A current survey being conducted by IACCM reveals that contract and procurement specialists find China one of the hardest countries to deal with. It scores especially low on the topics of ethics and business culture and local laws and regulations.
This will come as no surprise to the management of GlaxoSmithKline, currently embroiled in corruption charges by the Chinese government. As this week’s Economist points out, it is almost impossible to do business in China without some level of ‘enabling gifts’ and it is often equally difficult to know when these are deemed to cross a line into actions that the authorities might deem corrupt. Indeed, some may wonder whether the tortuous thinking of the political elite may in part encourage such behaviour because of the control it gives them. By turning a selective blind eye to bribery and corruption, those in power not only gain personal benefit, but they also have a stick with which they can selectively beat anyone when the moment is opportune.
Do the authorities actually care about the actions of GSK (and other Western firms they are now investigating)? Or is their action prompted by a wish to boost local competitors, or perhaps to send a wider message of fear to non-Chinese corporations? Certainly there will be many wondering whether they are next in line.
Ultimately, the size of the Chinese market makes it difficult for companies to ignore. But the difficulties of controlling local employees, the unpredictability of local laws, the challenges of understanding and the arbitrary behaviour of officialdom certainly represent high levels of risk – not to mention the traditional concerns over intellectual property. At what point will inward investment seem too unpredictable?
The Economist also ran an interesting analysis of whether major corporations benefit from exposure to the Chinese market. This year, the stock price of those with significant investment and sales in China has substantially under-performed. So perhaps the combination of factors will be causing many to reduce their exposure to this difficult market.
To participate in IACCM’s survey on ‘Doing Business Internationally’, visit https://www.surveymonkey.com/s/intcontracting2013
Yesterday I was reading some articles that I started and never quite completed. One of them contained this summary of a conversation I had at a meeting of the International Centre for Complex Project Management (ICCPM) in 2012.
Professor Mike Jackson had made the introductory presentation in which he emphasized the need for project management to embrace ‘holism’ and to “Escape reductionist thinking”. As he spoke, I was struck by the similarities to contracting and commercial management – and also the interdependencies between our disciplines.
‘Holism’ is based around systems thinking and the need to synthesize, rather than analyze. It therefore seeks to avoid focus on component parts and to concentrate on the interactions needed to secure the overall desired outcome. Such an approach would – for example – place far more emphasis on the importance of sustained leadership, communication, commitment and planning to project success, and less on requirement management and individual components.
As I thought about this in the context of contracts, a number of points struck me. First, a ‘holistic’ contract is made up from many clauses and terms which exist individually, but impact outcomes cumulatively. Second, the input to contracts comes from many and varied sources, each of which may have a distinctive view of what it considers ‘success’. Third, projects (and therefore the contracts that underpin them) are ‘incomplete’ until they are finished and therefore require continuous oversight and revision to maintain ’holism’ or integrity.
The meeting discussed the challenges faced by Project Managers. Some of these related to a lack of the skills and knowledge needed to undertake ‘holistic’ management. Others involved issues such as the timing of engagement and failure to focus on critical dependencies, such as leadership risk or cultural risk.
Listening to the problems caused me to reflect on similar issues in contract and commercial management – in particular, the question of’ ‘excellence’. It struck me that an excellent contract or commercial manager is someone who engages in holistic thinking. They see the big picture and the interdependencies. They do not allow themselves to be side-tracked into excessive debate on individual clauses and functional position, but see their role as communicating, leading, planning and gaining commitment. To do this, they must understand individual ‘reductionist’ stakeholder views and find ways to reconcile these with the broader needs of the project. They emerge with a balanced contract, designed to cope with change.
Of course, this excellence is far from universal and many contracts groups remain tied to specific interests (for example, legal or finance) and lack the vision to expand from a focus on ‘requirements’ to a focus on ‘outcomes’. Often, there is no synthesis of the entire contract; different groups produce different parts and ‘quality’ means that it has been checked for inconsistencies, not that it is truly ‘fit for purpose’. As a result, project teams are given contract forms and standards that provide poor and inadequate tools for on-going management.
