"I've learned so much from you and your organization. The best thing I ever did was become a member of IACCM. Thanks again for everything!"
Do traditional approaches to contracting result in better management of risk?
Not according to the experiences of the Heads of Legal and Audit at Scottish & Newcastle, one of the world's largest brewers. In their opinion, traditional, legally-driven processes not only cost more money, but also result in lost and missed opportunities. And they have data to prove it.
Many companies debate the balance between control and empowerment. Business managers fret that the focus on compliance frustrates the added value that could be achieved from more collaborative relationships. But no one can prove it - so in the end, they bow to safety-first and accept contract terms and policies that protect against worst-case scenarios.
About 5 years ago, the Legal group at Scottish & Newcastle decided to challenge this traditional view. They were overwhelmed by the volume of contracts to review; they were exhausted by repetitive negotiation of terms that added little or no value to the business; and they were tired of being seen as the pariahs that stood in the way of getting relationships closed.
So they embarked on a radical reengineering initiaitve that has resulted in transformation in the way many trading relationships are negotiated and managed. Not only have the contracts themsleves been dramatically simplified and reduced in size, but other sacred cows have also been sacrificed. For example, many relationships now operate without fixed term; frequently there are no volume commitments; they have even dispensed with service level agreements and liquidated damages.
The results? With several billion dollars of spend and revenue now under their new forms of agreement, they have observed:
Growing collaboration between trading partners, with focus on maximizing value and performance
Reduced contention and disputes
Shorter lead-times
Legal viewed as a critical business partner and change-agent, involved early in strategic discussions and intiaitives
You can learn more about the S&N experience and gauge how it might apply to your business by listening to an audio recording in which IACCM Executive Director Tim Cummins interviews Graeme Colquhoun, Head of Legal, and Steven Weatherley, Head of Audit & Compliance. In the Member Library, you can also access a range of the simplified contract templates that S&N are using to support this new world environment.
Among the questions addressed in the interview are:
1. What problems or issues drove you to this simplification?
2. Has it been applied to both buy-side and sell-side relationships?
2. How extensively can you use an approach like this - for example, does it work for things like IT contracts, software development, construction projects or outsourcing?
3. Has it worked internationally?
4. How did your trading partners react - did you get them on board, and if so how? Did you even manage to persuade powerful suppliers who typically operated off their own standard terms?
5. Overall, how would you summarise the results - what does the balance sheet of pro's and con's look like? (eg costs, risks, speed, frequency or nature of disputes ....?)
