On a typical day, about 100 people connect to this blog because they have done a web search on ‘the role of a contract manager’.
Should we be worried that so many people seem anxious or uncertain about their role? Is it just that they want affirmation, or perhaps to benchmark, or are they being asked to describe what they do? In many cases, it may be driven by executive questions – which are sometimes positive and sometimes negative. And of course there are some who are not contract managers and are either considering a career change or perhaps wanting to challenge the role that is being performed in their organization.
Before we get concerned about this apparent uncertainty, it is worth remembering that almost everyone – no matter what function they perform – is assailed by similar questions right now. It isn’t just the volatility of markets; it is more fundamental than that. Business organization itself is being challenged to adapt to a far different world, where agility is key to survival. Within this context, the management of risk and opportunity has become critical to success.
Contracts and contract managers lie at the heart of the problem and of the solution. They can either be a negative and reactionary force, constraining change through clinging to outdated rules and procedures. Or they can be dynamic enablers of the new and emerging world, through challenging old policies and practices and bringing judgment and innovation to commercial and contracting process.
It is these twin forces that are increasingly evident in the discussions I have with executive management. The contrast is stark: some see contract managers as the problem and a hang-over from the past, while others see them as representing a core competence for the future. Therefore in some places the challenge is to grow skills and contribution, while in others it has become a battle for survival.
In this environment, the fact that so many are seeking advice on their role is not surprising. This blog contains many articles that provide an answer, but early next year we will consolidate those thoughts and ideas into articles for IACCM’s ‘Contracting Excellence’. Meantime, share your ideas – or get in touch (tcummins@iaccm.com) if you need more immediate help with an answer.
Earlier this week I attended an excellent seminar on Innovation in Thought Leadership, conducted by Meridian West, a company that focuses on professional services (and advises many leading law firms on their marketing and value-add).
Among the many interesting items that were covered, there was a section that highlighted eight ways to grab management attention through thought leadership offerings and reports. Many of these have great relevance to business functions (Legal, Procurement, Contract or Commercial Management). Of course, i reviewed them in the context of how well IACCM is doing in addressing the topics – so I have illustrated the different areas with examples of IACCM reports.
1. Future gazing (eg Future of Contracting)
2. League tables (eg Most Admired Companies for Contract Management, Most Admired for Negotiation)
3. Gap analysis (e.g. team and individual skills assessments; process maturity assessments)
4. Individual function / job role (with so much change there is universal uncertainty so predictions of how things will look are of great interest)
5. Business sentiment (infographics – our State of the Global Economy reports did this)
6. Benchmarks of performance (eg maturity assessment, IACCM benchmark reports)
7. How to …. (reports that tackle things like ‘How to do business in Russia’ or ‘Best practice in cloud computing’)
8. Breakthrough models (eg Relational contracting study and implementation guide)
Another key aspect of the message is that simply relaying high value data is not enough; attention spans today demand that there is direct interpretation into specific ‘calls to action’.
The session will change some of our approaches at IACCM. But I believe it contains some key messages and tools for functional leaders everywhere, as they vie to deliver value and raise management appreciation of their team’s contribution. As a result, I plan to work with Meridian West to deliver some executive roundtables, in which we can share ideas and inspire our community to action.
The sad consequences of the recent hoax call to King Edward’s Hospital in London have featured on world media and inevitably led to widespread discussion. Something that has struck me in the course of my conversations is the extent to which cultural background appears to affect opinions.
As someone raised in a society that finds pranks amusing, I see the actions of the Australian DJs as perhaps misjudged, but certainly not malign. Indeed, if anyone is to be blamed, it is surely the executive managers of the radio station who appear to have approved such behavior. But this type of hoax is by no means unusual in countries such as the UK, US and Australia and had it not been for the subsequent death of the nurse who took the initial call, the event would already have been forgotten.
In my conversations with friends from around the world, I have come to realize that the concept of such hoaxes is simply alien to their culture. They cannot understand why anyone would want to play a trick of this sort and see it as cruel, not funny. As a result, if they were themselves victim of such a call, they would feel a terrible burden of responsibility for having trusted the hoaxer.
As I think about this in the context of global communications and negotiations, it makes me realize just how little many of us understand about the way that the nuances of language and behavior may be perceived by those outside our culture. Indeed, it also leads me to wonder how often I may be misinterpreting the intent of others.