How might we improve? One approach will be to focus on continuing improvement in the standards of contract and commercial managers. In this regard, the growing adoption of a common perception of the role and a consistent body of knowledge is a major step. But it strikes me that a second critical aspect is the creation of collaborative relationships with others within our ‘reductionist’ universe. Functional specialism is by its nature ‘reductionist’. What all of us must do is to understand better how we fit our specialism into a holistic frame. And it may well be that commercial managers and project managers are key to creating this synergy, since each of them may have the role of harmonizing across specialist groups to ensure that a level of reconciliation is achieved and maintained, to allow desired outcomes to be achieved.
Today, the UK Government issued a report by the Public Administration Select Committee on Government Procurement.
It highlights weaknesses in commercial understanding and contract capabilities, in particular a failure to learn from past mistakes. “The Committee is concerned that the EU Directives which govern procurement in the UK reinforce a process-oriented, risk-averse culture in procurement, which in the UK results in delay, increased cost and a failure to focus on outcome”, states the report.
Efforts to improve are under way and in particular, the Civil Service is focusing on steps to improve commercial awareness. Before those in the private sector shake their heads and dismiss this as a purely public sector issue, I must point out that these weaknesses are in common with a growing number of large, private-sector organizations, struggling to improve cycle-times and to raise the quality of decision-making. IACCM, through its research, advisory and training support, is at the heart of many improvement efforts.
However, in this age of growing specialism and more rigorous performance metrics, it is hard to achieve commercial balance. The ‘generalists’ who provided breadth of view have either been side-lined or eliminated. Because they could not describe precise value-add and were not mandated as a result of external regulation, the ‘commercial expert’ who offered connectivity between functions and experts was seen as superfluous to requirements. Yet in truth, they were often the ‘cross-functional glue’ that enabled faster response times and balanced business judgment.
Today’s Legal, Finance and Supply Management groups do not offer an effective replacement for the role that traditional contract or commercial management teams were (at their best) able to provide. Whether and how quickly we can replace those skills with a more generic approach to ‘commercial awareness’ remains to be seen. I think that the top performing companies are already working to have their contracts and commercial groups operate as ‘knowledge centers’, overseeing increased quality of commercial process, tools and information flows. But in the end, unless performance measures are altered to reflect commercial values, I am not sure much will change.
Today I turn once again to Logistics Viewpoints as the inspiration for my comments. Adrian Gonzalez has been exploring the impact of social networking on the management of supply chains. In summary, he makes the following points:
* Social networking is not about socializing, but about facilitating people-to-people communication and collaboration, which is at the heart of managing and executing supply chain processes.
* Social networking goes well beyond Facebook, LinkedIn, and Twitter-it includes virtually all of the leading software vendors that companies currently use to manage their business processes.
* We’re seeing the rise of Supply Chain Operating Networks -the business equivalents of Facebook and LinkedIn, which are enabling communities of trading partners to communicate, collaborate, and execute business processes in more efficient, scalable, and innovative ways.
* If deployed and used correctly, social networking will result in less work, not more for business professionals.
I am not sure that I agree with the final point. It seems to me that increased connectivity has actually led to mushrooming of work volume, not a reduction. But there is no doubt that networking tools allow us to do things quite differently, much faster and in many ways better than in the past. And regardless of how we feel about them, they are certainly on their way.
Practitioners in contract and commercial management are right at the heart of supply chains. It is therefore critical that we understand how these networking technologies can affect us. We have not been amongst the early adopters of business software, preferring to believe that ‘automation’ does not apply to knowledge workers. Indeed, when we think of social networking tools, I bet many of us are considering the risks and dangers associated with their use, rather than the business benefits that could flow.
Increasingly, failure to adopt and adjust to technology makes any group appear out of touch and disconnected from the reality of the business world. So grasping the initiative on how we might make use of emerging network tools is not only useful, but perhaps fundamental to our continued relevance. Among the more obvious areas that strike me are:
– how should social networking affect the timing of involvement? For example, can we use such tools to be far more engaged with our counter-parts in customers or suppliers at an earlier phase, or indeed as a part of the on-going relationship?
– how should social networking tools affect some of our traditional contracting practices and terms, for example anything to do with notices, or change management, or performance reviews?
– how should social networking impact performance management and the creation of common repositories and versions of the truth? How can it bring immediacy to reporting and problem solving, rather that relying on periodic data that may be irrelevant by the time it is available?
To what extent are you actively exploring this area and its potential for competitive advantage? And what other aspects of social networking should we be considering as we prepare for the future?
