One of the challenges associated with risk management is the tendency for those identifying risks to be seen as negative. And a consequence of that perception is that their views and advice start to be ignored. That, surely, was one of the lessons to be learned from the Brexit campaign, where voters ultimately rejected the unrelenting gloom projected by those who supported staying in the EU.
Yesterday, I was speaking with an IACCM member who explained that their commercial proposals are often viewed as ‘too negative’. She was wondering whether the problem was one of process, presentation or perhaps culture. Of course, it could be any of those things – but in many cases, I think the issue is that businesses (and especially commercial groups) become out of touch with the market. They are so focused on the risks of the past that they fail to adapt and address the risks of the future.
A conversation later in the day (ironically with a competitor to the first company) illustrated this point. We found ourselves discussing the role of commercial staff and the challenge they must face of moving from acting as ‘defenders of the status quo’ to being ‘catalysts for change’. This shift is problematic, but essential.
It matters because the world is steadily moving towards contractual relationships that are focused on delivering outcomes or results. Customers want to reduce the risk associated with buying the wrong thing. In a digital age, they expect suppliers to have greater intelligence, more focus and increased responsibility. Obviously this translates to a different conversation about risk.
The problem for a supplier is that such relationships demand different capabilities, such as much greater insight to their customer and confidence in the accuracy of requirements. They also require effective approaches to governance and performance management (as illustrated by the two researchers who won the 2016 Nobel Prize for economics). So commercial staff find themselves with a dilemma, which is that customer expectations often misalign with the current capabilities of their company – and of course are therefore in conflict with accepted policies, procedures and practices. As a result, the concerns they express inevitably seem ‘negative’.
Many commercial staff are aware of this conflict and wish it could be different, but the timing of their engagement (typically when a new bid request arrives) and their interpretation of their current role (typically perceived as offering advice that protects the business interests) stand in the way of change. Shifting business capabilities and developing new commercial models is not something that you do overnight.
But as my second conversation revealed, leading commercial groups have recognized that our world has changed. “In the past, values were relatively set; both parties knew the rules of the game. Now, we must redefine those rules – and it is up to commercial managers to take a lead, rather than hide behind the policies of the past.”
If we fail to accept this challenge, we will indeed be seen as ‘negative’. Whether you are in a legal, procurement or contract management role, it isn’t acceptable to shrug your shoulders and say “This is the way it has always been”. Risk management actually depends on sound commercial judgment – and that demands a focus on understanding when the time for change has come and then doing something about it.