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IACCM - International Association for Contract & Commercial Management Contracting Excellence Magazine
 

May/June 2014 Edition

 

Welcome to Contracting Excellence – the essential IACCM member e-zine bringing you news, insights, experience and practical approaches to key issues relevant to our international community of contract and commercial management practitioners.

You can download a pdf version of this edition of Contracting Excellence Magazine here.

 

So you think you're innovative? Prove it!

 
Are you really walking the talk? Can you measure your actions and see improvements? This article reveals survey results that cover issues like these -- results that might inspire a second look at your organization...
 
 

As organizations, we believe the future of the professions we represent will be greatly enhanced by our ability not only to improve what we do and how we do it (“operational innovation”); but also by strengthening our contribution to the products and services our organizations produce (“strategic innovation”). In collaboration with Kommercialize Ltd and Innovation Fixer Ltd, IACCM has been investigating how our community could contribute to improving innovation practices. The insights from a recent survey are both interesting and surprising in many respects.

A perspective on innovation at the enterprise level

Innovation is a much used term in business, but do we know what it really means?  Context is key, however;  often it is used as a single word in a context free manner.  Of the many reports that have examined issues facing the C-suite (senior executive management) and the requirements for their functional teams, phrases such as “improved innovation”, “creativity”, and “agility” are regularly among key outcomes.

The survey also shows that 73% of respondents' organisations have innovation as a 'top 3' priority. All employees need to play a role in the growth of the business.

There are many ways to define innovation - 76% stated that their company defines innovation as the development of new products and services (strategic innovation) and slightly fewer, 70%, stated that this included doing things more efficiently and reducing costs (operational innovation).

Surprisingly, only 57% said their organizations get ideas from their customers, with only about 40% thoroughly validating new ideas with customers before resourcing them.

Within this, aerospace/defence, automotive, healthcare/pharma/chemicals, technology, transportation/logistics all scored very low.

Most things in corporate life work better with support from the most senior level in the organization.  Innovation is no exception; however only half of respondents believed they have strong support from the C-suite for innovation, with 32% ticking the “don't know” box.

It shouldn't surprise that we then found only 30% of people have targets to meet on innovation.

Despite this, just over half felt that leadership of innovation at both the company and functional level was effective.

The survey shows that only 43% of respondents felt that they got value for money from their innovation investments. A significant 32% didn't know, suggesting it either isn't measured or perhaps communicated in those companies.

A view on functional contribution to innovation

Whilst the C-suite and wider business often acknowledge the need for functional professionals to play a key enabling role in innovation, the view of the respondents gave an insight into whether, as functions, they are rising to the challenge.

Whilst at the company level there seemed to be an aligned view of innovation, respondents felt that generation, prioritization and validation of ideas appeared to be relatively weak in the functional teams.

  • Only 53% felt they had a strong process for generating ideas within their function
  • Only 51% felt their function was creative, and
  • Less than half had a process that systematically linked their innovations to the corporate strategy.

The numbers in relation to creativity hide some significant variation among sectors.  At the high end was services/outsourcing/consulting (75%) which potentially aligns with the IACCM analysis on the RoIe of Contract Management.

Only 42% of us are proud of our function's innovation record. Most worryingly for future corporate growth and efficiency, only 32% felt that their function had a strong portfolio of innovation projects.

Buy-side professionals lead the way. In general, professionals with buy-side responsibility appear to have a more developed approach and sentiment to innovation.  Those who are solely responsible for buy-side scored even higher.

An individual perspective

Having looked at the organization and functional levels, it's important to understand what we think from an individual perspective. At best only half of us believe we spend enough time on innovation.

There was a tendency for respondents to feel they were better as individuals at allocating enough time to innovation than their function.  Unsurprisingly more people felt they got the balance right in relation to operational innovation rather than strategic innovation.   Overall 60% of respondents felt there was too little time available for innovation.

IACCM members hold the key to unlock some important areas of innovation. Interestingly, 61% felt that contracting models and T&Cs are a source of innovation with engineering/construction, IT/telecoms, tetail, and services/outsourcing/consulting all rating above this norm.

IACCM members know they have a lot to offer, with 77% of respondents wanting to play a stronger role in innovation.

The research then looked at what respondents felt the key enablers and barriers were to achieving success.

Top three enablers:

  • Corporate mindset
  • Personal mindset
  • Personal performance measurement

Top three barriers:

  • Allocation of time
  • Corporate processes
  • Functional processes

Taking this on board it's not surprising that relatively few respondents (10%) are active in current IACCM innovation offerings, but more (40%) would be interested in summarized output.  Not surprisingly, most people are very busy!

Summary – mind the gap

The C-suite wants innovation and sees functional teams as key enablers, but they need to provide more direction.

Professionals as individuals see the potential and want to play a bigger role, however, collectively as functional teams we aren't managing to unlock the potential. Is the “urgent” getting in the way of the “important”?

Or is this merely confirmation bias (the overweighting of evidence consistent with a favored belief, underweighting of evidence against) in play? Often we are more willing to point the finger at an amorphous group such as a “function” even though we are a part of the group.

So what can we do about it? – creative tension

If we turn back to the enablers and blockers that were highlighted, this gives us a valuable insight into the areas where small investments may provide a disproportionately positive impact. At the enterprise level, issues such as the corporate environment, processes (policies and practices) and metrics were highlighted. At functional, team and individual levels, issues such as mindset, resourcing and prioritisation were highlighted.

How can we approach it? - bridging the gap

Often the longest journeys start with a local step.  We highlighted a desire to create time to be involved in innovation.  What could you stop doing, or do more efficiently to create time?  Do you ringfence time for innovation, however, little?

At the team or functional level, how could you influence local and corporate processes to align your innovation efforts, be they operational or strategic, with corporate and market needs?

Once we start to address the barriers at a local level we will demonstrate the art of the possible in terms of innovation.  At this point we need to get out and communicate the successes and the impacts in a way that over time leverages the enablers.

As a first step you could do worse than creating an hour a week and using it to dip into the IACCM library.

Finally, it's important to recognize the competitive element.  Innovation is a source of revenue and cost advantage, and if your company isn't seizing this opportunity, it opens the doors to competition to win contracts by being more innovative.

 

 
 

How to create an award-winning contract

 
People tend to see contracts as a necessary evil, an obstacle rather than an enabler; a document they might shove into a drawer until things go wrong. But Practicus, a UK organization, broke through the typical barriers when they developed a new contract design that won the first IACCM Contract Design Award in January 2014.
 
 

EDITOR'S NOTE:  Lalit Kumar managed the project from the outset to final IACCM certification. This is his story about what Practicus did, how they did it and what they learned from IACCM in the process of changing the way they designed their contracts.  Winning the award took much diligence and perseverance! 

Commercial focus - as opposed to legal - drove the success of our design. We wanted more collaborative, easier to read and user friendly contract language versus complex legalese that can confuse customers, particularly non-lawyers.  The new design has saved time, produced faster turnarounds and stronger relationships. 

Our goal was to create the kind of contract that would become a living and breathing part of our day-to-day relationship with our clients, positively influencing how we would work together to ensure the success of their projects and change initiatives.

I admit we got off to a bad start. Our existing agreements did not reflect the way we did business.  We wanted to protect our interests while following the path of least resistance to get the deal done. Our contract terms did not convey the right foundations for a healthy working relationship.

When we realized we needed to create better contracts we decided to perform three specific innovation objectives:

  1. Make the contract clear.
  2. Define the behaviours, expectations and ways of working that would support day-to-day collaboration.
  3. Provide a simple solution for proactively dealing with the kinks in the road that could otherwise wrap the client relationship up in red tape and delay (eg change control).

I must confess we did not get it right first time; in fact, it took it took much rework and long hours to keep it moving.  We hope your journey is much shorter and that - based on the lessons we learned - you can do things correctly the first time!

Lesson 1 - Sell the benefits internally

From the start - in spite of difficulties - we gained board sponsorship for the project and our CEO opened our eyes to the wider business.  Championing this would mean delighting our clients - differentiating us from the competition and enhancing our ability to win work. Collaboration was key.  

When our team understood this, the rest of the business very quickly followed suit. However, to get our CEO directly involved, we needed to align with his agenda and drive the changes he wanted through the business. This meant challenging tradition, making life more straightforward for our clients and delivering real business outcomes for them.