Improving our use and understanding of technology is one of the topics that will be addressed at the next IACCM Americas conference – see http://www.iaccm.com/amer13/ for details
When I was a very young child, I remember my father used to drive me crazy by asking me “How long is a piece of string?” I was sure that I would eventually guess the right answer.
I was reminded of this by a note from an IACCM member who asked me ‘How much do contract managers in Europe get paid?’ While the answers are not as variable or indeterminate as the question about string, they are certainly very broad.
The question was prompted because this manager is having to participate in a company-wide review of salaries and benefits. He is headquartered in the United States, though his staff are worldwide – and his company uses Towers Watson for data gathering. That proves a real problem, because Towers Watson have still not acknowledged the existence of contract and commercial management. The only similar category they offer is that of Contract Administrator, which they designate as a form of legal support. The role and its contribution are defined accordingly. Not surprisingly, this designation yields the type of salary and benefit levels that would attract very few contract or commercial managers.
Earlier this week, I wrote about the relative dominance of the legal profession in the US and the dangers this has for good contracting. This incident reflects the same problem – a perception that anything with the word ‘contract’ must somehow be subservient to lawyers. A review of the many job roles covered by Towers Watson places contracts personnel in the category ‘Legal Support’ and defines them in the following way: “Provides support for a variety of law-related activities that do not require a law degree, including legal or factual research, contract administration, document preparation and analysis, citation checking, and trial preparation”. The role is sandwiched between ‘Paralegal’ and ‘Legal Secretary’.
Managers of contract management groups face an increasing problem in determining appropriate compensation for their teams. The dominance of firms such as Towers Watson means that many HR departments will not accept data from any other source, yet when the data they receive is inaccurate and fails to reflect the job being benchmarked, it results in massive internal battles. Because companies only accept this ‘impartial’ data, it becomes increasingly difficult for organizations like IACCM to collect data of its own – because there is little perceived benefit for companies to participate in surveys.
It seems to me that we need a concerted push by the contracts and commercial community to demand better recognition and understanding of the job role, its contribution and the associated salary levels. Through this blog, we have already done much to define typical job roles and to motivate practitioners to think hard about their potential contribution. This work continues – indeed, we have another webinar on the topic running this week. But if we truly wish to challenge the Towers Watson data, it seems to me that functional heads need to contribute current salary information to a worldwide survey that would once and for all establish the point that Contract and Commercial Managers exist and that they are not fairly or accurately represented by a role of ‘Contract Administration’.
Only then will we be able to answer the question ‘How much is a Contract Manager worth?’
In the past, it was assumed that the Marketing department was responsible for gathering market requirements, which they would then pass to product or service development for inclusion in ‘go-to-market’ strategies.
That approach never worked well when it came to contracting. In part, that was because there was frequently a disconnect between product management and contract development (so requirements rarely got considered). But more fundamentally, Marketing never considered terms and conditions as part of their remit. If you asked a marketer whether the approach on, say, Liabilities was material to customer buying decisions, they would give you a very strange look and most likely ask ‘What are Liabilities?’
While some organizations have developed a more sophisticated and holistic approach to their contracting, many have not. And in general, I think it is true to say that Marketing still have no greater grasp of terms and conditions than they did twenty years ago. This means that there is little understanding of the impact of contract terms and we are mostly reactive to market experience.
Does it have to be that way? Clearly the answer is no. Indeed, an interesting blog in Logistics Viewpoints illustrates the value of market research. It cites a study by UPS that found the value customers place on things like the right of return, the options for shipping speed and the value of ‘free’ shipping (each of these being, in my view, a term and condition). Much of this research results in value options being provided to customers – giving them the ability to select trade-offs, typically related to price but sometimes to term alternatives.
I see no reason why similar research and ‘optioneering’ cannot be applied to most – perhaps all – terms and conditions. IACCM analysis already offers some insights to the value that organizations place on specific terms; it also confirms that we pay too little attention to some of those that really represent value and should be influencing selection decisions. But part of the problem is that term alternates are not actually presented that way. For example, if data security is important, why can’t I decide just how important it is (and how much I want to pay for it) based on several alternate positions? And the same applies to liabilities, or to payment terms, or to rights of termination.
I doubt that those in Marketing or Product Management are ever going to spend much time understanding the impact and value of terms and conditions. But surely those who are charged with their development and management should be interested in that understanding – and would have far more business influence if they did so.
