Reflect for a moment on what causes you to trust people, or organizations. What are the characteristics, behaviors, values that you look out for?
In a recent article, PASA offers ‘Five essential tips to build trust with your suppliers’. In addition to the need to ‘ensure mutual interests’, it concludes with this summary: “By recognising the importance of business development, understanding supplier capabilities, prioritising empathy, and seeking evidence of authenticity, procurement professionals can establish strong and trustworthy partnerships with suppliers, leading to successful project outcomes.”
OK, you might say, that’s not an unreasonable list. And nor would it be if it were not so one-sided. Take empathy as an example. The article doesn’t suggest that Procurement should demonstrate any empathy with the supplier’s goals and interests, but rather that the supplier must show ‘an empathic understanding of your organization’s goals and challenges’.
In my experience, it is this self-interested, one-sided view of the world that undermines collaboration and generates potential for conflict. Just imagine a personal relationship where all the focus is on the other party’s interests, where all the testing is about their loyalty, where all the questions are ‘what have you done for me today’ …
A recipe for trust? If you want loyal suppliers – or customers – I recommend you don’t follow the advice contained in these ‘five essential tips’. Later this week, I’ll offer an alternative.
Are there benefits in consolidating buy-side and sell-side contracting and commercial resources? If yes, should this be a full or partial integration and are there potential exposures or conflicts of interest to watch out for?
These are questions that many organizations – especially those in business-to-business markets – periodically ask. It seems logical that a consolidation of resources might offer greater efficiencies and savings, perhaps also adding to organizational effectiveness through a broader skill set and improved data flows. Based on extensive insight from its benchmark studies – and regular conversations with members – World Commerce and Contracting has produced a short report and here is an extract from it.
Current State
Across industry as a whole, full integration of buy-side and sell-side contracting and commercial management is relatively common in smaller organizations, where it offers resource and skill efficiencies. In these organizations, individual practitioners are often responsible for both purchasing and sales contracting. This is less likely to be the case in larger corporations, where functional separation and individual specialism are the norm. However, this is not universal and there are significant variations between industries. The table below, based on data from six indicative industries, illustrates the point.
What is the state of integration of resources responsible for buy side and sell side contracting?
| Aerospace / Defense | Banking / Insurance / Financial | Engineering / Construction / Real Estate | Manufacturing / Processing | Services / Outsourcing / Consulting | Telecoms | |
| No integration (separate reporting lines) | 53.20% | 66.70% | 31.80% | 74.10% | 47.80% | 84.60% |
| Plans for integration | 2.10% | 5.60% | 4.50% | 3.70% | 8.70% | 3.80% |
| Areas of partial integration | 34.00% | 19.40% | 40.90% | 18.50% | 26.10% | 11.50% |
| Fully integrated | 10.60% | 8.30% | 22.70% | 3.70% | 17.40% | 0.00% |
It is notable that the industries with higher levels of integration are generally project / program oriented where greater coordination between buy-side and sell-side activities is essential. However, as the data shows, integration is typically not absolute. ‘Partial integration’ often means that team members supporting the sales contract also take responsibility for sub-contracts, rather than more general procurement activities.
The Report
The report goes on to discuss the benefits of integration, the extent to which these are typically achieved, the barriers that often prevent success and emerging trends that are making this an important topic for the future.
Hesitant? Confused? Frightened of making the wrong choice?
These are common emotions among those charged with reviewing and selecting contract management tools and systems. While software has been available for almost 25 years, the success stories are few and far between. Many have invested, only to discover that functionality is not there, that adoption rates are low, that implementation costs rapidly spiral …..
Is automating contract management doomed to fail? Discover the answers!
It is a complicated process, leading many to conclude that the best way forward is to tackle specific elements, using a variety of tools. But there have been remarkable advances in the technologies now available to us, so is past experience a good guide? Could it be that the problem is not in the software, but in the way we assume contracting must be done?
With the growing pressure on legal, commercial and procurement teams to deliver greater value, there is no question that contract performance must improve. Streamlining the process, identifying sources of value and empowering the business to better manage risk can only be achieved through technology. So which technology to consider and choose?
The confusion of choice
With more than 250 options, it is not surprising that those charged with identifying and selecting a system feel overwhelmed. Do we want an application, a platform, a set of integrated tools from multiple suppliers? The WorldCC selection tool has been designed to help in evaluating and narrowing the options. It is supplier agnostic, free to use and comes with no strings attached (i.e. you will not be inundated with calls from possible vendors or consultants!). Following a major update and overhaul, the tool (already used by more than 20,000 organizations) is about to be re-launched, along with an explanatory webinar and discussion of the latest trends and opportunities for contract management automation.
If you want clarity, sign up for the launch webinar due to run on February 3rd. Participate live, or receive the recording. You can register here.
