Commitment Matters

If you are a professional in Contract & Commercial Management, committed to achieving the best possible outcomes from negotiations with all your trading relationships, then ‘Commitment Matters’ is the perfect source of regular articles and posts dedicated to helping you achieve that goal.

Which terms are risky?

Posted by Tim Cummins

Dec 21, 2016 7:58:02 AM

For 15 years, IACCM has been publishing a list of the most frequently negotiated contract terms – and highlighting how these are more focused on risk consequence than on risk probability.

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Topics: negotiation, contract /commercial management, contract management

Let’s turn back the clock …

Posted by Tim Cummins

Sep 28, 2016 4:02:23 AM

There are few better ways to establish irrelevance than to be a barrier to change. Could this be the fate awaiting many business negotiators and contract managers, if they continue their reluctance to embrace technology?

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Topics: negotiation, contract /commercial management, contracting excellence

Do we actually care about results?

Posted by Tim Cummins

Sep 28, 2016 3:38:02 AM

The quality movement has been around for decades and regulated trading standards go back centuries, yet still we struggle to generate the right results. Our process for establishing and managing contracts frequently does not help.

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Topics: negotiation, contracting excellence

Do price negotiations destroy value?

Posted by Tim Cummins

Jul 7, 2016 4:33:00 AM

Should negotiations ever come down to price? Not according to INSEAD professor Horacio Falcao. In a thought-provoking article, Professor Falcao suggests that 'a focus on price puts both sides at risk of leaving out other interests that are more important'.

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Topics: negotiation, contracting excellence

Negotiation – an incompetent competency

Posted by Tim Cummins

Jul 7, 2016 4:29:16 AM

Censeo Consulting Group and the Public Spend Forum recently announced their findings on 'the required skills of the public procurement workforce'. They discovered under-performance 'in nearly 70% of identified competency areas'.

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Topics: negotiation, contract /commercial management

Contracts and culture

Posted by Tim Cummins

Jun 23, 2016 5:42:44 AM

Increasingly global, increasingly diverse teams, increasingly virtual communications .... the challenge of managing contracts has never been greater. Whether you are assembling, negotiating or implementing agreements, the results you achieve depend on teamwork.

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Topics: negotiation, contract /commercial management

When Contracts Fail...

Posted by Tim Cummins

Apr 20, 2016 12:57:00 AM

"Why is it called contract failure? It's failure of a relationship."

That was the reaction of a group of law professors in Tokyo this week, when I showed them a set of newspaper headlines highlighting 'failed contracts'.

In a culture where relationships have traditionally dominated and contracts have been deemed of little importance, such a reaction is understandable. The contract is not seen as a specific commitment vehicle or a significant management tool. Therefore, it cannot 'fail' and those headlines are more likely to lead to a questioning of the relationship.

For cultures that make substantial use of contracts, it is often the case that an individual agreement can fail without inflicting lasting damage on the overall relationship.

These differences of approach and perception are important to understand because they may reflect quite fundamental variations in the way that agreements are established, viewed and managed. In Japan – and some other parts of Asia – the relationship may precede the contract; a contract is created only when a relationship has shown its value. In the United States – and most other common law jurisdictions – the contract comes first and a relationship may follow.

Similarly, relationship cultures tend to rely on personal contact or connections to review performance or address problems, without reference to a contract (which may or may not exist).

These apparently simple differences can have significant implications. For example, when one side wants to push for a contract and the other wants first to develop a relationship, there is real potential for misunderstanding. One side may feel the other is not to be trusted because it is avoiding commitment. The other may feel that it is being pushed into a rigid structure before it is ready. Similarly, attitudes to how performance will be managed, or changes agreed, will inevitably differ in their level of formality.

The differences go deeper. For those in a relationship-based business culture, 'relational contracting' implies a reduction in the role of the contract. For those who come from a contract-based culture, relational contracting implies an expansion of the contract's role, to include increased clarity over approaches to governance and performance.

Given the uncertainties and underlying risks and complexities of global business, it seems more likely that contracting discipline will increase to ensure that there is shared understanding and agreed methods of management. Of course relationships are important, but the challenge of increasingly virtual business, operating across language, law and business culture, demands mechanisms that increase clarity, not those that entirely depend on human memory and goodwill.

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Topics: negotiation, contract /commercial management, procurement, relationship management, international, legal

Winning Contracts with Distinctive Capabilities

Posted by Tim Cummins

Apr 11, 2016 7:33:00 AM

Economist John Kay has highlighted the importance of 'distinctive capabilities' in establishing competitive advantage. The correlation to contracting and commercial terms is immediately evident – not least because he sees these capabilities being delivered in the context of external relationships.

"Distinctive capabilities are a relevant factor of an organization's resources. Companies with distinctive capabilities have attributes, which others don't have and cannot replicate. There are three distinctive capabilities which a company can possess to achieve competitive advantage through relationships:

  • Architecture: It is a structure of relational contacts within or around the organization with customers, suppliers and with employees
  • Reputation: This includes customer's own experience, quality signals, guarantee, word of mouth spreading, warranty, association with other brands and staking the reputation, once it is established
  • Innovation: Provided that the innovation is translated to competitive advantage successfully."

There is, of course, a counter-side to this position – which is that contracts and the contracting process can distinguish an organization for its negative capabilities. In other words, if contract terms and approaches to negotiation are risk averse and seeking to limit commitment, they damage architecture, reputation and innovation.

