the companies that I find worst to do business with and the criteria on which I make that judgment. I have clear winners and they come predominantly from the telecoms industry, though I would certainly add several airlines to my potential list and would also put car rental companies into the rankings. Software providers represent the fourth category on my personal hit list.
What is it that causes me to wish some of these companies would disappear? I think the main frustrations (as both a consumer and a business manager) are:
- a sense of unfairness.Pricing and charging systems are often opaque and appear designed to limit transparency and increase the chances of maximizing revenue from hidden or unethical practices.
- a sense of complexity. Complicated charging formulas seem to be linked to complicated internal systems and procedures, leading to a high ratio of mistakes. The focus on revenue is accompanied by tortuous internal control systems such that no one seems to be in control or to know what is going on.
- abysmal customer service. A result of control and complexity is that no one has any authority to do anything. Even if you can reach ‘customer service’, chances are that they cannot help and need to transfer you multiple times – usually to other people who can’t help. In the end, you dread calling and so you give up.
In every case that I can think of, it seems to me that Finance is the most powerful function within the business. In many cases, they seek to use market power (or claims of hardship) to support consolidation and restrict competition. None of them can be viewed as innovators when it comes to commercial models and in many cases they operate through franchises, alliances or distribution networks which support their efforts to point fingers at each other and deny responsibility or authority over problems.
IACCM research has shown the importance of clear and fair business practices and of empowered interfaces. Companies do not have to be especially flexible in order to win customer loyalty – indeed, many that are flexible subsequently suffer in their ability to do what they promised.
So what do you consider the most important practices or behaviors when it comes to the best and worst companies to do business with? Share your thoughts – and we can perhaps test market sentiment with a survey.
Commitment Matters 