IACCM member Gregg Barrett forwarded an article that features a story of corporate espionage and a commentary on the scale of intellectual property theft by Chinese firms.
There can be few who are unaware of the threats to IP that arise when doing business with China. The aspect that makes it especially worrying is the feeling that, far from condemning such espionage or IP theft, the state authorities actively condone it. In the case featured within the article, the CEO of the US victim had taken steps to look beyond the contract and, in his opinion, developed a strong and trusting relationship with his Chinese counterparts. We must wait to see whether the Chinese courts take meaningful action in what appears to be a clear-cut case of theft.
However, before leaping to judgment, I believe we must also place IP protection into an historical context. First, it is important to remember that the entire concept is relatively recent – less than 300 years. Second, we must acknowledge that emerging countries have rarely paid great respect to the concept of intellectual property rights. As nations seek to improve their economic wealth, there is always a delicate balance between collaboration and aggressive competition in their international dealings. While on the one hand there is recognition of the benefits of trade, on the other there is a hunger to equal or better the position of rival nations. Even in established economies, this friction remains – for example, the debates over free trade or protectionism.
If we go back to the 1800’s, there are certainly many examples of US entrepreneurs ‘borrowing’ ideas from elsewhere. In those days, it could take years before the original owner was even aware that their IP had been stolen and the chances of them launching a successful prosecution were few. The acceptance of IP principles tends to come only when a country has passed a point of equilibrium – when it has more to lose than it has to gain. This comes about in two ways. One is through the development of its own inventions and the other is through its hunger to export and trade in foreign markets. In the first case, having its own inventions creates a desire for protection (both domestic and foreign) and therefore a more effective legal system. In the second case, the wish to export creates an exposure to action in foreign courts which may not share the benign view of their Chinese counterparts.
Since the chances of concerted world action against China seem remote, it appears that companies must in large part rely on themselves for handling the threat of IP loss. They must carefully consider the extent and nature of their trade with China. They must think of ways to limit access to the full specification of their products. They must increase vigilance over employee hiring and loyalty. And they must continue to invest in security products that prevent access an create alerts against attempted IP theft. Perhaps most of all they must hope that China soon reaches that point of equilibrium where it starts to share the view that IP should be respected.
I am currently working with members of the IACCM team undertaking one of our regular reviews of the learning materials for the contracts and commercial community.
Our core material already consists of almost 50 separate modules. The recently published Operational Guide that accompanies this material is over 600 pages long. Yet with each review, I realize how much more we could be adding! The scope of knowledge and work required to be truly expert as a contract or commercial manager is remarkable. It goes far beyond a simple understanding of contract structures and terms and conditions; of how these may vary between industries and geographies. It requires understanding of the impacts that these terms and structures will have on business outcomes; an ability to assess and balance the financial and risk consequences of the contract or commercial approach. Today, it also involves an appreciation of the different methods through which business will be conducted – for example, virtual negotiations, the use of technology such as e-auctions, the role of contract management software and its integration with relationship or project management tools and systems.
Today’s contracting expert must have not only a coherent grasp of laws and regulations, contract interpretation and drafting, but also of operational and procedural capabilities, of financial analysis and modeling, of psychology and relationship building, of relevant tools and systems, of logistics and supply, of change management and negotiation … the list is enormous. And ironically, until very recent times, almost no-one in this field received much formal training. With a few exceptions, know-how was picked up on the job, by people who came to the role with several years experience from another function and who then received ‘ad-hoc’ training on specific elements of the tasks to be performed.
Increasingly, there is understanding that good contract and commercial management demands more than this ad-hoc approach and that it needs a disciplined approach by trained professionals who use similar terminology, methods, techniques and ideas in pursuing their activities. Not only does that discipline benefit the individual, but it makes the process itself more efficient, effective and predictable.
But looking at the array of materials and comments on which we are working, I realize the scale of the task before us as we seek to continue the development and update of this enormous field of professional knowledge. Daunting, yes, but above all exciting as we discuss the many ways in which this community can and will develop in the years ahead.
I am often surprised by the lack of interest shown by many contracts and commercial managers (and in this I also include Procurement) in international markets.
Based on my experience in talking with , and developing programs for, this community, I would say that about 65% appear to consider ‘international business’ almost irrelevant, 25% consider it relevant in the sense of doing business with international markets and just 10% are engaged in the challenge of doing business in overseas markets.
My purpose is not to debate why people feel this way, but more to suggest that a much higher proportion need to adjust their thinking and outlook. There are several reasons for this – not least that globalization is challenging many of our assumption son how to do business and we need to be at the forefront of understanding and managing those changes. But perhaps most important for the established contracts and commercial experts (most of whom are today based in the traditional economies) is that so many of the future opportunities for business will be based in overseas markets.
