IACCM research is showing a direct correlation between attitudes to risk and ease of doing business. Both these elements are significant in our approach to negotiation and in turn impact the quality of business relationships – and thereby affect results.
86% of respondents to a recent IACCM survey believe that the approach to risk allocation during contract negotiation has a medium to high impact on the relationship. This rises to 90% who identify a substantial effect on time and cost. These statistics explain the growing trend by major corporations to re-think their approach to negotiation and to bring an end to the traditional ‘battle of the forms’. Indeed, a number are backing off their traditional attitude to the sacrosanct legal terms such as liabilities and indemnities. Instead, they are focusing on provisions that help reduce the likelihood of things going wrong – and thereby demonstrate their confidence and competence to perform. Even areas such as intellectual property rights are becoming topics for intelligent discussion rather than hard-coded compliance issues.
The complexity of the contract is also a significant factor. 88% noted that it has a medium or large impact on the relationship. “In today’s increasingly complex business environment, we must eliminate avoidable and low-value sources of complexity”, observed one respondent, reflecting the fact that poor contract structure and design also cause delay and increased costs. Again, leading companies are appreciating that this is avoidable and are looking at innovative approaches to contract design. For example, one global consumer goods company has recognized that contracts should be a source of clear business communication, not purely legal communication. They are introducing graphics, flowcharts and other devices into their standard procurement agreements to aid understanding by suppliers in more than 80 countries. This approach is already reducing costs, shortening lead-times and resulting in improved compliance. Overall, the digital world is changing how and where we do things.
Approaches to contracting and negotiation must keep pace – otherwise they become a visible source of lost value and increased risk.