Are Supply Chain, Procurement, and IT on different Planets from Category Management and Operations?
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.
Jan 14, 2017 11:04:32 AM
Are Supply Chain, Procurement, and IT on different Planets from Category Management and Operations?
Jul 14, 2016 4:54:54 AM
Tania Seary of Procurious is the latest in a long line to suggest Procurement should be 'at the top table'. Her article, Headed for the C-Suite, wisely suggests that a pre-requisite is to demonstrate relevance to business objectives and to do this through ' a new focus on key performance indicators'.
May 12, 2016 7:17:39 AM
"Why not be the CEO?'
The mood at this week's IACCM Europe Conference was optimistic - at times one might almost say euphoric - as delegates explored the changes and opportunities that lie ahead. The theme of the event was 'transformation', exploring the impacts of digitization and the dramatic shifts that are implied for contract managers, commercial managers, procurement and legal.
Among the many quotes (and I will share more over coming days), one came during an executive workshop on 'Accountability & Leadership'. We were discussing the findings of IACCM's recent 'Future of Contracting' study, which reveals a widespread belief that within 5 years, many commercial and contract management groups will report direct to the CEO (shifting most notably away from reporting to the General Counsel or Chief Financial Officer). There are many reasons for this, but among them are the fact that commercial policies and practices must be functionally independent and the belief that, increasingly, contracts and commercial must be at the heart of business integrity, operating almost as a 'conscience' for the organization in its trading relationships.
As the conversation began, one delegate immediately challenged the idea that reporting should be to the CEO and said: "Why not be the CEO?" Conversation then turned to the question of how many of today's CEOs have benefitted from a contracts or commercial background, or experience in this role. The number of examples that arose would surprise many, but clearly it is not a high percentage. However, how realistic is this suggestion?
There is no question that the contract and commercial role (when implemented well) offers critical insights to every part of the business as well as to external stakeholders. An experienced and high-performing contract or commercial manager has to appreciate the full range of stakeholder interests, the opportunities and the risks they create, and how they might be reconciled. In that sense, it can indeed offer an excellent grounding for today's CEO, dealing with fast-moving, often conflicting trends and views. But today, many would suggest that commercial teams are too strongly focused on identifying problems and lack the optimism and creativity needed to lead a business. It is a fair criticism - but the spirit that was evident in Rome this week suggests that is increasingly an issue of the past.
Delegates recognized that the digital age provides opportunities to embed advanced commercial and contract capabilities within their organizations and to achieve this not through traditional 'review and approval' techniques, but through enabling and empowerment. By focusing on users, the function will steadily transform the business with high-performing, high-integrity trading relationships - and it is this that will turn contracts and commercial practitioners into the CEOs of the future.
May 11, 2016 4:28:58 AM
Recently, IACCM and Revitas (a leading application provider) produced a webinar exploring the impact of digitization on contracts and contract management. It generated excellent questions - including the perhaps inevitable "Does this mean that people in sourcing and contract management will no longer have a job?"
The answer depends on our readiness to adapt. Digitization brings new discipline to activities that have traditionally been steeped in uncertainty and driven by individual judgment. Contracts are a case in point. They provide variable - and often unclear or ambiguous - guidance to those charged with fulfilling some particular set of obligations or objectives. Digitization promises to standardize terms and conditions in a way that speeds negotiation, production and dissemination of contracts.
Certainly this will empower business users because, before long, they will be able to enter parameters for their deal or relationship and generate a model agreement, with defined negotiable options and parameters. They will also operate independently of political geography or language.
So what is left?
Organizations will still need commercial policies and strategies. The terms they are willing to use must be supported by business capabilities or reflect business needs. The relationship types they offer must reflect business goals and market competition. Performance challenges - and opportunities - must be addressed. There are still many areas where judgment will be required - and those areas are where meaningful jobs will exist.
Apr 28, 2016 4:59:12 AM
The Financial Times this week reported on a study that investigated the behavior and attitudes of New York cab drivers. The research led them to conclude that 'regulatory constraints can prompt sharp practices (including fraud) to recover lost ground'.
When taking passengers to Staten Island or to Newark airport, the ride involves passing through a tunnel and paying a toll. There is a special lane for cabs, to speed the journey. However, in some cases the driver deliberately avoids this lane and instead queues - often for lengthy period - in the 'standard' lanes. The reason, of course, is because the meter keeps ticking and they charge their passenger more money.
The researchers found that this behavior is 50 times more frequent for journeys to Newark than it is for journeys to Staten Island. The reason? It appears to be because cab drivers from New York are not allowed to pick up passengers at Newark - so must drive back empty.