Lesson 2 - Realise it's not all about you – it's about your clients

A big mistake we made early on: our commercial team did not make the best use of our management support. IACCM's feedback on our first submission for this award was hard-hitting, but fair.  Our mentors told us that the contract terms did not truly reflect the mechanisms and procedures of a business aspiring to be accountable for the outcomes of its clients' change projects.

So IACCM rejected our first submission.  Our response was to collaborate more widely with the business, soliciting feedback from sales, delivery, finance and marketing as well as our clients and suppliers to better understand how our organisation could improve outcomes. Feedback went both ways.  They gave us significant commentary about successful contract terms and we helped sharpen their thinking about how we do business.

While we had a strong vision, we needed the expertise of others to help us make it happen. We engaged legal counsel to guide us in defining contract terms that were productive in supporting successful relationships.  For example, we needed to use contract terms that more clearly define the communications and reporting, change management, early warning signals, change control and relationship development.

We also engaged Simon Carter, a document designer and plain-language writer. He helped us produce a contract that uses headings and layout to make the document easier to read and navigate. And he helped us write a contract that can be readily understood by a range of stakeholders, not just lawyers and procurement experts.

Here's one example from the contract that shows the difference between a 'traditional' and 'plain language' clause:

'Traditional' style clause

'Plain language' style clause

Nothing in this agreement is intended to, or shall operate to, create a partnership between the Parties, or
to authorise either Party to act as
agent for the other, and neither Party shall have authority to act in the name or on behalf of or otherwise to bind
the other in any way (including the making of any representation or warranty, the assumption of any obligation or liability and the exercise of any right or power).

Neither Party will:

  1. act as an agent for the other, or
  2. act in the name of the other, or
  3. bind the other in any way. This includes making any representation or warranty, assuming any obligation or liability, or exercising any right or power.

Simon's rewrites helped us win accreditation under the Clear English Standard, from the Plain Language Commission.

Lesson 3 – Provide evidence on how terms will work

Our first submission for the award also failed because we had not clearly defined our intentions, nor had we described how we would carry them out.

  • For instance, when describing communication, how would that take place?
  • When communicating progress and performance, would we make a phone call or schedule a face-to-face meeting?  How often?
  • What activities would we perform with the client? 
  • What would that look like in practice? 
  • How would we know that both parties together were meeting the obligation?

Just as importantly, we needed to fulfil our promises.

  • How would the client measure us? 
  • How would we support them in their expectations? This was more than just describing service levels.
  • How would we monitor and measure against the promise of our organization's customer value proposition?
  • With this emphasis on relationship-building, how would we measure against the client's expectations and other intangible factors based on subjective perception?

Naturally, your own organization will have its own answers to these questions but they are not always as straightforward as you might think - which is why road testing with clients and suppliers is essential to the process. For example, although we saw some of the elements as collaborative, our IACCM mentors did not agree and vice versa. It's about striking the right balance that works for both parties and IACCM is very clear on its expectations in this area.

Lesson 4 – Overcome inertia

Challenging tradition is not easy.  It can be difficult for the wider business -- particularly sales - to understand why we are building contracts for the long-term future when the immediate priority exists for client agreements. Equally, our stakeholders had competing priorities and pressures of their own.

They say that time kills all deals, and certainly time nearly killed the creation of our new contract terms, particularly after the initial rejection by the IACCM.

Only by finding clear advocates in each of the stakeholder communities could we continue to drive momentum. However, with the commitment of our commercial team, our colleagues in the business, our clients, our suppliers – and not least, the feedback of IACCM - we were successful on our second award submission.

We will continue improving – how about you?

The lesson is this. Although you will face resistance to change, you will also find allies and opportunities along the way. Having won awards, we will continue to improve the user-friendliness of our contract terms. We intend to better harness emerging interactive technologies to further bring them to life and support successful working client relationships. For us, the journey hasn't ended.

Please join me and my colleagues in a live Ask the Expert presentation giving more details about how we won the award.  We recorded it on May 1. To access it, click here

ABOUT THE AUTHOR

Lalit Kumar has over ten years' experience of creating and negotiating commercial contracts. He has worked with Practicus for three years during a time of rapid expansion and office openings in Hong Kong, Australia, and the United Arab Emirates. He is responsible for all contractual documents, from non-disclosure agreements to various services and consulting agreements, and signs off every Practicus contract. 



ABOUT PRACTICUS

Practicus is an international project and change management consultancy business in the UK focused on helping organizations change.  Services support clients with technology and business change with a focus on service sustainability – from development to delivery of services.

 
 

One term misused can cost you the deal

 
'Effective negotiations' means nothing more than saying, effectively, what you mean. Every word has a direct impact and it can be misleading if used incorrectly or pulled out of context. It can lead to losing the deal! As a negotiator I've found that, too often, certain terms and conditions get misapplied or misunderstood in negotiations or in the agreement process. I know of six major examples and no doubt you can add more...
 
 

The terms are these: (1) limitation of liability; (2) assignment; (3) non-solicitation; (4) intellectual property, (5) most favored customer pricing and (6) dispute resolution – all have been some of the biggest sources of needless difficulty and dispute. 

Limitation of liability (LL) for most suppliers is equal to their asking price limit; yet this is the non-standard limit for procurement professionals.   A buyer cannot be awarded damages by a supplier until the buyer proves harm done. In normal situations, if an incident arises, the buyer and supplier try to compromise and reach a settlement to avoid a lawsuit.

If it goes to court, LL enters the scene.  Again, the buyer must prove damages attributable to the supplier are sufficiently harmful to justify a monetary award.  However, even if the buyer convinces the court to award damages, LL will still limit the amount of damages, as stated in the contract.

Here's what's important:  LL is a preset 'cap' usually negotiated prior to any issues occurring.  So, if you are going to cap your loss, know what that means and understand the number you put on the table.  LL is an insurance policy for a supplier, and you may not want to give that.

Assignment

Supplier's right to assign applies to both buyers and sellers and can be easily manipulated to benefit the seller.  A buyer can sign a contract with one party or organization and end up working with a completely different one.  When a party has the right to assign, they can give their obligations to someone else. This can happen if a supplier is being purchased or merged with another corporation. 

Ideally, a supplier wants to take all of their contracts with them. This might not be okay with you as a buyer, if the new organization or group is not one you want to do business with. Ensuring you have written permission of the buyer to assign first does not mean you are stopping the supplier from conducting business. You are only ensuring that you continue to maintain control of who you do business with.

Multiple issues can catch you off guard:

  • First, if a supplier is being purchased or merged with another corporation, they want to take all of their contracts with them. You might not want this as a buyer if the new organization or group is not one you want to do business with. 
  • Second, even if the assignment is a small piece of your business, a supplier assigning those responsibilities away could force you to work with a non-vetted supplier you do not want to work with.  Ensuring you have written permission protection in an assignment clause does not mean you are stopping the supplier from conducting their business. It means you have control over the business you want to work with.

Non-solicitation

Control or non-control of who you do business with is the crux of the problem with non solicitation. When using the services of a supplier's employees, what happens if the buyer wants the employees to work directly for the buyer? Non-solicitation is meant to keep the employees from crossing the line.  Suppliers will often insert a clause that forbids the buyer from hiring the suppliers' employees, for example when vacancies arise and the buyer needs their specialist skills. Or the supplier will forbid the buyer from actively soliciting the supplier's employees. 

This is tricky. The US Department of Justice watches over this domain and as a company you cannot turn away a person if they are answering an open advertisement for employment.  The best way to address this is to tell the supplier they need to have an agreement with their own employees.  A buyer committing to not hire someone could end up in a lot of trouble.  Control of these conversations is best left in the supplier's hands, for the buyer noncommittal is safest.

Intellectual property (IP)

Control is a problem as well in the area of IP - the crux of what any company does.  For buyers of any service or item, asking for third party IP indemnifications is pretty standard. This means that as if, as a buyer, you want to ensure that if a third party files a lawsuit claiming infringement of use regarding something that you purchased from a supplier, the supplier should cover and potentially defend any third party claims. Also as a buyer if you are going to give rights in your agreements, make sure you are explicit about what you mean, within the overall area of IP. For example, are you providing trade secrets, copyrights, patent protection, technology rights, etc?  Each relevant term or aspect needs to be clearly and separately defined, for the benefit of both parties should issues arise later.

