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

Contracting Excellence Magazine - Jan 2008

 
 

2008: Risks & Opportunities

 
As we enter 2008, businesses face mounting uncertainty. Political tensions, shifting economic power, threats to the financial system … it is tough to predict how the world will look a year from now. These issues add to (and to some extent result from) the underlying changes still being driven by the networked world. An era of cheap and easy communication is transforming how, where, when and with whom we do business.
 
 

As we enter 2008, businesses face mounting uncertainty. Political tensions, shifting economic power, threats to the financial system … it is tough to predict how the world will look a year from now. These issues add to (and to some extent result from) the underlying changes still being driven by the networked world. An era of cheap and easy communication is transforming how, where, when and with whom we do business.

While periods of rapid and unpredictable change may seem threatening to many, they also represent tremendous opportunity. Some will simply prove lucky - but others will focus on the key issues and attributes necessary to ensure their survival.  As highlighted by a recent article in the Financial Times, true leaders view risky conditions as a time when their competitors are likely to stumble - and therefore times when they can create some real advantage. That same belief should also influence the attitudes and behaviors of individual employees who want to not just weather the storm, but emerge with their status stronger and their career plan intact.

In this spirit, IACCM will continue to focus not only on the issues confronting the leaders in sourcing, sales contracting and legal groups, but also in identifying practical and innovative solutions. Our planning and strategy meeting with the new Board of Directors will focus on strengthening the standards that we already offer to our members - and on introducing new initiatives for our rapidly expanding worldwide community. 2008 will be another year of tremendous growth for our community - and for the services we are able to offer.

In addition to the regular updates on the website, you can also follow some of the key trends - and comment upon them - at our new blog, Commitment Matters. The introductory articles focus on Globalization and Networking. In coming days, articles will feature Risk, Innovation and Talent. Each commentary suggests ways that leaders and professionals can not only 'manage uncertainty', but also take advantage of the opportunities presented by today's business environment.

 
 

JOIN US AT THE IACCM AMERICAS 2008 CONFERENCE

 
www.iaccm.com/americas
 
 

IACCM Americas 2008 will focus on the role of our community in delivering competitive advantage through commercial leadership and innovation. "Collaborate to Innovate" is about using and expanding our skills, resources and methods to enable high-performance relationships - whether with co-workers, customers, competitors, suppliers or partners - in order to deliver against key corporate goals:

  • Reputation
  • Trust
  • Profitability and growth
  • Excellence in execution

Those charged with contracting and negotiation have a critical role in establishing the framework for successful business offerings and relationships. But most of us have learned our behaviours in a competitive culture of winners and losers, where trust often gives way to the need for protection. As a result, many of the terms and conditions we use, the way we approach negotiation, the methods for post-award contract management result in perceptions of bureaucracy, confrontation and risk aversion.

In this environment, collaboration is usually hard to achieve. Yet without collaboration, implementation will always suffer and 'innovation' becomes a source of risk. In the words of John Mahoney, CFO at Staples "A fear of failure is the surest way to stifle new ideas".

Today's complex, fast-moving, global economy demands new sources of commercial innovation and creates fresh horizons for those in Contract Management, Sourcing and Legal. As we rise to this challenge, we must collaborate to develop ideas and methods that raise our value and contribution. This includes creating better understanding of the economic impact of contract terms and structures; a greater focus on 'ease of doing business' (waste elimination); an appreciation that both buyers and sellers must make their company one that is 'attractive to do business with' - open, honest, committed to mutual success, and operating with competence and integrity.

While technology makes information sharing so much easier, collaboration and innovation still depend upon the intentions and attitudes of those who do the sharing. The new leadership challenge is to bring real collaboration to an increasingly virtual world.

 
 

Are industry contracting & negotiation practices stifling innovation?

 
Contracting practices and the approach to negotiation can frustrate broader business goals and strategies - especially innovation. That was the conclusion in a recent article "Is innovative outsourcing a pipe-dream?" featured in CIO magazine (and the subject of discussion with Les Mara, EMEA head of outsourcing at Hewlett-Packard, on an IACCM Ask The Expert call on January 10th). Reinforcing that article, this short case study provides an example from the telecoms industry of the dangers that flow from risk-averse and inflexible standards. Unfortunately, there is plenty of evidence to suggest that similar behaviors permeate many other industry sectors - and this is therefore an area rich with opportunity for forward-thinking IACCM members.
 