Understandably, drivers feel aggrieved by this regulation, but rather than campaign against it, they take revenge on innocent and unsuspecting passengers. They see no moral issue with transferring their issue with the regulators into cheating the general public.
The Financial Times article makes the point that similar self-justification could apply at many levels. It may subconsciously affect the actions of corporate executives when they face rules that they consider unfair, or which stand in the way of meeting their goals. And for those of us in legal, procurement or contract management, it suggests we must think carefully about the rules we impose and the extent to which these induce negative behaviors by others in the business.
Apr 28, 2016 4:40:50 AM
The author, Stephen Ashcroft, is a procurement leader with an inquisitive and open mind. In his blog, he compares and contrasts findings from a recent survey (which he finds depressing) with the inspirational presentations he encountered at a recent conference.
He found those presentations inspirational because it involved leaders with a vision for the future, of how to ensure that supply and supplier management delivers real value.
He found the survey depressing because it paints a very different picture, of practitioners struggling to do more than negotiate transactional arrangements with (often) the wrong suppliers and then failing to manage their performance. That's exactly what the rest of the business sees - a group that is frequently focused on the wrong thing, or on just a minor element of the overall process. Indeed, recent data from one CEO suggested that today's procurement practices focus on only 20% of the available value.
The optimist in Steve then makes the leap to envisage a future where all those practitioners have seen the light and suddenly they are 'breaking down barriers' and leading an 'integrated approach' across the business. All it needs is for inspired leaders to 'assemble talented Procurement people' and everything will change ...
But situation would not he challenge, it seems to me, is finding those talented people. If Procurement had many of them, surely the current exist? The problem I find is that most people do not have the knowledge or the skills or the tools that are needed to change results - and the majority would prefer to be left alone to do what they are doing. They convince themselves that a) the skills they have really are the right ones anyway and b) if they hold out long enough, these 'visionaries' will go away and take their change agenda elsewhere.
On what basis do I say this? Through a combination of research and on the ground observations. And of course the issues I highlight are not unique to procurement. Our surveys show that around 80% of practitioners believe they have or are acquiring the skills they personally need for the future; and a similar percentage believe their colleagues do not have those skills or the enthusiasm to acquire them.
And if further evidence is needed, it is worth noting that the names Steve cites - those leaders who inspired him - do not actually have background in Procurement. Like many other functions today, the leadership is being recruited from outside. (hence the similar debate for legal groups "Should the General Counsel of the future be a lawyer?").
So Steve, I agree that today the starting point is people. But the challenge is finding the right people for the work of the future - and maybe, just maybe, they are not today's incumbent community.
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.
Apr 7, 2016 7:19:00 AM
The UK government is at the forefront in its recognition of the importance of contract and commercial management. It is leading many private sector organizations in its efforts to transform. On March 23rd, the powerful Public Accounts Committee of the UK Parliament issued its review of progress. Here is IACCM's perspective on that report.
The Public Accounts Committee has rightly identified the need for 'transforming contract management'. The challenging environment for delivering high quality and affordable public services necessitates far greater focus on integrated commercial competence and contract management capability. The committee highlights continuing gaps and urges an increased sense of urgency and control.
The scale of change implied by this ambition must not be underestimated. Private sector organizations face a similar dilemma and in many cases are not demonstrating great success in their change initiatives. Essentially, today's business is struggling to adapt to a networked world in which digitization is now fundamentally disrupting trading relationships, business capabilities and the terms of trade. Contract management sits at the nexus of these forces and is transforming from a largely administrative task to a dynamic role that orchestrates change and makes sense of market volatility.
In its March 23rd report on the state of contract management in the UK government, the Public Accounts Committee observes:
"While government has made encouraging progress in some areas, the pace of change is disappointing. We expect the Cabinet Office to raise its game, be more assertive and challenge those departments that are lagging behind, as well as supporting them where necessary. Given the increasing scale and complexity of government's contracts, departments need to focus on the governance, systems and assurance frameworks around their major contracts, as well as recruiting more commercial staff. The government also needs to tackle the longstanding problem of a civil service culture that does not place enough value on commercial expertise. We expect the Cabinet Office and individual departments to accelerate the pace of change and be able to demonstrate tangible improvements by the end of this parliament, so that we see a civil service which is first rate at managing commercial contracts."
IACCM's unique experience in this field leads to the following observations.
The issue of assertiveness and challenge is a valid criticism. Contract management is a pervasive discipline with a myriad of stakeholders and interested parties. It is not simply about overseeing the performance of a signed agreement; it is essentially about ensuring that the agreement is fit for purpose. Many government contracts quite simply are not fit for purpose and there appear to have been limited efforts to challenge the historic models or their suitability.