Most favored customer pricing (MFC)

Sometimes being restrictive or concise is not always the best thing. MFC, for example, is the term a buyer uses to get the most favored customer pricing from a supplier. But the more concise or limiting the terms, the less likely the buyer is to be able to enforce MFC.  For example, if the term only gives MFC to a buyer if the purchase is a certain size, a certain product, purchased in a certain time period matching conditions of another company…then it becomes increasingly difficult to enact this clause. 

Buyers should be aware of this before agreeing that all of those conditions are okay. This could become very important to a buyer outside of a competitive bidding situation, if they are relying on the contract to ensure a “best in class” type pricing agreement is achieved.

Dispute resolution

So what happens if - even with all the pre-work and careful consideration - you still find yourself at odds in an agreement? You should still have a clear path to fixing an issue before either party decides to go to court. A dispute resolution clause does just that.  It helps define how any dispute should be resolved. Transparency is again the goal. If you don't want issues to linger, how many days might elapse before both sides negotiate? What level of management needs to attend? How much time should be allocated to fixing the issue before either party decides to escalate to the court, or is it better if that option is always open?  Some suppliers and buyers want to waive jury trials. If that is not an alternative, you must decide before signing any agreement that could waive that right, or if you prefer arbitration then now is the time to put it in. 

The contract is the rule book on how the relationship between the parties is going to run. If all terms are not defined clearly, each term can take a buyer in a different direction and invite an undesirable landscape. Knowing each term, what it means and how it can impact later, will only help in making conversations easier and the contract and the parties' relationship more secure.

ABOUT THE AUTHOR

Michele Totin is a Contracts and Negotiations Manager for Intel Corporation.  Accountable for leading the negotiation process with suppliers above $5M of spends per year, Michele's responsibilities include developing the negotiation strategy and ensuring negotiations meet or exceeds Intel positions. Michele also co-chairs Intel's Contract Specialist team and enjoys mentoring and working with others as they develop their own negotiation styles. 

 
 

Get it right or face a failed transition

 
Timelines and budgets blown, services that 'disappear' and service levels that plummet - get your contracting right to avoid the complex, high-risk outsourcing minefield! This article shows how robust contracting when outsourcing your organization's information technology (IT) or business support processes can keep your transition - and costs - on track.
 
 

When it comes to transitioning to outsourced services, delay and misunderstanding seem to be the 'norm,' according to a recent KPMG survey. Many projects come in late and over-budget, with fundamental requirements not met. Major international projects have had to be abandoned mid-way through the 'go-live' phase – all for want of a well-thought out contract transition schedule.

A 2013 KPMG Quarterly Global GBS Pulse Survey suggests that 85% of transitions were late, over budget or did not meet requirements. Delays cause cost overruns and business disruption, increase program risks and reduce end-user satisfaction. Too often, sourcing contracts are terminated due to failure of transition to deliver value to the outsourcing partnership.

The survey includes views from suppliers and advisors. Results show an average of the suppliers' and advisors' scores. Advisor scores refer to the client view of the supplier performance.

Key challenges to effective transition management

Survey respondents gave many reasons for ineffective transitions resulting from the contracting process.  These include:

  • Scope of transition not articulated clearly and comprehensively in the contract;
  • Lack of clarity on roles and responsibilities of the client and supplier;
  • Lack of clarity of expectations in terms of time, effort and investments from each of the stakeholders concerned;
  • Transition methodology not defined up-front and agreed between all stakeholders concerned;
  • Inadequate staffing and lack of right skill sets deployed by the supplier for the various activities that needed to be carried out during transition;
  • Insufficient and appropriate staffing resulting from inadequate understanding of the client environment and due diligence;
  • Interdependencies between various service elements not being thought through and captured correctly in the contracts; and
  • Lack of an effective governance mechanism to monitor transition progress and risks and lack of clearly defined remediation in case of any deviation.

Transition – the critical first point of contact

Although operational aspects of the contract have often been the focus in the past, getting the transition phase right can dramatically improve the long-term success of your outsourcing program.

The transition phase will be the first point of contact between the supplier and most of the impacted client organization, and the focus from this point on must be firmly on the outsourcing program as a whole, not just on the supplier.

Key to success is two-way learning and the sharing of vital information and operational knowledge.  The two organizations should come together across a range of dimensions including:

  • the current state of operations;
  • future state operating mode;
  • change management at the client organization;
  • future growth and investment plans; and
  • the client's culture.

Failed transitions and lessons learned

Transition in outsourcing deals is a key and complex phase. Effective transition minimizes issues arising during the initial steady state and also helps dampen the “noise” that invariably arises.  It ensures confidence in the ability of the supplier to provide services and gains buy-in from stakeholders.

The following is an excerpt from the KPMG survey:

“A US corporation experienced a failed transition of their back office finance processes due to the absence of a number of transition elements in their contract that led to misalignment between the supplier and the client.

While the client and the vendor had set up a program management office, the absence of a well thought-through transition schedule put the operations at risk and the transition was called off after operations for 21 of the 35 countries in scope went live. For countries that did complete transition, the stabilization period took longer than expected, leading to increased costs and breakdown of relationship between the parties.

The principal cause for this misalignment was identified as lack of clarity in terms of roles and responsibilities between the supplier and the company. During the contracting process, while significant effort was dedicated to termination clauses and exit planning, not enough attention was given to the transition plan and in clarifying precise responsibilities with the supplier's project team.

The lessons were learned in a subsequent outsourcing exercise where the client identified areas where limited information was available (eg process documentation) and requested the supplier to include this within their scope.”

Beware negative first impressions

Particular care needs to be taken in the early stages of transition, when supplier delivery teams start engaging with clients. Any delay at this point – possibly due to reluctance of existing staff or the incumbent vendor to support the transition - may cause permanent damage.  Negative perceptions about the supplier's ability to deliver future services often then influence opinions of the organization's nay-sayers, making change management more difficult.

The survey shows that 59% of buyer-supplier relationships are impacted negatively by delayed transitions:

Sourcing contracts need to stress the importance of all aspects of the transition of services. The right stakeholders need to be involved in the contractual process, and to fully understand the scope, scale and complexity of the transition that will be involved.

A small team can be successful – with the right information

Many organizations have a robust Program Management Office (PMO) to run their transition process – but this can't work effectively if the underlying contract does not adequately cover the responsibilities of all parties concerned.  A comprehensive and robust transition schedule will ensure the PMO has the right knowledge and understanding to manage the complexity of the program.

Although many people and functions may be involved across an organization, the KPMG survey shows it is possible to achieve transition successfully with just a small transition team:

“A well planned transition methodology and robust contracting helped one of the clients to successfully complete a large and complex transition with a very small transition team. The supplier and client ensured that the transition challenge was well understood and the supplier staffed the team with the right skill sets to undertake the transition.”

Key aspects of a comprehensive transition management schedule

The transition schedule in an outsourcing contract should be comprehensive and capture all aspects of the transition. It should be robust and incorporate mitigation plans or approaches to any foreseeable challenges or issues that may arise. It should include as a minimum:

  • Clearly-defined roles and responsibilities of both client and supplier in relation to all transition period activities.
  • Clearly-defined transition, scope and methodology covering all areas of services being transitioned, including any transformation being undertaken. The transition methodology should ensure all future state process requirements are understood and captured correctly in the transition methodology and plan.
  • A well-defined transition timeframe with backup plans to cover any delays, clearly defining responsibilities of all parties during this period.
  • Well defined entry and exit criteria. The transition should be divided into distinct phases with clearly defined entry and exit criteria for each phase. Deliverable criteria for acceptance and sign-off by relevant stakeholders should also be clearly defined for each phase.
  • The supplier fee for transition of services with payment for successfully achieving clearly defined transition milestones.
  • A robust governance structure across various layers, stakeholders from all parties concerned to monitor progress and take proactive action on any issues arising.
  • Clearly-defined service level metrics

The contract itself should also ensure:

  • The right mix of skill sets in the supplier team to cover all aspects of the scope of services, and that the team is qualified to manage large-scale transitions.
  • The desired level of performance continues during the steady state services.
  • No major drop in service levels during the transition period. Although some minor business disruption should be expected, the contract should ensure no major services disappear during this period.  It should also ensure the supplier identifies any major drop in service levels and corrects the problem. Some contracts also include service level penalties during transition to drive the right behaviors.