Last week, I was contacted by an IACCM member who was struggling with questions about internal authorities related to contracts and negotiations. Their company – a large multi-national – had sought external recommendations on the role of lawyers in providing contract drafting, negotiation and advisory services. They wanted to determine the right balance between the use of the in-house legal team and granting authorities to their trained contract managers.
As brief background, this company has historically tended to use lawyers for front-end sales support and contract managers in the post-award environment. However, experience has led them to appreciate that contract managers bring a broader perspective, enriched by the practical experiences of implementation. Therefore, they are often better equipped to provide advice and avoid business pitfalls than their colleagues in Legal.
Based on this realization, they went to a top international law firm to obtain a risk assessment. They asked for advice in each major jurisdiction regarding the extent to which the role of the contract managers could safely be expanded. As the answers came in, they broadly supported a re-balancing of authorities – until it came to the US. There, they were told, it was extremely risky for anyone but trained counsel to make any decisions related to contract terms, negotiation or advice. In fact, the implication was that far from expanding authorities, they should even be cutting back on those that already exist and ensuring that every deal was subject to ‘active supervision by a qualified attorney’.
The reasoning appeared to be based on fear of the potentially disproportionate penalties generated by the US legal system and an argument that its relative unpredictability is something that can be managed only by the cognoscenti – in this case, the practising attorney. If true, it suggests that we have reached a point of major imbalance, where ‘the rule of law’ is becoming somewhat tyrannical in its application. Certainly that is a growing concern for businesses outside the US, for whom the fear of litigation within the United States has become an increasing concern. That fear is driven by the sense of unpredictability and shifting standards which make litigation a lottery.
Of course, an alternative (perhaps cynical) view is that the US has far too many lawyers and they need work. They would also prefer this work to remain highly paid. Therefore it is in the economic interests of any law firm to portray levels of risk and complexity that demand the expert intervention of counsel, whether external or internal. Grasping control over contract management disciplines is therefore just a further extension of already broadening control and influence.
My simplistic view of this is that lawyers are an important stakeholder in the contracting process, but as a specialist function they are not the natural owners of that process. Good contracting, rather like any other form of complex integration, demands a consolidation of specialist views and wider stakeholder interests. Maintaining balance is key to good decision-making and to successful business outcomes. Dominance by any specific group undermines that balance.
What are your thoughts regarding the role of lawyers in business contracts and, in particular, the allocation of roles in drafting, negotiation and contract advice?
It isn’t often that contract management hits the headlines on national news bulletins, but it was the main item on last night’s UK news.
The contract causing the furore is between the UK Government (Ministry of Justice) and outsourcing provider G4S. There are allegations of massive over-charging for services and even suggestions of possible fraud. One of the issues being highlighted is the lack of contract management skills within Government.
While welcoming the debate, I hope that it will result in meaningful analysis and not just knee-jerk reactions. It is true that Government (and most other trading entities) needs to improve the quality of its post-award contract management capabilities. But at heart, I believe the issue is not to throw money at the symptoms of the problem, but rather to address some of the front-end causes. The real challenge is to raise the standards of contracting competence and this depends on first realizing the need to think about contracting as a distinctive discipline, not simply a formulaic sub-element of Sales or Procurement.
It is early days, but the problems with the G4S contract sound to me relatively typical. In order to achieve ‘savings’, a commodity-based approach was adopted. This treated services as ‘units’ and payment was tied to the number of units handled in any given period. The problem was that no one had the capability to accurately measure the units. A competent commercial process should have addressed this as part of the negotiation, and designed the charging model accordingly, but either the deal-architects were ignorant of the problem or chose to ignore it (a frequent occurrence and one that I will return to in a future blog).
Good contracting is about aligning commitments with capabilities. It starts with proper assessment of requirements and continues with undertaking the right analysis of supplier capabilities and motivations. Current procurement practices are weak in both of these areas, in part because they remain predicated on a product-based, commodity mentality. Sales processes are equally weak because they generally lack the motivation to ensure that capabilities are in place. That means neither side asks or answers key questions up-front and contracts are signed with the wrong partners or using the wrong principles for gauging payment and performance.