Several items in today’s Financial Times illustrate the point. In discussing India, an analysis highlights the critical importance of a ‘much needed overhaul of the nation’s infrastructure’. It goes on to suggest that ‘for the first time, Delhi plans to share investment costs equally with business, creating a multitude of opportunities for domestic and global companies’. Another column points to the emergence of opportunities for the oil industry in Russia, suggesting that Government policy will open Arctic development opportunities to foreign firms with the expertise to deal with complex, high risk projects. And while opportunities such as these unquestionably demand high levels of technical competency, the history of project management clearly points to a similar need for commercial competence – in particular, an in-depth understanding of business culture, finance, relationship management and contract governance.
Businesses that depend on traditional contract and legal skills, or who take it for granted that their ‘cultural and business superiority’ will ensure success, are likely to be disappointed. As another article highlights, “Knowhow is needed for real-world problems’. And a letter from Rakesh Rawal, Chief Executive of +91 Europe, sums it all up when he warns of the costs associated with xenophobia. Openness, flexibility, dynamism and the welcoming of foreign capital and ideas – these are fundamental to competitive advantage for businesses and for individuals. It is time that the contracts and commercial community expanded its mind and its interests, to grasp the business needs and opportunities of tomorrow.
Dear Tim,
My partner keeps flirting with other men. Should I terminate our relationship?
Well, that wasn’t exactly the question I received today, but it is close. The actual request was:”
“If a buyer enters into a supply contract with a supplier but then solicits bids from other suppliers for every order for items covered under the original contract, would that action void the contract with the supplier?”
In either case, as a trained commercial expert, I would of course seek rather more information about the circumstances. This wa show I replied – but what would you say?
On the HR.com Leadership blog, Garrett Gitchell offers some pointers for effective leadership. His focus is on change management initiatives and I think they are useful in that context, since so many in the commercial and contracts role today are needing to drive significant organization and process change projects. However, a number of his comments apply equally well to complex project contracts and i have added my thoughts in italics.
1. Be very clear before you start the change journey of the responsibilities of leadership- you will likely have an owner and an implementer. Partner together and pass that type of relationship down the chain. Change fails when no one is responsible and no one is accountable. (This problem is frequently identified as an issue in many of our change projects and major contracts. Think long and hard about the roles that will be needed; for example, is the leader also the sponsor? What need may there be for an executive steering group to provide authority and credibility to the work etc).
2. If you are the leader be careful of the you and them perspective- stakeholders see right through a leader who is not personally connected to the change. (Another way of expressing this is to be sure that we use terminology and behave in ways that show understanding and respect for those who are affected or from whom we need support – the stakeholders. Simply trying to overwhelm people, or failing to take the time to explain the impacts and benefits to them, is a sure way to build resistance. Leaders are inclusive of others, because they believe in what they are doing and want others to join them.)
3. Value expertise- use it, call it out and connect the relationship of talent to successful change. But don’t fake it (see point two). (this is indeed linked to point 2 and in particular relates to the functional experts that need to come on board. Think hard about how and when to inform them. The more they feel side-lined or that they were not given an early opportunity to engage, the more probable you will hit resistance. Think of this in personal terms – when others come to you for support, what makes you feel valued or under-valued?)
4. Be clear about the differences between project management and change management- PM accomplishes tasks and manages risk, CM works to connect the work of people to end states. Don’t put big picture people on the little stuff and don’t throw the big picture stuff at those managing risk. (This is a great point. Project management is just a disciplined way of getting things done. It is not in itself anything to do with leadership. Contract management is the same. Leaders must step beyond their discipline and put it in a context of business value.)
5. Double your time and dollar estimates- I mean that figuratively (although if you want to take it literally and act on that you might have some pretty successful change- by all measures). Don’t fall prey to any hucksters out there who promise to speed your time to change. It might work for the first round, but the mess will be ugly the second time. (Again, it is true to be realistic in what can be achieved, but also unrealistic to expect that there will not be pressures and expectations to do things faster and cheaper. Setting expectations is key and to gain acceptance you must of course have a very clear vision of the future state and benefits associated with it.)
6. Change can be, and is when it is thought out and makes sense, positive- be careful of negative, resistance fighting, risk managing approaches to change. There may be times when you have to put the hammer down… that’s different. (Doing things differently is always threatening to many people, even those who claim to like or embrace change. Most of them actually like change when it affects others, not themselves. Our research consistently shows that most professionals think what they are doing and how they do it is just fine – it is others who need to change their ways. Be conscious of this at every step.)