Finally – ensure contract management is robust

It is essential to have the right level of detail for transition management in a sourcing contract. At the same time it is also essential to ensure there is a robust process for governance and contract management.

Clients should set up a dedicated contract management function as part of the transition management office to ensure all provisions in the contract are adhered to by the supplier and all stakeholders concerned. The contract management function should also continuously capture risks and issues, and document lessons learned to improve future performance.

Key to successful transition are strong governance, a comprehensive transition schedule and robust contract management processes. By putting all of these in place, organizations can successfully outsource their operations and realize the benefits sought as part of their transition business case.

See also the Advice Worth Keeping blog from KPMG for more information.

 

ABOUT THE AUTHOR

Viral Thakker has over 15 years of experience in globalization and market entry strategies, offshoring, outsourcing and shared services center advisory, and M&A due diligence.  His specialties include strategy and operations advisory.

 
 
Public Sector Corner

Joint venture participants - credit for past performance

 
A recent article explains how an individual joint venture partner may obtain credit from the past performance record of a corporate affiliate. Author Evangelin Lee Nichols of Smith, Currie & Hancock, LLP suggests ways you can communicate to the contracting community sharper awareness of this problem.
 
 

This article is reprinted with express permission. To access it, click here.

Past performance helps agencies make informed decisions on whether a prospective contractor is capable of performing the work. It also helps the government compare the past track records of competing offerors to help identify which one offers the best relative value, in order to get the best deal for the taxpayer.

For partnerships such as joint ventures, agency evaluators will carefully consider the experience and past performance of the individual joint venture partners since each would perform major or critical aspects of the solicited requirements.

The good news is that an individual joint venture partner may obtain credit from the past performance record of a corporate affiliate, so long as the affiliate contributes to the successful performance of the contract in a meaningful way.

In other words, an individual joint venture partner must be able to demonstrate in its proposal that it will rely on its corporate affiliate, whether it be its financial resources, management skills, operational controls, technical skills or quality assurances.

To access the article, click here.

ABOUT THE AUTHOR

Evangelin “Evie” Lee Nichols is an attorney with Smith, Currie & Hancock, LLP, Washington, D.C. She represents clients in all aspects of federal government procurement and other types of government contracts, including the concessions industry. She has experience defending against false claim allegations and numerous aspects of the acquisition and performance of government contracts under the Federal Acquisition Regulation (FAR). She advises companies on the regulatory requirements of the SBA programs under the Small Business Administration, including preparation of SBA applications.  Ms Lee Nichols has drafted teaming agreements, subcontracts, and joint venture agreements for large and small government contractors. She also provides litigation representation on complex federal questions involving congressional appropriations, international trade, and other issues that are important to companies and local government entities involved in relationships with the federal government.

For additional information on this and other publications by Smith, Currie and Hancock, please contact Gene Heady at gjheady@smithcurrie.com or 404-582-8055.

 
 

Mitigating the risk of IP theft and infringement

 
Development of global supply chains ignited unparalleled efficiency that was unimaginable a generation ago. But it has brought with it the extreme threat of intellectual property (IP) theft and the difficulty of preventing it. Everyone knows IP is now vital to competing successfully worldwide. And, although professionals monitoring contracts worldwide admit that mitigating the IP risk is a growing challenge, research shows they're not doing much about it. Solutions available are much less costly than seeing your business disappear into hands of thieves or be lost through ineffective IP protection.
 
 

The IP challenge demands a more proactive role for contract managers and a new approach to IP protection that supplements contracts with robust management systems designed to ensure that IP isn't vulnerable to theft or infringement.

The Center for Responsible Enterprise and Trade (CREATe.org) conducted a pilot program with 37 companies in eight countries to examine how companies currently protect IP, and to assess the overall maturity of their IP protection management systems. To view it, select the file from the downloads section at the bottom of this article.

Results show that although company executives are increasingly aware that IP protection is key to their growth and sustainability, they have not yet integrated IP into their supply chain risk management process. Most companies are not doing enough to move from rhetoric to action. They continue to think of IP protection too narrowly, leaving them exposed to IP infringement and theft internally and in relationships with suppliers and business partners, the pilot program's summary report warns.

This process improvement approach, while new to IP protection, has a precedent in quality control. Quality management systems, which began in the 1960s, are now integral to the operation of most successful companies, whether they are manufacturers or service companies.

The 37 companies participating in the IP pilot program came from an array of industries, including aviation, IT, financial services, consumer goods, automotive and energy. Their sizes ranged from small domestic to multi-national organizations.

The companies first were assessed for their existing IP protection program in two stages — an online self-assessment and an evaluation conducted by CREATe experts.  The eight areas assessed at both stages were: 

  1. Policies, procedures and records: Does the company have a thorough policy for protecting IP, clear rules for implementing the policy and a system for keeping records of implementation?
  2. Compliance team: Does the team responsible for IP include key business functions or departments? It is critical that IP protection not be confined to the legal department, and that it has the visible support of senior management.
  3. Risk assessment: Does the company conduct a risk assessment looking at vulnerable areas internally and with third parties?
  4. Management of supply chain: Does the evaluation of new suppliers and business partners specifically look at their ability to protect IP? Contracts should contain provisions that require third parties to meet your IP protection policies.
  5. Security and confidentiality: What systems are in place for safeguarding digital and physical information and assets including IT systems as well as procedures and contracts for maintaining confidentiality?
  6. Training and capacity building: Is there training for employees and supply chain members that builds a culture of awareness and compliance with IP policies?
  7. Monitoring and measurement: How effective are processes to monitor the level of compliance with the company's IP policies and contractual provisions internally and throughout its supply chain?
  8. Corrective action and improvement: When an IP compliance issue is uncovered, is it analyzed for a root cause and addressed, subject to a quick fix – or worse - ignored?

Results of the pilot assessments

Overall, companies were strongest in the area of security and confidentiality - with relatively sophisticated physical protections and IT security. However, even within the area of security, companies realized that their focus was on IT security and not the broader issues around IP protection.

The lack of a comprehensive view of IP protection became evident in other areas. The weakest link of the eight, across the board, was monitoring and measurement - actually keeping tabs on whether IP protection policies were being followed.

65% of companies did not monitor IP protection in their supply chain, or they only monitored a problem after it surfaced.  Contract managers can strengthen this area by developing monitoring protocols that incorporate IP protection in tracking third party contract performance.

IP protection also suffers when companies forge initial relationships with supply chain partners. When evaluating a potential deal, only one-fifth of the companies surveyed evaluated the IP protection program of the prospective business partner. More than half of the companies did not conduct any due diligence related to IP risk before entering into a new contract.

Based on companies' self-assessments, 62% either did not communicate their IP protection expectations to supply chain companies or only included a reference to IP protection in the contract. However, independent assessments showed 85% of the companies failed in this area.

Understanding risk and taking action

The eight assessment areas allowed participants to understand how they measured up in each, and encouraged them to improve their maturity at a practical pace. Participants discovered their need to use management systems to supplement the legal IP protection sought through contracts.

Although detailed company results from the pilot program are confidential, the pilot summary report offers a glimpse of the steps companies are taking based on their participation.

Companies are increasingly aware of the importance of protecting their IP all along global supply chains.  In addressing vulnerabilities identified, contract managers have a key role to play, and a management systems approach gives them the leverage they need to play that role effectively.

Analyzing what companies do today shows clear weakness in IP protection during the contract life cycle. From the initial risk assessment to third party evaluation and post-contract monitoring, IP protection needs to become integrated. Contract managers can take a leadership role in creating the cross-functional teams necessary to integrate IP protection into supply chain risk management.
 

ABOUT THE AUTHOR

Craig Moss is Chief Operating Officer of the Center for Responsible Enterprise and Trade (CREATe.org) where he is responsible for developing CREATe Leading Practices, a program designed to help companies and their suppliers reduce the risks associated with trade secret theft, counterfeiting, piracy and corruption. He has developed definitive guides for organizations including World Bank Group's International Finance Corporation and the United Nations. Mr. Moss is an Executive Advisor for Social Accountability International (SAI) and previously led Social Fingerprint®, a program helping companies and their supply chains implement sustainability practices.