This week I am in India, where we are running an IACCM workshop on Contracting Excellence.
Yesterday we reviewed a number of recent newspaper headlines that illustrated the costs associated with poor contracting. Workshop participants explored the underlying causes and the role that contracts / legal professionals should be taking to reduce or eliminate them.
As if wanting to illustrate the importance of this workshop, ‘The Times of India’ has featured contract issues on its front page twice this week. The first related to action by the Government of the Maldives, revoking a $500 million contract with GMR to build a new airport. Today, the headline relates to a hospital and its gas pipeline system. Apparently there was a failure in oxygen supply which has resulted in the death of four patients.
The article carries a sub-section entitled ‘Blame Game’ – a term familiar to any contract manager. The supply and maintenance of the hospital’s gas pipeline had been contracted to an outside supplier since 1998 – but according to that supplier the operational contract expired in October 2011 and the maintenance contract in October 2012. As a result, they had started to reduce the number of staff deployed at the hospital and were threatening to withdraw all personnel. The hospital claims that it had given verbal assurances of extension and that necessary funding was sanctioned 3 weeks ago.
The precise truth of the matter will doubtless emerge over time, but the story clearly indicates the importance of contract management discipline and the potentially fatal consequences when it is lacking.
Earlier this week, I was reminded of a survey that IACCM undertook a few years ago exploring member attitudes to negotiation style. One of the key discoveries was that almost half were not even aware of the ‘positional’ and ‘principled’ terms that were used in the seminal work on negotiation, ‘Getting to Yes’.
The reason I re-discovered the study was because of a question from three MBA students at the Norwegian School of Entrepreneurship, who are studying what frameworks business managers and negotiators use when planning or conducting negotiations.
On reflection, I had to admit that I don’t spend much time thinking about these questions of style, because I believe most b2b negotiations tend to be a hybrid. Also, a discussion of preferred style seems to imply far more planning by the average negotiator than is really the case. In my experience, they are more often driven by the broader policies and practices of the organization than by any personal propensity for negotiating style. So, for example, if the company operates with strong ‘powers reserved’ by specific functions, the style is largely one of stone-walling.
Many large businesses appear driven more by concepts such as avoidance, assertion or compromise. Value trading tends to be eliminated because of management and measurement systems.
Also, we have to bear in mind the fundamental shifts that there have been in business operations in the last 15 years, none of which are adequately reflected in current literature. Specifically, the globalization of trading relationships and the intervention of networked technologies have fundamentally changed the framework for negotiation. Things like e-auctions have altered the playing field for negotiability; communication technologies and distance have made most negotiations virtual; the growth of specialisms has rendered negotiation far more defensive and iterative (rather than holistic); and procurement practices have eroded trust and loyalty between trading partners. In addition, ERP systems have created a set of enterprise standards that create complexity for one or both sides – the challenge of ‘what happens when ERP meets ERP’.
Overall, the nature and scale of complexity that faces negotiators today means that the rationality implied by concepts such as ‘positional and principled’ just doesn’t exist. Even if I want to be collaborative and open, the barriers to achieving it are often simply too great. In either preparing for, or observing during, a business-to-business negotiation, I have to understand not only the personal character of the various negotiators, but also the measurements that motivate them and the ‘organizational culture’ that will eventually affect not only this negotiation, but also the subsequent performance of the contract. It is a complicated mix – and rather defies the theories of specific style.
“The function must re-invent itself or it will not survive”.
That was the view of one supply chain academic at an executive forum i attended last night in Germany. The audience – primarily current or former Chief Procurement Officers – appeared to agree. Indeed, one made an analogy with the Pony Express, put out of existence almost overnight by the final link being made in a new technology, the telegraph.
It was in this context that the forum was wrestling to address questions over the future role and purpose of the Procurement function. They did not doubt the need to buy things; they simply wondered what need there would be for ‘a profession’ to oversee the process.
While it is certainly possible to redefine and extend the role that today’s Procurement practitioners could play, there are at least two major challenges. One, of course, is the nature of the skills or knowledge required, relative to those held by the incumbent community. The other is the openness of others in the business to the expanded or altered role that is envisaged. In this context, the issue is not only whether they feel the activities need to be undertaken, but also whether they view Procurement as the right place for them to be done. Given that many other functional groups are also busily redefining their future role, there is potentially a lot of competition.