7. Enjoy the journey- you are, after all, asking that of others. (Another great point. Many contracts, legal and procurement people feel left out today. The number one reason why we are left out is because others perceive us as tending to be negative and risk-averse. We would say we are realists. But to be a leader, and accepted as such, we must demonstrate optimism and a belief in achieving new goals or targets; we must find ways to do things, rather than reasons not to do them. And a great start on that journey is to be seen as enthusiastic and able to motivate others – not someone who worries and generates lists of issues and problems.)
You can see more of Garrett’s thoughts on change management at http://horizontalchange.com/
In yesterday’s blog, I touched on a series of meetings that illustrated the growing importance of contracting and commercial skills. One of these referenced a presentation by Ross McKean and David Halliday from law firm Baker & McKenzie and today I will expand on that.
Drawing on the IACCM research of ‘the most negotiated terms’, Ross and David led a study with Baker & McKenzie clients to confirm whether negotiations for outsourcing contracts tend to follow this same pattern and use the limited time and resources for negotiation to focus on the wrong topics.
Their findings reinforced the IACCM results. The top five issues that emerged were:
- incomplete service definitions
- poorly constructed service levels
- failure by customer organization to implement required internal change
- allowing an adversarial relationship to emerge, rather than collaborative partnering
- failure to consult internal stakeholders adequately during the RFP process
In combination, these issues point to the primary sources of claim and dispute captured by IACCM’s studies – that is, disagreement over scope, disagreement over changes and disagreement over price / charges.
The customer organizations were then asked what they would do differently. Here are the answers:
- spend more time defining scope and goals – and make sure the contract is built around those goals
- allow more and better structured time for the procurement process
- be more rigorous in eliminating ‘nice to haves’ from the requirements
- keep the bid process competitive as long as possible (in the sense of learning, not in order to further drive down price)
- set up a win-win contract that locks in common interest, trust and value
- negotiate value for money price, not cheapest price
Each of these points led to expanded discussion with important lessons to learn. To a significant extent, a core problem is the absence of clear ownership for contracting and negotiation, and a failure to recognize the end-to-end process linkages – goals, requirements, measurements, contract design, negotiation plan and style, implementation, governance, change. When these are disconnected, performance is inevitably impacted.
One final point related to the use of third party advisors. Most survey participants felt that their involvement ‘tends to create an antagonistic procurement process’. Of course, if this is happening, it remains the responsibility of the customer organization to give proper direction and exercise control. But it is also encouraging that a leading advisor such as Baker & McKenzie has itself explored such issues so that they are in a better position to guide their clients to put together successful deals.
Last week, a series of events confirmed the scale of the challenge and opportunity facing the contracts and commercial community. Each day, I had meetings which reinforced the importance of equipping organizations with increased commercial acumen, at both a tactical and strategic level. They also illustrated the scale of the task facing IACCM, as it is increasingly looked upon as the association that can offer leadership in supporting today’s business needs.
My week began with a UK member meeting in London. I have already reported on the excellent presentation by Srini Krishna, who described Microsoft’s outsourcing of finance back-office operations. At the same meeting, Ross McKean and Dave Halliday (partners at law firm Baker & McKenzie) built on IACCM’s annual research of the most negotiated terms and conditions with results from a study they undertook on the key issues in outsourcing contracts – I will write more about that later this week.
On Tuesday, the latest IACCM Executive Roundtable was held at the UK’s National Audit Office. In recent years, the NAO has issued a number of reports which highlighted the absence of commercial skills within the public sector and the impact this has on project and contract outcomes. This meeting focused on the issue of skills and sought to address the question ‘how do you overcome a risk environment which results in an inefficient use of capital?’ The resulting conversation led to a lively debate over the differences between ‘contract management ‘ and ‘commercial management’ (an old chestnut), resolving that in essence ‘doing contracts’ can be an excellent foundation for ‘being commercial’. It was suggested that there are really three tiers to progression, with the Foundation level being about technical competency, understanding standards and compliance, developing analytical skills; the Mid-tier is a time to develop softer skills of relationship management, communication, and business judgment, combined with greater depth of financial awareness and modelling, often applied in a deal-making environment; and the Advanced tier is when a true commercial expert can set the environment for top management, either in terms of commercial policies and strategies (eg for a business or product line), as well as handling the most complex market opportunities.
The week progressed with some excellent discussions with Achilles – a name not yet well known to the sell-side contracts community, yet it should be. There is potential for their work on supplier compliance and selection to have a major impact on our commercial work and contract terms. This conversation once more illustrated the importance of the contracts community stepping back and exerting more influence over its environment. Achilles represents a tremendous opportunity to eliminate much of the low-value redundancy from negotiations and bidding. Why aren’t we on top of things like this?