ABOUT CREATE.org, Center for Responsible Enterprise and Trade

This is a non-profit company dedicated to helping companies and their suppliers and business partners reduce corruption and IP theft in the forms of counterfeiting, piracy and trade secret theft.  The organization has developed CREATe Leading Practices for IP Protection and CREATe Leading Practices for Anti-Corruption, two programs based on best practices drawn from companies around the world, academics, and other leading organizations.

 
 

Also... enter the IACCM 2014 Innovation Awards! Learn more

 

Change management - do we really need it?

 
How often, when you try to drive changes to a contracting process do your peers respond with a deep intake of breath - and then try to find reasons why it won't work! Some say it's more work than it's worth and in the end, management will kill it. I agree, maybe they will try. But if you drive change in the right way, you should get the support you need. It takes time, planning and due diligence.
 
 

This article looks at how to drive change management correctly.  It shows how, by getting the process and approach right, change management can win the support and trust of even hard-core objectors and bring value to the system as a whole.

Our biggest challenge is to change existing processes and procedures. Often the initiator of change faces an uphill task to convince stakeholders of the importance of change and its benefits. Issues like ownership, governance, documentation, cost, tracking and performance are key areas we initially consider.

Understand the need for change

The first and most important step in any change process is to understand the system and need for change.

As an example, one outsourcing company had no change management process, and although most of its contracts contained a change management clause, the process was rarely followed. Changes got lost in paper and emails. A due diligence of the system showed the company was losing at least 2% of overall additional revenues which went unnoticed and never utilized.

Due diligence had clearly shown the need for change – the first step in the change management process. The following seven steps lead to achieving the change. 

  1. Identify and define the gaps – how, what & why?
  2. Create urgency
  3. Find the believers and get buy-in
  4. Formulate an impact analysis
  5. Include a communication, approval and authority metric
  6. Create short and long term wins
  7. Build on success as a corporate culture

The seven steps to change

  1. Identify and define the gaps – how, what & why?

This most important step is to identify any gaps in the contracting function, to identify what needs to change. The process of identification can be a through audit or due diligence, but it can also become part of the solution, for example, by involving the individuals, groups or departments involved in stakeholder brainstorming sessions. Key here to consider is how the new process will bring value to the organisation and address management objectives.

Ask the “how” questions

Answers will lead to a series of outcomes regarding the current setup. Knowing who the employees and stakeholders are for the gaps identified will clarify how to go forward.

  • How is the process mapped in its present form?
  • How do we reduce the cycle time?
  • How can we implement the new contracting function to create value and bring additional revenues to the organisation?
  • How can we do the migration without affecting the current setup?

Ask the “what” questions including these considerations:

  • What approaches do we need in the new contracting function?
  • What are the transactional and operational issues?
  • What is the return on investment (ROI)?
  • What if the process does not add significant value and generate outcomes?

Ask “why” questions including these:

  • Why are we doing it this way?
  • Why is work in progress (WIP) piling up rather than being addressed?
  • Why do we need the change?

In the case of the outsourcing company, analysing the gaps by asking the 'how, what and why' questions identified several key issues. First, the whole process was manually-based and key stakeholders were either not involved or not accountable.  Second, employees were more concerned about their individual key responsibility areas (KRAs) and the roles became misaligned.

Their lesson was to design a contracting function with clear workflow and clearly-assigned roles for each stakeholder and with clear timelines to achieve their KRA's.

  1. Create Urgency

Once we define the gaps and uncover key outcomes, we need to create a sense of urgency. How often have we seen top management set aside an identified need for change with excuses like this one: “We don't have the budget. Let's do it in the next financial year”?

The team needs to create urgency not only among the stakeholders but also among vertical and horizontal programs. The best way is to perform a pilot process and show the outcomes to company management. This may not be at the highest level, but will eventually influence management to think about the effect it could have in the short or medium term. Creating the urgency often results in a positive change.

  1. Find the believers and get buy-in

Identifying key “believers” who have influence in the company is ideal for getting buy-in from top management. Finding the ones who support the change in the contracting function is key. They will generally not only notify top management of the red flag issues, but will also help implement changes when it comes to budget and daily interaction with various functions and team members. Supportive parties to the change also help to influence those who may not have been on-board in the beginning but later realise change is needed in the contracting function.

In the outsourcing company's case, the key believers were the service delivery team.  They were the ones communicating on a daily basis with the client, who had been routinely experiencing a high degree of escalation due to weak process and undefined roles of internal stakeholders. Identifying the team as “believers” and getting their buy-in not only won top management's support for the change, but also addressed major flaws in the metrics.

  1. Formulate an impact analysis

Formulating an impact analysis can highlight the significance of change in a contracting environment.  Ask…

  • Where are we now and how will the change impact the new contracting process?
  • How will it impact revenues?
  • Will it result in a seamless process both internally for company and externally for the client?

Top management will always do a comparison before allocating manpower and budget for change and a clear impact analysis will enhance the approval mechanism. It will give both short and long-term insight on the new process, which will highlight the benefits of change and its impact on the function or business.

The outsourcing company's change process was new and needed to be embedded with a third party tool to monitor the day-to-day process and further utilization of metrics. The impact analysis clearly defined a subsequent improvement in turnaround time and a clear notification and tracking mechanism.

  1. Include a communication, approval and authority metric

Lax communication can be the reason why something slips away like a simple, billable service not getting billed.   A clear workflow mechanism will not only define key information that needs to be communicated, but will also define the whole approval and authority metric in place.

The end result will be a streamlined process with a proper approval mechanism and fact-based authorisation. For example, many issues may require input and authorization from several team leaders before they can be agreed with the client.

A clear approval and authority metric will retrieve and compare data at any time. Formal training needs to be provided to all involved.

The outsourcing company experienced a big gap in the communication process, because roles and responsibilities were not defined. Even though the team leader communicated the issues, the stakeholder assigned did not know how to act on it. Stakeholders were misaligned in the approval process, and accountability of the approval was questioned in some cases. Applying the new process significantly increased turnaround time and governance.

The lesson the organization learned was to develop the communication process as a whole around the right set of stakeholders, to regularly update the database so that trigger mails and notifications targeted the correct functions. This not only created a clear approval process, but also developed an authority metric for non-standard changes.

  1. Create short and long term wins

The whole process may take time to realize from an operational point of view, and the real benefits can also take time because change may not come immediately.  We should never try to make long-term commitments on the revenue impact and value of the outcome of change in a contracting function if they are overly ambitious and cannot be achieved.  Always create a short-term commitment and try to achieve it. Once you do this, you can stress the value on an enterprise basis. The key to success is to show and achieve milestones, and then add value.

  1. Build on success as a corporate culture

Once you create a success story, the change can become part of corporate culture and learning, and the team can influence others on how they can achieve outcomes with the right people, processes and tools.

Benefits of change management

Here are the key benefits that robust change management can bring to a contracting function:

  • standardized methods and procedures to ensure efficient and prompt handling of all changes;
  • proper balance between the need for change and the potential impact of change;
  • non-financial benefits such as customer satisfaction, easy navigation and notification, and improved turn-around time;
  • a vehicle for communications, evaluation, approval, implementation and for measuring effectiveness of all changes;
  • a method for avoiding and controlling scope creep and fact based risk mitigation;
  • monetization for all support services – reporting, training, program management, projects, technology and transition services;
  • increased return on investment (ROI); and
  • opportunities for development of “best practices”, leadership development and team development.

Conclusion

The objective of change is to bring order to a messy situation and succeed in winning the support and trust, not only of those who are objectors, but also the silent spectators. We need to bring together the soft factors (people, culture, leadership, and motivation) and hard factors (time, metrics, cost and performance), through the seven-step process of change management set out above, to achieve maximum stability, value and return on investment.

Change can ensure business success.  Any contracting function takes time to mature and break even.  Nevertheless, if people, processes and tools are aligned with all key aspects of the seven-step process described, it will be a success.


ABOUT THE AUTHOR

Anupam Sharan, Director Contract Management for Sutherland Global Services Inc, is an attorney managing strategic legal, contractual and commercial programs globally. He has extensive legal and contractual experience in drafting, negotiation, IPR, corporate, commercial including International law, M&A, government affairs, risk, governance, compliance and privacy matters. He seeks to channelize business and operational insights to provide thought leadership within the industry and contribute to shape laws, regulations and public policies. He brings experience across multiple industries such as consulting, financial services, telecom, outsourcing, IT, ITES, steel, power and construction.  He is a regular speaker at various conferences, with many articles and white paper published to his name. He has dual qualification of Bachelor in Mechanical Engineering (B.E.) and Bachelor in Legislative Law (LL.B.) with Masters in Business and IPR Law (LL.M) added with various certifications including IACCM Expert (CCME).