The organizers of the forum had undertaken considerable research – and it did not appear to offer a comforting message. Specifically, even in those areas where Procurement executives believe there is potential for the function to expand, there appeared little receptivity by other parts of the business to allowing them to do so. Indeed, the best hope was in shifting to a more holistic role in determining total business cost associated with purchasing decisions, yet even here there was resistance by the Finance executives.
So in the face of the dramatic shifts in technology, where exactly will Procurement find itself over the next few years? Will the function indeed suffer the fate of the Pony Express?
Today’s networked computing offers much faster and more extensive access to data, but does this have practical application, especially in a field like contract management?
Many believe the answer is yes, but to date the evidence of effective application is limited. There has been some improvement in risk assessment and benchmarking, but this is not yet pervasive. A few legal and contracts organizations are starting to collect data and undertake analysis in areas such as timing of engagement and cycle times, or causes of claim and dispute. These retroactive analyses are proving useful in the delivery of value and the data certainly raises the profile of the function, because it contributes to policy and process rather than simply reacting to the frustrations of others.
How much further could we go? This week’s Economist magazine offers some insights. In ‘Micro Stars, Macro Effects’, it highlights the growing influence of economists on the way business decisions are made and markets work. It offers examples such as managing internal use of internet bandwidth as a means to contain costs and optimize market prices. Another relates to research on how honest we should be with potential customers about possible flaws in our products or services (for those who wonder, the answer is that greater honesty raises the probability of a sale and an increase in the price realized).
Both of these examples have very clear application to the world of contracts and commercial management. They demonstrate the importance of starting to ask new questions, to challenge old theories and practices. But going a step further, what information is hidden within the contract or contracting process that could assist improved business and market management?
In a third example, the Economist article cites the extent to which policymakers are always reacting to events. Data such as GDP growth, unemployment and inflation rates are typically lagging reality by weeks, if not months. Economists suggest that this is simply because we are failing to change the way we record the indicators. At Google, they have initiated real-time monitors on key words such as ‘job’, ‘benefits’ and ‘solitaire’ and have discovered there is almost complete alignment with the (eventual) unemployment data published by the relevant ministries.
So how might real-time monitoring of contracts change our insights? I think the impact could be considerable. For example, analysis of key words or demands in bid requests or capture of trends in negotiation (rigidity on price, growing concern over specific terms and conditions) will often indicate broader market sentiment – are customers tightening belts or pushing towards growth? Are there specific risk concerns rising to the surface? Are changes in competitive offerings impacting expectations? We know from IACCM’s annual (retroactive) study of the top negotiated terms that such trends exist, so why not capture them in real time and start to review internal policy, practice or offering capability as a proactive measure? Now, that would be revolutionary.
A quick look at the Appointments pages, or a glance at salary surveys, would seem to provide a rapid answer to this question. Being a practicing lawyer is clearly a far better career choice than contract or commercial management. Right?
Not according to two senior in-house counsel that I interviewed yesterday. Both come from large international corporations that employ several hundred legal and contract management professionals. And both – one a General Counsel, the other a VP of Legal – told me that they believe the contract management role is steadily becoming far more important than that of the lawyer.
Of course, neither was suggesting that the law profession is about to go into massive retreat. And both see contract management as a future direction for many qualified lawyers. But their observation of business needs and trends has led them to conclude that Contract Management will be a critical function for 21st century business, ensuring not just the integrity of pre-award processes, but ensuring the delivery of commercial benefits.
But if you are a contract manager, don’t start celebrating yet. You can’t simply sit back and wait for that promotion or increased recognition. The role that is being described is broad in its skill requirements and demands a role and contribution that only a few would match today. Legal understanding is certainly part of it; but as was demonstrated in IACCM’s recent ‘Future of Contracting’ study, the role must encompass solid financial and risk awareness, a grasp of project management disciplines, market and business intelligence as well as softer skills such as communications, analytical, problem solving and negotiation. It demands true ‘solution providers’ who are not focused on transactional ‘fixes’, but are bringing sustainable improvement to business performance and competitiveness.