For many, 2021 has once again been a year like no other. Volatile, uncertain, emotionally and intellectually challenging. In future years, researchers looking back at how we reacted – the impacts on our societies, our values, the way we interact with each other – will observe the opportunists and the philanthropists, those who sought advantage and those who acted generously to others. But will they mark it as a turning point in human attitudes and behaviors?
It is in times like this that questions of ethics come to the fore – and commercial ethics are a critical element in overall well-being and recovery. There are some who have sought to profit, who have delighted in the disruption and their ability to add to it. I suspect historians will observe this in many of the supply shortages that have occurred. They may well comment also on the actions of the media, so often desperate to sensationalize, to spread alarm and despondency. The role of politicians – and geopolitics in particular – is also certain to come under scrutiny.
But what of the business world in general? Has this shared experience caused us to think and act differently? Will future generations look back and see a turning point, a shift from competition to cooperation, a new spirit of collaboration?
Back in April, at the World Commerce and Contracting Academic Symposium, Ugur Sahin (CEO of BioNTech and developer of the Pfizer vaccine) called on the commercial community to formulate a new model – a model for ‘trust based collaboration’. He drew on the experience of vaccine development, achieved in record time, to explain and extol the commercial framework that had been used to such positive effect.
So can we learn from the experiences of vaccine development? Does this provide us with a fresh perspective on the ethical and practical standards for commercial relationships, or was this just an aberration?
The CFO of Pfizer recently observed that the best deals are often those where there is no deal. In making this comment, he perhaps mirrored Ugur Sahin’s reflection that in a time of crisis, there is no room or place for contracts. Creative action demands a focus on discipline and structure, but not on issues of commercial precision and enforceability. Those come later, once there is sufficient certainty about outcomes. Hence, BioNTech and Pfizer established clear procedures for governance, but contracts came much later.
AstraZeneca and Oxford University followed a similar path, though with commercial principles in some ways more clearly defined. From the outset, they established that any vaccine they produced would be on a non-profit basis. With an average price of $4 (against Pfizer’s $20) and much lower distribution and storage costs, AstraZeneca have arguably contributed far more to the world than any other manufacturer. Their commercial ethos has extended to supporting production at scale in many of the world’s poorest countries, entering contracts and providing a full guidance toolkit to support rapid availability of vaccine. (At this time, the AstraZeneca vaccine is world leader in terms of production).
Yet AstraZeneca also gained headlines for a high profile contractual dispute with the European Commission. It may well be argued that the company was commercially naïve and fell foul of geopolitics, combined with agreeing to an inappropriate form of contract. In spite of all its altruistic endeavour, AstraZeneca has emerged (unfairly, in the view of many) with a mixed reputation – unlike others, who have actually made substantial windfall profits and seen a surging share price.
So what conclusions can we draw on the status of commercial morality and ethics? Might we be able to claim that business has become more socially aware, that the pandemic has perhaps enabled greater momentum for the ESG principles and an increased sense of moral obligation? The evidence for such a change is mixed. The political environment has, if anything, deteriorated. We have yet to see whether business practices have fundamentally altered, whether ‘collaboration’, to the extent it is occurring, is being driven by need, or by principle.
Within the commercial community, there are those who are genuinely inspired and inspiring others with the potential for new and better ways. New technologies enable the sort of transparency, visibility and – in some cases – anonymity that can turn good intent into practical reality. There are heart-warming examples where exploitation is being exposed, where lives and livelihoods truly are improving. In my work at the University of Leeds, I am encouraged and excited by the number of law students who are motivated to tackle injustice and create a fairer, more open society. At WorldCC, we observe growing interest and adoption of relational principles within contracting.
Times of turbulence generate change and changes are without question happening – but many are fragile. My hope for 2022 is that the commercial community raises its voice and promotes the ethical standards and supporting systems that alone can move us along the path to making trust-based collaboration a norm, rather than an exception.
This year’s Talent and Wellbeing Survey tells us that the answer for many is yes – and they enjoy their work. They find it challenging and feel that they are making a valuable contribution to their organization’s goals. A growing proportion also take their professional status seriously and recognize the importance of a formal certification.
But there is a ‘but’ ….
Thirteen percent are unhappy with their role and position and sixteen percent (that’s one in six) plan to leave their current role in the next six months. With 65% seeing the job market as either ‘good’ or ‘excellent’, it appears unlikely that they will have too much difficulty finding an alternative.
What is it that drives people to move? The overwhelming reason is a sense of poor opportunities for career growth and training within their current employer. Indeed, 40% say that developing their career depends on moving.
‘The Great Resignation’
There is nothing in the survey results so far to indicate that there is ‘a great resignation’ among the Contracts and Commercial Management community. The data regarding plans to change job is , if anything, showing a slight decline relative to past years. One reason for this may be that executive management is showing much greater interest and appreciation for the importance of the role. ‘Feeling loved’ has a big impact on retention.