 

Contracting practices and the approach to negotiation can frustrate broader business goals and strategies - especially innovation. That was the conclusion in a recent article "Is innovative outsourcing a pipe-dream?" featured in CIO magazine (and will be the subject of a discussion with Les Mara, EMEA head of outsourcing at Hewlett-Packard, on an IACCM Ask The Expert call on January 10th). Reinforcing that article, this short case study provides an example from the telecoms industry of the dangers that flow from risk-averse and inflexible standards. Unfortunately, there is plenty of evidence to suggest that similar behaviors permeate many other industry sectors - and this is therefore an area rich with opportunity for forward-thinking IACCM members.

Recent conversations with a variety of companies in the telecoms supply chain suggest that the industry would benefit from re-thinking its approaches to contracting and relationship management. At present, the major telcos appear to be taking an uncompromising view in their allocation of risk through onerous liabilty and indemnity terms. It has become common practice for their suppliers to then package these terms and pass them down the supply chain.

At the end of the supply chain there are typically a number of small companies - often highly innovative, but lacking substantial resources. Even if they accept the onerous terms being imposed from above, that acceptance has no value since they do not have the assets to support it. So their customers find themselves with a dilemma. Do they focus on innovation, or instead 'play it safe' and limit their risk? Even more to the point, do they offer different products and services to their customers, based on the contractual behaviors of that customer? For example, if US companies demand onerous terms, but Asian customers do not, then do they restrict the innovative (higher risk) products to the Asian customer base?

IACCM and other researchers have highlighted the economic and reputational cost of these approaches to risk. Supply chains flourish if they operate relationships that encourage transparency and cooperation. Risk-averse behaviours drive an environment where the participants avoid responsibility and seek to apportion blame. Time is therefore spent on debating 'cures' for risk, rather than seeking methods and approaches that result in prevention.
 
In several recent case studies, we have observed specific examples of situations where buyers are using their market power to impose 'compliance' in a way that undermines relationship value and reduces or eliminates collaboration. In today's networked economy, where performance increasingly relies on inter-dependent relationships, this does not appear to be a responsible approach to risk.
 
IACCM would like to create a forum where the economic and business impacts of unbalanced approaches to risk can be assessed. The telecoms supply chain would appear to be an excellent candidate for such review and therefore we are seeking interest from representatives of both buy side and sell side groups, to define research parameters that could lead us to develop a 'best practice' approach to relationship definition and governance as part of the contracting process.
 
 

Guide To Drafting Disastrously

 
What are some of the best practice techniques to ensure high quality drafting? One of our corporate members has provided a humorous guide (that we have adapted slightly) which can be used as a checklist for your budding drafting professionals.
 
 
GUIDE TO DRAFTING COMMERCIAL CONTRACTS DISASTROUSLY: 15 GOLDEN RULES TO ENSURE THAT YOU GET IT BADLY WRONG EACH AND EVERY TIME
 
 
 
1.                  Spend as little time as possible trying to understand the particular facts and commercial issues of your draft.  After all, there must be one ‘right’ precedent somewhere that’s already drafted for each commercial relationship. Time is better spent trying to find that right precedent than thinking through the issues.
 
2.                  Don’t allow any time to check your draft and definitely don’t ask for a peer review or a second pair of eyes. Who knows more than you what is needed in your draft?
 
3.                  Don’t worry about being accurate or precise: being there or there-abouts is sufficient. Don’t waste time checking the law or facts, much less whether your draft has correct cross references or that definitions are used consistently.
 
4.                  Spend more time worrying about how the draft looks rather than what’s in it. Remember, time spent on formatting is never wasted.
 
5.                  Always use as much Latin, legal jargon and as many unexplained acronyms as possible in your drafts. It will make you look very clever. Keep your sentences long and confusing. Also, where possible aim directly for vagueness: there’s no point in leaving it to chance.
 