 
 

Becoming an IACCM Fellow - one 'Yes' answer could open a door for you

 
Are you ready to dive deep? IACCM is looking for a few great folks who can answer 'yes' to one or more of these three questions. If you can, you could be next to join our elite body of IACCM Fellows!
 
 
  • Are you a leader in the contracting and commercial space? 
  • Are you contributing or looking for a way to contribute to the profession and to enhance your membership with IACCM? 
  • Have you ever shared your skills and passion for contracting excellence or wondered how it can be shared? 

Answering 'yes' means you have a high level of professionalism and passion for contract and commercial management - qualities you share with the elite body of IACCM Fellows.

A few years ago I was honored by IACCM with a Fellow designation.  It is a much treasured acknowledgement of my experience and support of IACCM in furthering the contracting and commercial profession. 

As a Fellow I have served as a conference and “Ask the Expert” speaker, and taken member calls to share experience and best practices with those embarking on change and improvement projects.  I always learn as much as I share from these interactions.   Yet in my many conversations with members, it's clear many of our experienced members are unaware of the Fellow program. 

IACCM Fellows are IACCM ambassadors.  The organization relies on these leaders as mentors and best practice coaches to member organizations, as conference and 'Ask the Expert' webinar speakers, and for other key communication and leadership roles.

Fellow candidates are seasoned practitioners with leadership achievements in implementing key process, policy and organizational improvements in the contracts and commercial areas of their business, especially those using efforts reflective of IACCM practices and principles.  Successful candidates will have started taking their learning beyond their internal business success and will have begun working as an agent for change within their industry - or the profession as a whole - as a contributing speaker, writer or advisor.  IACCM wants to help and promote these unique contributors in their quest to make a difference.

Testimonials from our graduates

Adrian Furner, Founding Partner, Kommercialize

A former IACCM Board member and IACCM Fellow is Adrian Furner.  Adrian, after 25 years of industry experience, heads a practitioner-led advisory firm helping clients with commercial innovation.  He said this of his role as an IACCM Fellow: “As a global professional association, active members are key to success, and Fellows are a key group within the wider membership.  As seasoned practitioners, the Association's Fellows are often the first port of call for members' challenges. It's often easy to overlook or undervalue our personal experiences, and being able to leverage them for wider benefit in a forward-looking way is both satisfying and beneficial.  In return, it challenges your own thinking and offers external insight.  Being accepted as a Fellow is an honor, as it is gained through peer recognition.  It relates to both your existing experience and knowledge, but also your ability and willingness to help further this for the benefit of the profession and its members, which of course, is where the real opportunity lies.”

 

Paul Branch, Head of Deal Assurance, BT

Another recently named Fellow is Paul Branch.  Paul's application was selected for his significant success in leading improvement efforts for his employer in their contracting and commercial processes.  Paul has additionally served as an IACCM conference panelist and active contributor to the IACCM Events Advisory Board, as well as many other accomplishments.  Paul said of being named a Fellow: “I've been involved in contract and commercial management for over twenty years, but I'm still amazed at the opportunities that exist to share knowledge and best practices across our seasoned practitioners. As a Fellow, I have a seat at the table to define these best practices and also the support across our Executive to implement systemic change.”

 

Dave Barton, Executive Lead and IACCM Fellow

Dave Barton has recently served as an IACCM Board member, and is also an IACCM Fellow.  Dave has been a strong advocate of IACCM practices and a willing mentor and coach for member organizations embarking on improvement paths and change.  He said of his Fellow status: “Achieving IACCM Fellow status is a real honor.   It means that you are willing to develop and share best practices with others. It also means proactively seeking opportunities for positive change - in other words, not being satisfied by the “status quo” and “we've always done it that way” kind of thinking. It means having a burning desire to always move forward, take a stand, take risks, and challenge yourself and others to greater levels of contribution.”

Adrian, Paul, Dave, and all IACCM Fellows, exemplify making a difference for IACCM and the contracts and commercial management profession.

For those unfamiliar with the Fellow application process, details are available on the IACCM website. Fellow applications are assessed by current Fellows of IACCM and selected applicants pay a one-time enrollment fee. 

A Fellow application should include the following:

  • Highlights of your career achievements in the contracting and commercial space
  • Demonstration examples showing your understanding and applied use of IACCM programs and practices in your business
  • Outside contributions to the profession in an industry or broader context
  • Work efforts that reflect your passion for contracting excellence, change and improvement. 

Finally you should share how you would use the IACCM Fellowship status to further the organization's goals and the profession as a whole if you are selected for the role. 

If you are ready to take your current advocacy for excellence in contracting to the next level then apply for IACCM Fellowship status.  Prior experience with IACCM eLearning or certification is certainly favorable but not required.  IACCM looks forward to considering you.  If you have any questions, please feel free to reach out to Paul Mallory, the program coordinator, by using the IACCM website networking tools.

 
 
IACCM Insider

IACCM's latest findings and key events

 
IACCM's ongoing participation in global events has inspired heightened awareness and a call to action across our professional community. Here are a few special highlights.
 
 

Salary surveys for North America and UK

IACCM's salary survey reports for North America and the UK top the list for this month. Published in early April 2014, both are valuable sources of information.

As a member, you have access to this data and can access the details at:

Check out IACCM's webinar titled Are you paid enough? Hear IACCM staff discuss trends in salaries and benefits across all job levels and within different industries. They explore the implications for the roles and highlight steps that practitioners can take to maximize their career and salary potential.

EU Megaproject Conference

Tim Cummins participated in the EU Megaproject Conference on April 3 and reported his experience and conclusions in his article titled “A wake up call for contract and commercial management.”  The event focused on research aimed at understanding why 65% of “megaprojects” (defined as any project worth over 500m Euros) fail – which seems to point to weaknesses in commercial and contract management.            

His concluding remark: “IACCM is so determined to push the research agenda and raise skills and competencies within member organizations. It is time for the practitioner community to awaken to the scale of need and opportunity that this represents and to become far more active in support and advocacy of improved commercial and contracting standards.” 

More will come from IACCM so stay tuned!

Announcing our oil and gas online training program

We launched our Oil and Gas in Practice on-line training program  designed for new and experienced practitioners in the international oil and gas industry.

The Oil and Gas Learning Program is a training curriculum designed to equip practitioners with the best practices, skills and knowledge they need to implement contract and commercial management practices effectively within their organizations.

This program is a specialist 'add-on' to the core IACCM Body of Knowledge on contracting and contract management, and follows the familiar format of the IACCM Managed Learning program - recorded modules, module exams, ancillary library materials and message boards.

Be one of the early participants and be sure to give us your feedback!

UK Houses of Parliament - procurement director receives IACCM expert certification

UK Houses of Parliament, April 8, 2014 - Veronica Daly is congratulated for achieving expert certification by Paul Mallory, IACCM's Vice President of Professional Development; Wesley Auvache and Andy Creasey, both contract managers for facilities in the House of Commons, UK.

WESTMINSTER, LONDON - Veronica Daly, Director of Parliamentary Procurement and Commercial Services at the Houses of Parliament in London is the first practitioner there to receive IACCM Certification in Commercial and Contract Management (CCME) at the expert level.  Paul Mallory presented the certificate at the House of Commons.

Veronica leads the way in encouraging contract managers in her organization to improve their commercial and contract management skills and knowledge.

Her timing is perfect. The UK government - like many in Europe and elsewhere – is striving to meet budget reduction targets as part of its financial recovery effort.

Key to meeting these targets will be better procurement decisions and management of contracts, to deliver better value on behalf of taxpayers. Keenly aware of this challenge, Veronica is leading her team to raise their skills and produce the results.

IACCM is also working with the UK government delivering Commercial Skills for Leaders training to its senior civil servants. The UK government is among the first in the world to appreciate the impact this training can have on the outcome of key projects, helping senior leaders to more confidently make commercial decisions and steer their teams in the right direction.