One thing that has been impacted by the pandemic is the extent to which most people want – indeed demand – flexible working. A clear majority say they would not work somewhere that did not offer this and it is the number one thing that they value about their current job – surpassing even salary and compensation.
Into the future
The CCM community appears confident that it is developing the skills needed for the future – although many also show concern over their employer’s limited investment in training. And when evaluating the areas of competence that will be most important, many appear to be at odds with expert predictions. One thing that they do recognize – and even welcome – is the ability to work increasingly with technology. Two-thirds are eager for tools and systems – most likely because they see it addressing the thing they most dislike about their job: the volume of administrative tasks.
The WorldCC Talent and Wellbeing Survey remains open for input and is gathering a wide range of data to assist individuals and employers in better understanding the current state of Contract & Commercial Management. The report (to be issued in January 2022) will provide insight to personal development and wider issues of talent growth, retention and recruitment.
“We just can’t find the right people.”
In conversation after conversation, executives tell me they are struggling to fill posts and retain staff in their commercial teams. One consequence is that salaries are increasing – and benefit packages being re-evaluated. In the United States, I am hearing about 30% being a ‘normal’ level of salary escalation. In the UK, the number seems to be more conservative – perhaps 20%.
Complete the 2021 WorldCC salary survey and test your position here.
But before we all get carried away, it is important to check the details. These increases are far from universal. They apply to people with some critical skills, or perhaps those who exhibit the ability to re-skill, fast. While the basic attributes of good procurement staff, lawyers and contract / commercial managers are in relatively high demand, it is those who bring demonstrable value to the demands of today’s fast-changing markets who command a premium.
So who are those ‘special people’? Certainly those with the know-how to support a shift to digitization are among the elite. Not surprisingly, very few have that experience on their resume. Similarly, people who demonstrate a history of delivering value (versus negotiated savings) are prominent – especially in an environment where Procurement teams are fighting not for cost reductions, but to limit cost increases. Strong, proven supply chain skills are at a premium, especially if they demonstrate an understanding of how to reduce supply risk and develop supplier loyalty.
On the sell-side, value delivery is also high on the agenda, especially when combined with experience of more complex or innovative delivery models – for example, outcome and performance-based agreements. Being able to demonstrate strong client relationship skills is also increasingly a plus.
Ultimately, the big money is going to those who can demonstrate their contribution to rapid change and an ability to cope with market volatility. Commercial capability is under stress in many organizations. They are moving fast to streamline data flows, introduce new contract models, improve cross-functional collaboration and develop more adaptive market relationships – and they need people who can help them get there.
The WorldCC 2021 salary survey is providing insight to these trends and showing us which industries and geographic regions are leading the way. If you want to understand more – or test where you stand in the salary ranks – complete the survey at https://www.worldcc.com/Research-Analytics/Latest-Research/Salary-Survey. Please note that at this time, the survey is focused on a limited set of countries (Australia, Canada, New Zealand, United Kingdom, United States) – others will follow shortly.
Only 48% of organizations consider themselves ‘good’ at monitoring the in-life financial performance of their contracts. A new study from World Commerce & Contracting reveals the types of contract and the industries most affected by the resulting value loss and erosion.
The report, released to the 500 participating organizations today, confirms persistent problems created by the fragmentation of process, systems and resources that are applied across the contracting lifecycle. Without connectivity, there is limited visibility and therefore a lack of the data needed to support urgent action.
There is also a view that, even when senior management is aware of possible value erosion, the problem seems too complicated to fix. The fragmentation that causes losses is so pervasive that fixing it would require too many changes to business systems and operations.
Fresh thinking, fresh capability
Has the time now come when these problems can be addressed? For many CFOs, the pandemic has created heightened urgency in protecting revenues and reducing costs. There is a view that new technologies may prove game-changing, with digital platforms that could aggregate and drive data flows between systems. Artificial intelligence and machine learning are starting to augment human resources, in ways that support simplification and promote self-service. New thinking about standards and contract design offer the prospect of increased market and business intelligence, for contracts to become tools that deliver operational efficiency.
The World Commerce & Contracting report shines a light on the types of contract and the industries where maximum benefits can be achieved. It complements other, related studies, undertaken in 2019 and 2020, such as the investigation into Post-Award Contract Management; the Most Negotiated Terms report; studies on Relational Contracting and governance; and recent papers on Supply Ecosystems, Friction Points and the use of Artificial Intelligence. Together, these offer a blueprint for change.
What does it mean for organization and jobs?
