'We have to move from an environment where success is measured on concessions won, to where it is gauged by goals achieved, benefits that are shared'.
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Advancing Women Executives article on IACCM Chair Margaret Smith, Executive Director Contract Management and Transaction Contracting, and Managing Director Operations Legal, Accenture
IACCM recently completed research with Newcastle University Business School and the University of Paderborn, exploring industry experience with performance or outcome-based contracts. Complete findings will be published shortly, but the results indicate that the use of performance or outcome based contracts remains relatively immature, even though experience in many cases is favorable. There is particular evidence that this approach to contracting results in more collaborative and longer term relationships, implying that they are capable of delivering increased value for both parties. However, success typically requires a level of investment by both parties in appropriate skills, processes and supporting tools or systems. Also, the level of adoption at present appears greater in contracts where payment is based on use, rather than those where payment is based on results over time.
Today's businesses are directing more and more of their budgets toward a complex web of global specialist providers and suppliers to help deliver on their company's core strategies. A recently released global study of nearly 2,000 publicly traded companies found that 69.9% of corporate revenue is directed toward externalized, supplier-driven costs. In the last three years alone, companies have increased their external spend as a percentage of revenue by nearly 4%. As a result, the role of procurement is magnified. Or, at least, it should be magnified. Suppliers must now be viewed as an extension of the company. Like the internal workforce, they must be incentivized, coached, sanctioned, and rewarded to help achieve corporate objectives. But does procurement really register on the C-suite's radar in a manner proportionate to its growing importance within the organization? And are most procurement departments ready and empowered to take on their new responsibilities? This session discusses the need for procurement to take a step back and review its current value proposition in a more holistic manner. Read more about changing nature of business and procurement's role: Corporate Virtualization - A global study of cost externalization and its implications on profitability, by going to http://insight.proximagroup.com/corporate-virtualization Our Expert: Simon Geale, Solutions Architect Simon leads the Solutions Architecture team within Proxima, responsible for visioning and designing our customer success models. Simon has a long held belief that conventional procurement is often its own worst enemy and sees it as a personal goal to change how businesses view this often underappreciated corporate asset. Prior to joining Proxima, Simon had held various roles in consulting, outsourcing and delivery within multinationals such as Philips Electronics and Accenture. He has also bought nurses for the NHS! Simon holds a Masters in International Procurement (MAI) from ESC Bordeaux.
During May 2014, 124 IACCM members from 24 countries participated in a study aimed at assessing whether utilizing visualisations in contracts would affect their understandability and usability. The participants were asked to answer a number of comprehension questions about a given contract, which was randomly provided either in a text-only, traditional version or in a visually enhanced version, where the same text was accompanied by explanatory diagrams. This report consists of two main parts: an overall presentation of the key test results, plus a list of the results of each participant, identified by a pseudonym. The overall part introduces the key measures of the study, and is thus instrumental in reading also the individual results.
One of the questions asked most commonly by contracts and commercial groups is how they should be organized and where they should report. These are not the right questions. The fact they are asked so frequently is in fact an indicator of the real problem - which is lack of clarity over purpose and goals.
When GT Advanced first spotted a major opportunity to supply Apple, I am sure their management were excited by the prospect. This could surely be a route to rapid growth. When they won a contract, the market clearly agreed - the stock price rose rapidly. Now, with the declaration of bankruptcy, the post-mortem begins ...
"I don't really know what I want, but give me xyz and then if I decide I really wanted abc you'll do the conversion work for free." A good way to do business? One sided, you might think! But an example of what some firms are facing in the world of 'outcome-based contracting."
IACCM provides executives and practitioners with advisory, research and benchmarking services, contract management certification and training for contracts, commercial and relationship management professionals. IACCM is a non-profit membership organization that supports innovation and collaboration in meeting the demands of today's global trading relationships and practices.