When it comes to the suggestions of fraud, we will have to wait for further investigation. But we all know that incentive systems drive behaviour and if sales and business management are motivated to maximize revenue, that is what they will do. If a customer wants a supplier to operate with integrity, why don’t they select suppliers which offer balanced incentive schemes? Why don’t buyers ask their suppliers to explain the incentive systems they use and to demonstrate how these ensure integrity and honesty?
In the end, here is just one more example of a front-end contracting process that is not fit for purpose. For whatever reason, this one has hit the headlines. But as IACCM’s work on the ‘Return on Investment from Improved Contracting’ has shown, the problem is not unique to this contract. It is endemic to the way that organizations operate and will be fixed only when they put some focus on raising the quality of their contracting competence.
IACCM recently undertook a study to compare the attitudes to contracting between the private (commercial) sector and the public (government) sector. It sought input on some of the key values that drive and motivate contracting personnel. It also gathered information on how contracts are viewed – for example, are they just an administrative necessity, or do they assist in generating value?
The research revealed that many core attitudes are the same, not just between public and private, but also between major geographies. However, there are substantial differences in key areas, especially those that closely relate to the generation of value and the quality of relationships.
For example, while public and private sector are pretty much neck-to-neck in their attitudes towards integrity, fairness, social responsibility and the desire to achieve value, they diverge significantly in some of the areas that actually make these policy objectives achievable. Some of these differences most likely relate to caution regarding the interpretation of public procurement rules or policy; but ironically, this caution also appears to reduce the level of public sector insight to wider risk issues.
Among the major differences were:
Private sector personnel are almost 80% more likely to be influenced by the need to promote competition and minimize operating costs
Private sector personnel are almost 70% more likely to be influenced by a drive to fully exploit market opportunities
Private sector personnel are 34% more likely to take a holistic view to minimizing operating risk (financial, legal and contractual)
Private sector personnel are 25% more likely to place value on building customer or supplier loyalty and showing respect for trading partners
For a copy of the full report, contact info@iaccm.com
“And another thing”, said the executive search consultant. “Where are all the youngsters? Why can’t I find people with a year or two of business experience who want to become contract and commercial managers?’
My blog yesterday on the topic “From job to profession” generated considerable interest and a number of lively conversations. Among them was the comment above. In spite of current unemployment levels and the number of graduates seeking jobs, it seems there is great difficulty in finding aspiring contract and commercial managers in the UK market. Vacancies sit unfilled. There is no obvious answer as to why this might be. Clearly, there is a degree of ignorance about the role. Maybe this generates a sense of insecurity. Certainly it creates questions over whether there is a career path linked to the job. But ultimately, if you were in your early 20’s, with limited business experience, and saw a job opening with leading companies, wouldn’t you at least show interest?
“Commercial Directors should be on the Board” was another comment that I received. Well, maybe. But why? Who is sure exactly what a Commercial Director is and does. Look at the make up of the average Board and in general it is a body of professionals – people with qualifications in Finance, the Law, Engineering, Marketing. They are linked to respected disciplines and have wide-ranging professional connections. That simply is not the case with Commercial experts. They depend on personal status, not professional respect – and that makes for a much harder route to the top.
To change this situation, those in Contracts and Commercial Management need to develop the hunger to be a respected professional body. They need to open their minds to recruiting and growing young talent. They have to push for more university and business school education. David Lowe, one of the few academics who has had the courage to push down this path, commented on yesterday’s blog, naming some of the companies which are investing in their commercial staff and sending them to the programs at Manchester Business School. “Our experience is that, although the process can be challenging (in terms of time commitment and the way it places participants outside their comfort zone), most acknowledge that the results have been transformational. Some participants, however, are not prepared to take ownership, believing that their organisation should be responsible for meeting any development needs and, moreover, that this should occur within work’s time, not their own – and highlighting the schism between those that see their role as a professional contribution and those who consider it to be a job.”
Of course there are optimistic signs. We are seeing record numbers applying for IACCM certification and training. We are witnessing a real growth in academic interest. Rene Henschel, appointed professor at a top law school in order to promote the study of contract management. Pace Law School, with innovative programs in International Contracting. A range of other universities and business schools turning to IACCM for support in program content or delivery, or to partner in research, or to seek mentorship for PhD students or executive education programs. The interest is there; but the community has to create the buzz that turns interest into reality.
So where are all the youngsters?
Commitment Matters 