6.                  Don’t ever ask for an expert view on specialist areas that might arise in your draft. In particular never avail yourself of the advice and assistance on offer from your colleagues in the Tax, Regulatory, Competition, IPR and Employment groups.
 
7.                  Don’t give a damn for company policies. Whenever was anything worthwhile achieved by following the rules?
 
8.                  Concentrate on the ‘T&Cs at the front’ and don’t worry about the ‘Schedules or Appendices at the back’ because that’s somebody else’s responsibility. The point has been made before, but it’s worth making again, time spent trying to understand what you are buying, selling or trying to achieve in particular terms is time wasted, especially since the Schedules and Appendices will probably contain conflicts
 
9.                  Don’t bother with thinking about or trying to identify any existing contractual relation between your company and the party to a contract that you are tasked with drafting.  Assume that any entity within your enterprise can contract for any product or service in any jurisdiction in the world without any significant regulatory or tax impact. Never bother with local laws. Just follow the needs of the internal customer - their measurement or reward system will guide them in what is best. 
 
10.              Never propose or press that your company's draft be used – especially when dealing with your own products or services - and always be prepared to use the other party’s standard draft, even if it’s completely irrelevant to what is being contracted. After all, the less relevant it is, the more questions over its enforceability. Don’t forget to be customer friendly, especially at the expense of your company's interests, because that’s when you can be sure that you’re really adding value and focusing on 'ease of doing business'.
 
11.              Be the final authority on all issues in your draft. It’s your draft and you don’t need to escalate issues or give visibility of them to your line management or other self-important reviewers and approvers.
 
12.              Boiler plates are not important, don’t waste time on them. For example, who cares if any previous agreements are superseded or not?
 
13.              Spend as much time as possible on provisions that appear not to need as much time as others. They key is that they only appear not to. You know better. As an example, a day or two spent honing the recitals is never a bad idea.
 
14.              Don’t keep clear version control of your draft.
 
15.              Finally, and perhaps most importantly, always remember that you don’t need to practice drafting to get good at it.
 
 

Is The Blackberry Culture Destroying Good Judgment?

 
"In our BlackBerry culture, a day late is, by definition, a dollar short. More and more clients seem to expect a response to an e-mail or a voicemail within an hour. Twenty-four/seven availability is assumed, and many view turning the BlackBerry off, even during religious observances, weddings and funerals, as professional sacrilege." Writing on Special to Law.com, law firm Managing Partner Gregory S. Gallopoulos highlighted the dangers of these instant demands - and some ways to counter them. IACCM has added to those observations with ideas about the wider implications of an 'on-demand' culture.
 
 

"In our BlackBerry culture, a day late is, by definition, a dollar short. More and more clients seem to expect a response to an e-mail or a voicemail within an hour. Twenty-four/seven availability is assumed, and many view turning the BlackBerry off, even during religious observances, weddings and funerals, as professional sacrilege." Writing on Special to Law.com, law firm Managing Partner Gregory S. Gallopoulos highlighted the dangers of these instant demands - and some ways to counter them. IACCM has added to those observations with ideas about the wider implications of an 'on-demand' culture.

Before setting out those recommendations (which make good sense), it is perhaps important to make the point that the Blackberry (or more appropriately, the 'on-demand') culture will not go away. Networked technology has created a de-facto expectation for speed - and it is now a core competitive differentiator. So rather than resist, we must instead tune-up our systems and re-engineer our capabilities. This applies at both the functional and organizational level. So what should you do?

Since investment in extra resources is not likely to be a solution, there are at least three ways you need to be thinking about future service delivery. They are the methods typical to areas like software support. But before you begin, you need to understand what services you are providing and what types of questions and demands you are answering. The key goal is to eliminate low value work (the equivalent of 'commodities'); to handle repeat activity ('mass-customized') through low cost resource; and to free up your experts and top performers for the innovative, groundbreaking assignments ('first of a kind').

Many organizations do not have the data to know what they do, or how frequently they do it. If you are one of those, you need to get moving - and start by collecting your best estimates. If you meet resistance from your senior professionals ('everything I do is unique and / or high value'), then it is time to fire them. They are clearly not suited to the Blackberry culture and should be working for a competitor.