IACCM congratulates Veronica and looks forward to working closely with the UK and other governments worldwide to meet current financial challenges across the public sector, to benefit all taxpayers and consumers of public services.

To know more about our learning opportunities, click on…

Hundreds attend IACCM Conference at CSC, Bangalore

BANGALORE - Over 100 participants from India, Australia, US and EMEA attended the IACCM conference at Computer Sciences Corporation (CSC) in Bangalore, on 19 March.

Six CSC employees were awarded for successfully completing IACCM certification.   The event focused primarily on best practices, contracting management trends developing in India and the evolution of contract management as a shared service or hybrid (onshore-offshore) model.

Speaker Tim Cummins, CEO of IACCM, talked about “Trends in Contract Management: A Growing Role and Value.” Panelists Nancy Nelson, Director, CSC; Tim Cummins; Anoop Kashyap, CSC; Monu Iyappa, Independent Counsel, India; and Utham Chengappa, former global Head of Commercial Transactions at Infosys, delivered an all-round perspective on views during the discussion.

 
 

If you want to risk negotiation failure, skip the planning stage

 
Starting a negotiation without a plan? That's almost like trying to build a skyscraper without a blueprint. There's good news though - an easy planning solution that can help prevent an embarrassing negotiation failure!
 
 

Planning is key to negotiation success.  Yet, research shows that most companies lack a planning process and do not even use a planning tool such as a negotiation planner. The attached benchmark study by IACCM and Huthwaite International titled Improving corporate negotiation performance identified planning as critical to negotiation success but discovered that most companies rely more on the individual skills of their negotiators than on planning tools. The study includes a planning template for the negotiation process. 

This article first describes the study and elements in the template. It then suggests simple revisions to this template based on principles from the negotiation classic, Getting to Yes and solicits feedback on further improvements.

The IACCM/Huthwaite study is based on extensive interviews with individuals from 124 organizations drawn from Huthwaite client contacts and IACCM Community of Interest members.  Most of the organizations are in the Forbes Global 2000 (the world's largest companies). 

Interviews identified ten critical negotiation performance areas.  One of them – Preparation and Planning – revealed that 74% of companies have no formal negotiation planning tools.  The study noted the “widespread belief that the skill of the individual will ensure a successful outcome” and quoted an example from a director of a Global 500 company, who stated that “for a recent $75m deal we spent just a few hours planning the evening before.”

One caution from the study  

While this article describes progress in developing an improved planner that will be useful to the IACCM community, even a perfect planner will not, by itself, ensure success in negotiations.  As the study notes:  “It is not the tool that makes the difference; it is how it is used. … A cross-organizational discussion around the tradable issues and value-creating options is far more valuable than completing a negotiation planner in isolation.”  The template enhancements presented in this article are designed to encourage these discussions by providing a framework for communication and analysis that can lead to negotiation success. 

Revising the current negotiation planner

The existing planner template includes seven key elements:

  1. Negotiation objective
  2. Your priority issues (what you want)
  3. The other side's priority issues (what they want)
  4. Value creating options
  5. Tradable issues (low cost to you, high value to them)
  6. Your alternatives (and how to strengthen them)
  7. Their alternatives

These elements could be improved through simple revisions based on principles from Getting to YesIn that book, authors Fisher, Ury and Patton emphasize that negotiators should:

  1. Focus on interests (why you want something) rather than positions (what you want);
  2. Understand their Best Alternative to a Negotiated Agreement (BATNA), which is the source of power in a negotiation; and
  3. Rely on objective criteria (fact-based negotiation). 

These three points suggest several possibilities for revising the planner template.  In its current form, and contrary to the Getting to Yes philosophy, the template uses a positional approach by asking what you and the other side want, when it should also ask about the reasons for your positions—that is, your underlying interests. 

The template asks for a list of your and the other side's alternatives, when it should focus on the best alternative (that is, the BATNAs).  And the planner should encourage you to identify facts (objective criteria) that you will rely on during the negotiation.

In addition, it should include specific questions relating to your BATNA strategy. For example, do you want to disclose your BATNA during the negotiation (a strategy that is recommended if your BATNA is strong)?  And how can you weaken the other side's perception of its BATNA?

Five additional elements

One of the strengths of the current negotiation planner is that it is short and easy to use.  Adding additional elements carries the risk that the planner will become so complex and cumbersome that it will not be used.  However, five additional elements should be considered.  All are included in my negotiation courses in Europe, Asia, North and South America and are portable across cultures.

  1. Do you and the other side share common goals—that is, which issues do not conflict? Identifying these goals alleviates an assumption that the parties' interests are in conflict on every issue.
  2. What is your first offer strategy?  For instance, do you want to anchor the other side to your price or should you follow the conventional wisdom of encouraging them to present the first offer?  If the latter, how will you respond to their offer, keeping in mind the need to avoid being anchored to their numbers? 
  3. Do you understand your and the other side's authority limits?  If they have limited authority, how can you help them obtain necessary sign-offs? In other words, their authority problem is also your problem.  Helping them solve this problem will help you achieve your goals.
  4. What big picture considerations might lead to opportunities for developing opportunities for joint gains?  For instance, do you have a clear understanding of the other side's business units, strategic initiatives, main competitors, top customers, and financial situation?
  5. What is your relationship to the other side?  Is this is an important, long-term relationship or a snapshot transaction?

Feedback from the IACCM community

Members attending the IACCM Americas Forum in 2013 reviewed the current negotiation planner and the additional elements.  Their feedback included these suggestions: 

  • Include a section on roles of negotiating team members.
  • Share the planner with the implementation team.
  • Identify the key stakeholders in your company and determine how they are impacted by the contract.
  • Use the planner to develop an agenda for use during the negotiation.

Next steps and design considerations

The next step in development of the planner is to incorporate suggested improvements into a revised template.

Once a potential design has been completed, IACCM members will be asked to provide hypothetical scenarios that can be used to test drive the new template to determine whether it is a practical tool that is useful in contract negotiations. 

At this stage, questions regarding variations on the planner will be considered, such as:

  • Should you use two versions: one for team members most intensely involved in the negotiation and the other condensed for other parties, such as senior management and members of the implementation team? 
  • Should you develop a short spin-off of the planner as a checklist during negotiations? 
  • Should you revisit the planner after negotiations to evaluate whether they were successful? 

In summary, the IACCM/Huthwaite study concluded that, although planning is a critical negotiation performance area, most companies lack formal planning tools.  To help fill this void, the study included a tool based on templates provided by nine participants in the study.  This article has suggested a number of improvements to the current template.  If you have comments about these suggestions or if you recommend additional enhancements, please send them as soon as possible to gsiedel@umich.edu


ABOUT THE AUTHOR

George Siedel holds the Williamson Family and Thurnau Professorships at the Ross School of Business, University of Michigan.  He completed his legal studies at the University of Michigan and Cambridge University.  Professor Siedel has been admitted to practice before the United States Supreme Court and in Michigan, Ohio, and Florida. The author of numerous books and articles, his research awards include the Faculty Recognition Award from the University of Michigan and various awards from the Academy of Legal Studies in Business (the Hoeber Award, the Ralph Bunche Award and the Maurer Award). His most recent book, co-authored with Helena Haapio, is A Short Guide to Contract Risk (Gower, 2013).

 
 

The new high-pressure contract manager role - and implications for Spanish-speaking nations

 
Today, organizations need contract managers who can deliver results and keep the business out of trouble. Given the increasing demands placed on this responsibility, are we up to the challenges?
 
 

Tough economic times continue putting the pressure on the role of contract manager, IACCM research confirms. Organizations worldwide demand higher skills, better management, greater efficiency and reduced costs - in both contract development and the process. 

But, in Spanish-speaking nations, organizations have been less visionary - although this is changing. An article covering this topic, written in Spanish, is available. Click here to read El rol del Gerente de Contratos.

New pressures on the role mean anyone coming into the contract management (CM) profession needs to have much more than just the technical knowledge needed to prevent or solve problems, even if he or she is a lawyer, accountant, engineer or recent graduate.  Regardless of qualifications or university degrees, much more is needed today.

The CM role should be multi-disciplined, and performed by someone with cross-domain, cross-functional expertise who can successfully work within a diverse environment.