It is clear that such radical change will impact organizational structures and potentially lead to more fundamental restructuring of jobs. There are already signs of a growing integration of contract management and relationship management. New systems will empower the front office and reduce the need for many of today’s back-office support activities. At the same time, better integrated data enables a more agile and adaptive approach to commercial and contracting practices, which in turn requires an increase in the strategic resources needed to manage and implement change. These impacts are being assessed in a new World Commerce & Contracting study which will be released later this month. To be among the first to receive the results, you can participate here.
World Commerce & Contracting research reports are available to members in the Research Library at https://www.worldcc.com/Resources/Research-Library. In a few cases, they are available at a summary level only, with the full report restricted to members of the WorldCC Research Forum.
It is said that ‘contracts are the lifeblood of any business’ – and it is certainly true that without contracts, many businesses would be seen as having no value and with poorly managed contracts – well, there would soon be no business.
Yet while winning and performing contracts is so critical, the contracting process frequently fails to support the steady flow of blood that is essential to its health. Consider for a moment the many blockages that occur – pain points, friction points, delay points – call them what you will, the process rarely runs like a well-oiled machine.
In a recent study, World Commerce and Contracting identified more than 40 ‘friction points’ in the average contracting process – each of them a frequent source of cost and delay. That same study indicated why they often prove so disruptive – it’s because there are very few organizations where someone, some group or function, is responsible and accountable for the quality of the process. Responsibilities are fragmented; data is fragmented; resources are fragmented; and different people have different views of what is important. The result, not surprisingly, is that there are tremendous opportunities to ‘optimize and secure’ the contracting process.
Does this matter? Is it worth caring? The answer is yes, but the benefits to be achieved are highly variable. The type of contract and the industry sector are the two big factors, both in terms of direct costs and consequential losses of revenue or potential savings. The study suggests a typical range from as low as 0.5% of contract value up to 15%+.
It isn’t just financial benefits that matter. Reduced cycle times, greater ease of doing business are two further incentives to streamline contracting. And with the growing availability of technologies that support digitization, this improved blood-flow is certainly achievable.
To discover more, connect to World Commerce & Contracting’s TASK program – a free to members offering that can be accessed at https://www.worldcc.com/Resources/TASK – and don’t forget to watch out for our imminent report on understanding and eliminating friction points!
Compliance has not emerged with glory from COVID-19. For many, it became a source of rigidity that constrained cooperation, limited transparency, delayed important decisions and stood in the way of good commercial judgment.
But there is another way of looking at compliance and that is to see it as a component of quality management. For those who view it this way, supply relationships operate in a very different manner. They offer dynamism, smooth-flowing information and healthy relationships that can flex and support collaboration in managing the chaos created by the pandemic. That’s not to say these organizations don’t care about compliance. In fact, quite the opposite; they think of compliance as a component of a quality management system and ensure that it is designed and adjusted to support business resilience, not simply to impose rules.
Regulators recognize the benefit
Indeed, even the regulators have recognized the damage that compliance can inflict. As an example, the Federal Drug Administration’s recent ‘Case for Quality’ program seeks to shift emphasis and reward consistent high-quality production.
There is abundant research that shows the link between strong, healthy supply relationships and overall corporate performance (for example, the work of John Henke in assessing the automotive industry). World Commerce & Contracting has been conducting more global studies and questioning whether the future is about supply chains, or whether there is a need to think more about supply networks and ecosystems.
The experience of the pandemic has revealed the importance of visibility within and across supply chains. Without this, an organization is blind to areas of weakness and unable to offer support, generate loyalty or plan for alternatives. The many aspects of ‘protecting your supply chain’ are being explored in World Commerce & Contracting’s next TASK topic and can be accessed by members of the association at no charge.
In preparation for the World Commerce & Contracting webinar on October 19th, we have been collecting questions from legal and commercial practitioners.
While there is a lot of interest in relational contracts, for many they remain a bit of a mystery. Our aim is to demystify and provide an objective view of when and how this form of contract should be used – or avoided. Among the questions we have received – and which will be answered during the webinar – are:
- Why are so many lawyers opposed to the use of relational agreements?
- Relational principles are often contained in a separate charter, or may even be embedded in some form of customary practice or operational process. What are the pro’s and con’s of formal contract versus informal charters or codes?
- Relational agreements typically apply in longer term and more complex situations where there is a high level of unpredictability and a need for collaborative working. Those situations often involve multiple parties. What makes sense from a contractual perspective – how are the relational elements best introduced – for example, via a teaming agreement?
- Are industry codes or standards a better alternative to individually negotiated relational contracts?
- Since relational terms govern operational performance and the users of those terms won’t be lawyers, what does this imply for the optimum structure and design of relational agreements?
- It has been suggested that relational principles are by nature incompatible with litigation. Does it make sense to eliminate the potential to litigate – for example through binding mediation or the use of an expert panel?
If you have questions you would like added to this list, please send them – and sign up to join us on 19th.
Commitment Matters 