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.

Change, Risk & Integration

Posted by Tim Cummins

Oct 18, 2017 3:25:49 PM

At the end of each IACCM conference, we like to summarize key themes. Today, I am featuring the observations of Sally Hughes, IACCM’s Chief Operating Officer.

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Topics: contracting excellence, performance management, risk management, contract management

Competing on risk

Posted by Tim Cummins

Mar 8, 2017 8:03:55 AM

One of IACCM’s ‘big themes’ for 2017 is the idea of competing on risk. That means, rather than working to avoid risk, instead embracing it as an opportunity.

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

The impact of terms and conditions

Posted by Tim Cummins

Feb 15, 2017 6:54:57 AM

Anyone involved with public procurement knows that the terms and conditions of contract are often onerous and inflexible. Past IACCM research indicated that a substantial price premium results from these terms – essentially, a cost of risk aversion. We also know that the rigidity of contract structure can contribute to costly failures and overruns.

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Topics: procurement, risk management

Do you come across as ‘too negative’?

Posted by Tim Cummins

Oct 19, 2016 4:08:53 AM

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.

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Topics: risk management

Fear of the unknown

Posted by Tim Cummins

Jul 26, 2016 2:15:42 AM

At times of uncertainty, the role of contracts in both protecting and delivering value becomes even more evident.

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Topics: contracting excellence, Brexit, risk management

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

Are We Delusional?

Posted by Tim Cummins

Apr 4, 2016 9:48:00 AM

84% of commercial and contracts practitioners believe they have the skills and competencies needed to perform a strategic role within their business, yet just 32% perceive themselves currently having substantial strategic influence or input.

Taking another statistic, 56% say that executive management considers the commercial and contracts function to be critical and strategic for business success, yet just half that number are receiving executive support for the investments needed to perform a strategic role.

IACCM recently worked with The MPower Group to produce two webinars in which we discussed the growing potential for strategic contracting and relationship management, versus the purely operational role that is common within many organizations. This operational reality is confirmed by much of the survey data that was collected in conjunction with the webinars.

For example, almost two thirds recognize that the function is not seen as conferring competitive advantage (and therefore, one must assume, is not really seen as delivering significant revenue or margin improvement). 60% are struggling to persuade the rest of the organization that the function has value and – perhaps not surprisingly – 72% acknowledge that the function is not being raided for talent and future leaders.

So how can we explain the dichotomy between the belief in existing strategic skills and executive approval, versus the reality of actual status? Unfortunately, it suggests a lack of readiness to face the truth and a wish to be something that – in many cases – we are not. While a growing number of executives are embracing the importance of commercial and contracting skills and competencies, they do not automatically associate those attributes with the incumbent contracts and commercial staff. And that, quite simply, is why they are not investing or engaging the function in strategic decision-making.

There are certainly exceptions and some commercial groups are flourishing. They have focused on how to offer broader insights and advice, ensuring they have access to unique data on performance and improvement opportunities. They are not limited to work at a transactional level; nor are they excessively focused on issues such as compliance, escalations or post-mortems on failed contracts.

These groups truly are looking at commercial and contract management as a source of competitive advantage – their message is about creativity rather than control. They work on developing capabilities to manage risk, rather than seeking to avoid it. They have compelling reasons to meet with top management, rather than having to wait to be called.

Many of those who read this blog will be among the small percentage who have grasped the challenge of continuous improvement and who have the personal and leadership qualities to offer strategic value. On the positive side, we also have growing numbers emerging from IACCM learning and certification programs, which are visibly impacting skills, knowledge and the confidence to engage with executive management.

I firmly believe that this is of real importance to the contracts and commercial community; transactional work will steadily decline. We must step into the strategic gap that today's market conditions have exposed.

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Topics: contract /commercial management, risk management, organization & people

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

Handling risk

Posted by Tim Cummins

Dec 13, 2015 9:45:00 AM

More than half of Americans think there is more risk in storing their banking information in the cloud than there is in driving without a seatbelt.

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Topics: contract /commercial management, risk management

World trade and the role of trust

Posted by Tim Cummins

Oct 16, 2015 12:29:52 PM

The collapse of the U.S. / EU safe harbor provisions covering transfers of personal data is a reminder of how fragile key trading principles can be. It is especially pertinent at a time when major cross-regional trade agreements are being negotiated and signed.

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Topics: sourcing, relationship management, international, 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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