This article will unpack generally what the 'new' strategic role looks like throughout the contract lifecycle, as compared with the 'traditional' CM role, and its impact on Spanish-speaking countries.  The complexity of background geopolitical, legal and cultural issues impacting the CM role is beyond the scope of this article, but a follow-up article is coming soon.

A summary of what it takes to be a CM professional today is set out below – 'New skills that follow the contract lifecycle.'

High value role much more than compliance

High value contract management is becoming much more than just compliance. It is also about ethics, integrity and management of regulatory risk. A fair balance between compliance and innovation is needed. Contracting needs to protect against reputational risk through ethical practices, and simultaneously ensure competitiveness through innovative terms and conditions as well as standard terms and audits.

As we've anticipated, the CM role has become substantially more important as a direct result of the economic crisis.  Indeed the whole business environment has continued to change rapidly. Many of these changes are immediately relevant to our field, placing even more emphasis on the role of the CM.

Has the role changed in Spanish-speaking nations?

The traditional CM role has changed very little over past years.  In the Ibero-American (Spanish-speaking) countries (including Spain, Portugal, Central and South America) it is often seen as just an administrative function, carrying out tasks such as billing, payment and the recording and filing of contractual documents. There is very little focus on the proactive, value-add approach that the position really requires.

Currently, CM roles in Ibero-American countries are performed by project management, procurement, sales, sales operations etc.  Contract support (drafting and negotiation) remains in the jurisdiction of lawyers if the organization requires in-house support, or finance if not.

However, CM in Ibero-America is now emerging as a fast-growing and complex discipline, and the new, strategic role will become more robust and common in organizations throughout the region due to internationalism and global operations.

The strategic CM role is much broader. Rather than dealing with tactical day-to-day operations it takes a deeper dive into implementation of corporate strategies and business generation.  It ensures that contracting policies and procedures are being followed and complied with.  Its approach to organizational risk and levels of trust generated are expected in relationships with trading partners.

This role also reports back to senior management about issues and trends identified by surveys and analysis. For example, they inform governing boards and business leaders about the types of risks they are experiencing or market trends resulting from contract performance review processes.

Why and how has the role changed?

Growing visibility in non-common-law countries

Not surprisingly, geography and location of the role have been a major factor in the past, with few CMs visible in non-common law countries. However, this is changing as business globalizes and contract procedures become more consistent.

An increasingly multi-disciplinary profession

A comprehensive professional CM career path will include many disciplines such as law, finance, economics, project management, marketing, business development, quality management etc. When combined, these can generate extraordinary business offerings and excellent outcomes. 

An independent role within the organization

It is critical to ensure independence of the contracting group, respecting their proper authority, preserving their integrity and making sure they are not subject to any type of pressure from other areas of the organization.

Need for transferable skills

Can we consider CM as needing transferable skills? Many people succeed in crossing industry boundaries. I believe no industry or geographical factors are involved here, since skills and knowledge applicable in one industry area can be transferred to others, depending on the capabilities of the individual who is moving.

Impact of the CM role – growth!

Another key point is the scope of the role, whether an organization sees its responsibilities as being limited, for example, to closing a certain account versus a more strategic role. As Tim Cummins has asked: "Does the function simply implement and protect other people's rules, or does it advocate change and participate in key policy discussions?"

Journey to professionalism

The CM community is journeying toward professionalism, but although thousands have achieved expert or practitioner certification, many have not yet proven their knowledge in the field. Without university programs in place covering the entire contract and commercial management discipline, most practitioners are entering the field with other backgrounds, such as finance, law and project management. Although each may be relevant, they are only one part of the wider professional role that organizations require today.

New skills that follow the contract lifecycle

The following are the professional attributes today's strategic CM needs to have throughout the various stages of the contract lifecycle:

In the initial stage of the contract management process, the CM should know about:

  • alignment with business strategy;
  • probability of individual and team success;
  • nature of the contractual relationship;
  • willingness of the organization to trade with the other company, considering risks, ethics, reputation etc; and
  • background and history with the other company, existing and past relationships.

In the development stage, the CM should understand or have:

  • knowledge of regulatory issues;
  • clarity on scope and goals;
  • experience in negotiation;
  • resources control;
  • potential risks;
  • approval path; and
  • internal alignment.

In the contract implementation and delivery stage, the CM should know or have:

  • who is responsible for implementation and delivery;
  • accurate contract interpretation;
  • contract change procedure and policies;
  • performance review procedure; and
  • communication and notifications regarding the deal.

In the completion stage, the CM should know about:

  • rolling contract renewal with previous consent;
  • continuing obligations;
  • lessons learned;
  • compliance requirements; and
  • exit plan, termination.

Competencies -  IACCM research summarizes these as follows:

  1. Drafting, analysis, negotiation and interpretation of all types of agreements and contract modalities, for instance:
    • sales and purchasing contracts, sub-contracts, licensing agreements, agents, resellers, distribution, joint marketing, services, consulting, marketing agreements etc;
    • non disclosure agreements; and
    • master agreements.
  2. Public contracting with federal, state and local governments.
  3. Reviewing terms and conditions proposed by all types of customers and partners.
  4. Interacting as the point of contact for:
    • final clients on contractual matters;
    • company employees, ensuring timely review and approval of the contractual terms and conditions and their amendments; and
    • customer attorneys (negotiating directly with them) and their own purchasing staff (providing appropriate recommendations).
  5. Keeping contractual records and documentation, such as receipt and control of all contract correspondence, customer contact information details, contractual changes, status reports and other documents for all projects.
  6. Training and providing guidance on contract matters to project managers or other operational staff, including training to other employees in contracting practices and procedures.
  7. Designing and implementing contracting procedures. Compliance with corporate policies. As appropriate, contribute to or influence company policies.
  8. Monitoring:
    • Compliance by company employees with established procedures.
    • Competitive terms, ensuring company products and services are offered with appropriate, competitive terms and conditions. 
    • Customer satisfaction with terms and conditions and contracting practices, recommending changes.
    • Transaction compliance (milestones, deliverables, invoicing etc).
    • Service Level Agreement compliance etc.
  9. 9.  Post-signature actions:
    • Ensuring that signed contracts are communicated to all relevant parties to provide contract visibility and awareness, interpretation to support implementation.
    • Handling ongoing issues and the change management process.
    • Ensuring contract close-out, extension or renewal.

Strategic role increasingly valued

Best practice for a CM role means taking holistic responsibility for the entire contracting process, including 'pre' and 'post' award stages.  It means setting up policies and processes that support market needs and business strategies.

In the light of these new trends, the strategic role is not only more interesting, attractive and secure, it is also a lifecycle discipline, increasingly valued by senior management and respected by other areas of the organization.

As a direct result of economic pressures the split between traditional and strategic roles may fade over time. The attractiveness and sophistication of the new strategic role may be matched by decline of the old administrative function, which may be automated or transferred to other internal groups such as sales, procurement or project management.

The outlook for Spanish-speaking nations?

I really believe this won´t happen, at least in the short term, in countries where the field is still in the early stages of development. I am referring to our Spanish and Portuguese-speaking countries (including Spain, Portugal and the entire Latin America), where CM is beginning to emerge as a recognized profession. This is particularly so if the organization concerned is a subsidiary of a multinational based in Northern and Central Europe or the US and does not have enough authority to make strategic decisions.

The traditional role in Ibero-America has not yet reached the level found in continental Europe, the UK and the United States. But focus on the strategic role will increase and organizations will place greater emphasis on it - the change is happening.

Contract management offers an attractive career option to those interested a more strategic function.  However newcomers can only be successful if structured and systematic learning programs and/or university degrees are available at levels that meet current business needs.

 

ABOUT THE AUTHOR

Pablo Cilotta is an experienced multi-lingual (native Spanish, bilingual English, intermediate French & basic Portuguese) cross-border professional. Dual Nationality Argentinean-Italian, with top academic credentials and solid focus on Contract Management, Software Licensing and Business Law.

 Broad variety of international work and diversified background in multi-cultural environments gained through regional positions held in EUROPE, Middle East & AFRICA, APAC, LATAM (Argentina) and for the US market. Within that global presence, his experience includes many industries like the fishery sector, Technology industry, healthcare, law firm consultant. His core specialties include setting up legal entities and subsidiaries, demonstrating expertise in designing, drafting, implementing, reviewing and negotiating contracts, including technology license and channel partner agreements.


 
 
 
 

2013/2014 Editorial Board

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