Both of the organizations that I interviewed are investing heavily in building and developing these capabilities. They see an urgent need for greater engagement by the university sector, so that contract and commercial management are seen as viable career paths by the school leaver and the graduate.
With so many lawyers now entering the market, a growing number are converting to contract and commercial management roles. But in future, I believe we can expect a real choice, where individuals train to become contracts or commercial professionals, rather than falling into the role from another business discipline.
There are times when my conversations yield recurrent themes and during the last few days, performance management has been a recurrent topic.
It began with a study I was asked to review, which yielded insight to the current state of contract performance oversight by Procurement. The results confimed that for a majority of organizations, performance management is more about conducting a post-mortem than it is about generating better results. While some large corporations may have invested in a more pro-active approach, they appear to be the exception. In most cases, Procurement is not even involved in performance oversight unless they are called in or unless it is part of a contract close-out process. In both cases, interest only seems to arise when things are badly wrong and someone needs to be blamed.
This experience led me to pay added attention when people started talking about ‘obligation management tools’. Strangely enough, this term occured several times this week during meetings in Germany and Switzerland. As complexity grows, as the frequency of change increases, and as long-term outcomes become a point of greater focus, the importance of capturing, monitoring and amending ‘obligations’ becomes ever-more significant. In addition, effective obligation management requires clarity over roles and responsibilities; it isn’t enough just to know what needs to be done, it is also critical to know who is responsible for doing it – and that is one of the key weaknesses that emerged in the performance management report I mentioned earlier. Far too often, the allocation of tasks is far from clear – convenient when it comes to handing out blame, but not good if you actually want to succeed.
Of course, if we have reliable obligation management systems, we can be more effective in overseeing performance. So this has set me onto a search for effective obligation management tools or systems and I will comment on those in a future blog. But another link in the chain of obligations and performance is the corollary of poor management – claims and disputes. And this was another topic that kept arising. In several presentations I attended, there was emphasis on the growing importance of good claim and dispute procedures. In these hard economic times, it seems that companies are paying increased attention to their contractual rights and obligations, at least when it comes to making money or cutting costs. So they have become more robust in their readiness to issue or fight claims. Of course, one might argue that it would be smarter (and long term more cost effective) to invest in improved obligation and performance management rather than engaging in battles over what went wrong.
Today I am chairing a CFO conference in Geneva. My interest in doing this (apart from my own background in Finance) is to continue efforts in raising CFO awareness of the important contribution that improved contract and commercial management can bring to bottom line results.
In listening to the various presentations and discussion forums, I am struck by the similarity of many of the lead topics with those at contract management events. For example, one head of Audit and Risk highlighted the need for Finance to look beyond cost and budget, to focus instead on value. He gave an excellent example, where a project came in on budget, yet was delayed by 3 days at a cost to the business of $1 million. Another conversation revolved around the importance of considering risk holistically; it revolved around the point that a concentration on risk mitigation tends to undermine potential results, especially when driven by specialists who may be unable to see the wider chances for off-sets or alternatives.
Another topical theme is that of cost reduction. Finance is also under scrutiny and needing to find ways to reduce its cost of operations. Within this, it must determine how to deliver the right balance of operational activity, reporting and strategic support. The challenge is familiar and indeed the approach to analysis is similar to that which should be going on within any contracts / commercial / legal function. However, in listening to presentations, it strikes me that many of these functions are far behind Finance in their reengineering efforts and their understanding of value delivery. Often, we appear stuck in the low-value operational mode and have yet to grasp the importance of turning transactional data into substantive management reporting and ultimately a strategic contribution. Finance is one of the leading functions when it comes to the outsourcing of its work, or creation of shared service units. Now they are focused on ‘Finance Competency Centers’. No wonder there is growing impatience on the part of many CFOs about the unreformed nature of the contracting process and resources.
So while I believe there is an important message that we can deliver to CFOs, I also appreciate that we must learn from them when it comes to putting our organizational house in order. Perhaps they would be more inclined to hear our calls for greater commercial awareness if they felt we had grasped the principles of added value in our own service delivery.
I will expand on this topic in a future blog where I lay out some of the analysis used by Finance which I think those in contract management could be using in our own organizational and process design.
Commitment Matters 