So distinctive capabilities are created through contracting and commercial skills – but require a real shift in attitudes to risk.

Increasingly, the winners in the marketplace are those who consciously endeavor to meet – rather than resist – market aspirations. Often that means a need to consider how to embrace levels of risk that were previously unthinkable. For example, in industries such as telecoms or oil and gas, clients are demanding ever more onerous terms from their suppliers. Rather than resist, there will be some who start to 'think the opposite' – in other words, how can we accept these risks? The answer will often be to take on greater responsibility and control, to reduce the extent of dependency on the customer's capabilities or actions.

This was the revolution that happened to much of the IT industry, when it moved from supplying products to undertaking long-term outsourced services. Initially reluctant to accept increased liabilities, the industry has steadily realized that many perceived risks are actually a phantom and that many others can be effectively controlled through appropriate forms of governance. The best suppliers have focused on improving their capabilities – including their contract management skills – so that they can offer distinctive commitments.

This thinking is just one more illustration of why contracting and commercial skills have become so important – and why, as practitioners, our attitudes must shift from a focus on protection and avoidance to instead being a force for creativity and enabling.

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Topics: negotiation, contract /commercial management, relationship management, risk management

Negotiation and Power

Posted by Tim Cummins

Apr 1, 2016 12:40:00 PM

Yesterday I was listening to a highly respected trainer in negotiations. He set out the sequence of activities needed to deliver success. His start point was to develop a negotiation strategy and he suggested that this should be based on an analysis of relative power.

I understand that power has a major influence in a negotiation, but should it really provide the framework? Surely this approach perpetuates negotiations as being akin to 'the art of war' – essentially an adversarial model where each party is wrestling for individual advantage?

It seems to me that negotiation strategy should instead be founded on an understanding of need, both perceived and potential, and the relationship required for success. I appreciate that it might be argued that a good power analysis should lead to the same place, because you would explore how to counter power through value, or alternatively how relative needs influence power. But in my experience, the focus on power often leads to the more negative master-slave approach and frequently results in the wrong conversations.

So I prefer to focus instead on the potential of the deal or relationship and the ingredients needed to make it work. For example, to what extent does it require collaboration and harmonisation of resources? What is the best division of responsibilities and what interfaces do we need? Analysis on this basis sets a very different tone for planning and subsequent negotiation. It also assists in highlighting comparative risks for the parties and therefore early thinking about the various terms and techniques through which they may be mitigated.

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Topics: negotiation, contract /commercial management, relationship management

Indian Outsourcers Slide in Latest 'Ease of Doing Business' Study

Posted by Tim Cummins

Mar 29, 2016 8:13:00 AM

Indian outsourcing firms have had a major impact on the industry, especially on pricing, but also in some areas of innovation. Yet when it comes to negotiating with their potential clients, they are struggling to keep pace with providers from North America and Europe.

IACCM recently undertook a survey 'Negotiating with IT Service & Outsourcing Providers', which gathered comparative data on the largest providers. Three of these are from India, seven from Europe and the remainder from North America. Each region has distinct characteristics, though with some blurring between common law and civil law jurisdictions.

Most IT service and outsourcing providers appreciate the critical role that negotiation plays not only in winning business, but in ensuring that it is good business. However, our latest study reveals a growing divide in this appreciation and also in the way that negotiation is being handled. The twelve suppliers included in the study fall into three distinct groups:

  • The collaborators: a group that appreciates the importance of working closely with their customers to agree shared goals and objectives and to establish terms and conditions which support likely success. These firms focus increasingly on internal enablement and empowerment and are more likely to be based in Europe (though one US provider has entered this group and a second is on the margin).
  • The adversaries: a group that continues to see negotiation as a battle over risk allocation and operates with relatively rigid policies and principles. Some of these firms struggle because they have few 'standard' offerings and therefore each contract is intrinsically more risky; others are influenced by the more litigious – and legally-driven – culture of North American business.
  • The opportunists: a group that focuses on 'win first, worry later'. Contract terms are rarely allowed to be a barrier and resources applied to contract negotiation are limited. These firms are either very easy to do business with (they say yes to almost anything), or very difficult, because detailed answers are hard to extract. While Indian providers tend to be in this group, it is also typical of finance-led organizations which have entered the market to take advantage of public sector outsourcing.

In many ways, these variations reflect the behavior of potential customers. The sophisticated buyer increasingly understands that value is not the same as the lowest price and that cultural alignment is important. Others try to drive performance through adversarial negotiations and unbalanced risk allocation, often using a third party as their interface to the supplier. And there are, of course, the commodity buyers – those for whom getting services cheaper is the core objective.

Indian providers appear to do well in winning and performing on relatively standardized business. Their low labor costs are increasingly supplemented by efficient use of technology to deliver better pricing and reliable performance. But in situations demanding a greater appreciation of customer needs and a more adaptive capability to deliver innovation, the survey suggests that they do not inspire confidence.

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Topics: negotiation, contract /commercial management, procurement, risk management

Does Commitment Matter To You?

Commitment Matters is the personal blog of Tim Cummins, the Founder and CEO of IACCM. If you are a committed contracting professional and want to develop your skills and network, take a look at what IACCM has to offer.
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