That afternoon, I met with the Chief Procurement Officers of two large international corporations, representing a group of CPOs who are determined to tackle the skill issues that they face within their organizations. They perceive a major gap in the ability of today’s procurement staff and training to respond to the value needs of their business. Leadership, relationship management, analysis, commercial judgment – these are the types of capabilities urgently needed. They also feel that external professional bodies must be far more effective at addressing the demands of rapid change and responding to the pressures of global markets. Exciting stuff for IACCM, because these needs go to the heart of our purpose and activities.
Thursday included a lively session with the UK Cabinet Office, where we had a group of IACCM members acting as ‘the voice of the supplier’ and offering constructive input to the significant efforts that UK Government is making to improve public sector acquisition. The thoughtful discussion reflected well on the approach being taken by commercial leaders as they seek to influence both the buyers and their own management in developing more robust and transparent trading terms and relationships. Again, I will share more details in a later blog.
And on Friday, I had been invited to present to yet another group of CPOs, this time in Brussels at the Procurement Leadership Council. Once more we had a lively discussion, the focus this time being on the future Procurement ROI (return on investment) and how to generate greater support for an end-to-end process role, including supplier relationship management.
As with so many weeks, there is so much to write about. The themes for both buyers and sellers are so similar; the opportunities for shared learning and action are so great; and the prize to be won from increased harmonization are so large. As the week goes on, I will expand on the issues I have touched on in this blog and share my excitement over the growing momentum and all that it offers to the contracts and commercial community.
“If we don’t trust our partner. we should recognize that the problem lies in our selection process”. That was one of the observations delivered by Srini Krishna, Director of Global Supplier Management at Microsoft, when he spoke at this week’s IACCM Member Meeting in London.
Srini has a leadership role in managing the outsourcing of Microsoft’s finance operations. This global project started from a base of confusion, in that there was no common process in place. It had all the hallmarks of a potential outsourcing disaster, yet has proven to be extremely successful.
Key to the turn-round was the readiness of both Microsoft and Accenture, their supplier, to come together and work constructively on the program. Srini outlined five core principles which lie at the heart of success:
- clarity on outcomes – a simple definition of the goals.
- a focus on ‘what’ not ‘how’ – resisting the temptation to dictate the detailed process, even when things are going wrong.
- ensuring that the outcomes are not only well defined, bu also measurable – and that measurements are kept few in number and appropriate to the goals.
- a pricing method that is simple to operate and allows focus on improvement and innovation.
- a robust governance system that delivers insight, not arguments.
As an example, Srini highlighted how traditional pricing and budget models tend to make every change an item for negotiation. “We designed an approach that is capable of dealing with change without always forcing negotiation.” He also commented on the need fror greater clarity over roles and skills. “We quickly realized that there was a disconnect between the internal business manager who was trying to deliver services and the vendor manager who saw their task as periodically beating up the supplier. There had to be far better communication, different communication.”
The outcome sought by Microsoft became a very simple statement – they wanted transformation of financial operations. Measurements of success were also simple – for example, to achieve top quartile benchmarked performance over the lifetime of the contract, as measured by an independent third party. Quarterly reporting to senior management also ensured continued focus and a senior attention that meant issues and opportunities were quickly addressed at the right decision-making level.
“Sound governance is the key to it all”, concluded Srini. It sets the tone for the relationship, drives accountability and clarity of roles and responsibilities, and ensures transparency, a common view of the truth.
With these ingredients in place, it became possible to deal with the complexity of the program, which was subject to massive variations between countries in process scope and maturity, the need to cope with global change and volatility, the introduction of new products and commercial models and a multitude of stakeholders and users.
Srini paid tribute to the thinking introduced by Vested Outsourcing and the simple model this offers for handling complex situations. His presentation should certainly be viewed by anyone who wants to ensure success in their outsourcing operations – and I will be asking him to share it with a much wider audience.
I held a teleconference last week to gain insight to ‘the voice of the supplier’, for a meeting this week with a national Government agency.
I wil share various of the findings in a later blog, but one interesting element to emerge was the preference for contract standards and model terms. This particular agency has recently withdrawn its standards and the result has been far greater autonomy for individual departments and purchasing groups. The experience has caused the supply base to push for a return to the (often maligned) standards of the past.
Their point is that at least those standards were predictable and they could understand and assess their risks. In this new environment, they find they are subject to arbitrary terms which take far longer to review and often result in unknown or unacceptable levels of risk.
We often call for flexibility, but must remember that it is not always going to operate in our favor – and it also carries hidden costs. A consistent baseline is a good thing to have, so long as it is not applied with too much rigidity and has the ability to adjust to shifting needs or market conditions.
Commitment Matters 