When it comes to competence, there have indeed been efforts to assess contract management capability at a departmental level, but I would suggest that the model being used is timid and outdated. The assessment framework that has been deployed is almost 10 years old and it does not reflect the dramatic change in environment and needs that followed the financial crash and the massive re-think in public service delivery models. Departments are being tested for their ability to manage the past, not the future.
Some of the work that has been undertaken on skills is truly world-leading. However, it needs to move at a faster pace and the tone needs to impart a greater sense of urgency to individuals. Existing commercial staff will become an impediment to change if they are not energized and excited about the opportunities ahead and if they are not engaged in new ways of working that include the requirement to raise their skills. Too often, contract management is being seen as a sub-element of Procurement; this is a fundamental mistake and prevents rapid progress.
The Committee is mistaken in its apparent belief that increased recruitment is the answer and the Cabinet Office is similarly wrong to cite pay as the primary issue. While selective recruitment will assist, the real problem is a general lack of candidates with the skills that are needed. Industry is facing a similar challenge because there has been insufficient investment in these core competencies. Therefore, an urgent focus on skills development and training is critical, as well as more focus on implementing tools that will support commercial capability and efficiency.
Several departments have increased their focus on 'contract owners' and their accountability for driving performance and achieving outcomes. This is an insightful approach and there has been excellent work in designing and defining the program. Many of these contract owners are commercially astute and ready to challenge outdated contract and commercial practices. However, they need greater support and more opportunities for mentoring.
It is especially interesting to note that, while technology is fundamental in creating this challenge, there is no mention of it in the report. This is a massive omission and should be a core focus of any improvement. For example, last week the head of the US Armed Services Committee concluded that contracting today is so complex that it demands the application of artificial intelligence. Such vision is a glaring omission in the report and appears to be absent in a substantive way from the plans of the Cabinet Office. Without creative use of technology, the task of transformation will prove overwhelming and it will fail.
In conclusion, contract management transformation demands sustained executive focus and courage in the vision of what it must become. Given our experience at IACCM, the scale of change implied by this transformation will be achieved only through a fully integrated plan led and overseen by powerful executive sponsors. Right now, while there are some excellent individual initiatives, there is no evidence of a coherent master plan accompanied by a clear and well-communicated sense of future mission and purpose. To succeed, transformation demands a spirit of enthusiasm and excitement over what lies ahead. Instead, there is a real risk that the move to increase commercial skills and contract management capability becomes seen as an imposition and a threat."
IACCM's theme for its 2016 conferences is 'transformation'. We understand the challenge this represents for so many organizations and individuals; hence our focus on the practical steps that can be taken to drive progress and create that sense of excitement in what can be achieved. For details of the conference series (Europe, Americas, Asia and Australia) visit https://www2.iaccm.com/events/
Apr 5, 2016 6:39:59 PM
Supply Chain Digest recently reported on barriers to collaboration between vendors and retailers. In a finding consistent with IACCM's annual surveys, they discovered that 'it's not me who fails to collaborate, it's them'.
Many may be surprised that most major retailers would ever think of themselves as 'collaborative' with their suppliers. In many cases, there is a massive gulf in relative power and the media headlines frequently suggest that this imbalance is something that the industry exploits. If commercial terms are anything to go by, there appears little room for collaboration. The research points to lack of trust as a fundamental issue – but of course this is generally a symptom, driven by other factors.
There are clues to those other factors in some of the scores. For example, the highest ranked difficulty identified by retailers is how to apportion gainshare, whereas for vendors the top challenge is the lack of collaborative skills exhibited by their customer. Vendors also see real problems in the availability of tools, data and executive support – this last item being perhaps linked to the fact that they see little evidence of a good return on investment from collaboration.
Ultimately, it is most likely the absence of any apparent financial benefit that is killing collaborative relationships. The fact that the retailers see the allocation of benefits as the biggest issue speaks volumes for industry behavior and attitudes. It confirms that for many, it is better to generate no benefit at all than to face the prospect of sharing that benefit with a vendor.
In an industry where margins are low, collaboration is a major source of cost reduction and innovation. But right now, a transactional mentality is in many cases destroying the possibility of value-add negotiations. Case studies have shown the opportunities that exist, especially when collaboration is handled across a category portfolio, not just with individual suppliers. However, this requires far more expansive thinking and a focus on value rather than price - something that the research shows is a distant dream for many in the retail sector.
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:
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.