Once your work is categorized, you have three steps to take:

  1. Automate. As far as possible, create on-demand databases with the answers to the regular and repetitive questions. Make this available to your internal customers - Sales, Business Units, Finance etc. - so that they can benefit from 'self-service'. It streamlines their work, makes your company more responsive, reinforces use of standards - and takes your team off low-value, disruptive work. Because this stuff is boring, it often suffers from long delays - and creates much of the negative image for your function.
  2. Create a Help Desk. This is really so obvious. What company today does not operate help desks? Yet somehow most contracts groups feel this is impossible to achieve for their services. They claim that every situation demands individual judgment - and only by seasoned practitioners. This approach cannot be defended. We don't have a monopoly on complex work and if we cannot identify replication, it really does raise questions over the quality of the judgment we claim to be making. It certainly means we cannot be deemed 'a profession' because by nature, a profession has a body of knowledge that can be taught to others. So push past these objections. Hire graduates or employ an outsourcer. Move work offshore and create call centers. They will soon identify patterns for you; they will help you continue to populate and update your automated databases. Of course, they must be supported by higher level and more experienced experts - but many fewer of them.
  3. Deploy Specialists. Your third level support consists of the true experts who are now focused on the high value and innovative work that gains executive attention and potentially makes your name as a group and as a manager. In truth, this represents only some 5 - 10% of the volume of requests coming to your team; but it may be as much as 35 - 40% of the workload - and 90% of the perceived value! And in truth, everyone understands that these level 3 issues are not 'instant answer' items - thought they do expect rapid acknowledgement of receipt and an estimate of when they will hear back from you.

In truth, the Blackberry culture may have exaggerated issues of timing and responsiveness - but groups that suffer most are typically those which provide poor service in the first place. If you are seen as difficult to work with or adding little value, the natural tendency is for clients to contact you late (if at all). So the problem of delay becomes self-reinforcing.

So if re-engineering is the real solution to our 'on-demand' business culture, what are the short-term steps that Mr Gallopoulos advocated in his article and which should certainly also form part of your thinking?

Show respect. In a world of instantaneous communication, failure to respond offends in large part because it suggests a lack of respect. To demonstrate respect, an immediate response may be required, but an immediate ill-considered answer isn't. Try instead an immediate response to the effect that you understand the importance of the problem and will, therefore, give it the time and attention that it warrants.

Reduce anxiety. The BlackBerry Culture takes the Age of Anxiety to a new level. For a surprising number of clients, every second that elapses from the time he or she hits "send" to the time a response appears in the inbox creates stomach-churning tension. The best way to deal with this is to lay out a response plan. When significant time is required to develop a reasoned and thoughtful response, establish and follow "just checking in" milestones. This will create a framework for and a palpable sense of progress, which in turn will help to keep anxiety at bay.

Explain the importance of good judgment. Take the time to educate your clients about your philosophy regarding the practice of law including how the cultivation and application of judgment forms an integral part of professional excellence. Frankly acknowledge the tension with the BlackBerry culture. Discuss the implications for conveying respect and controlling anxiety.

And in his conclusion, Mr Gallopoulos makes the following observation: "Of course, however worthwhile this process of forming and applying good judgment may be in theory, the client will judge by results. Having taken the time required for good judgment, the value of that judgment must be made manifest. While substance matters most, presentation is not irrelevant: Make sure that your long-awaited response is coherent, pithy and compelling. In the sense of creating heightened expectations, renouncing the BlackBerry culture only increases the pressure. But at least the pressure for excellence tends to produce something worth having, while succumbing to the pressure for an arbitrarily quick response tends to produce nothing more than BlackBerry mania."

 
 

Worldsourcing - a new set of values

 
An article written by William Amelio, CEO of Lenovo, represents an important addition to the portfolio of executive views promoted by IACCM in recent months, such as those from Sam Palmisano of IBM and Eric Schmidt from Google. The article demonstrates how critically important it is for our community to understand the role of brand image and trust in ensuring business success and for us to consider how these impact the way we select, negotiate and manage trading relationships. It argues that companies must move past their traditional goal of achieving the lowest price and instead start to understand the need for relationships that deliver brand quality.
 
 

An article written by William Amelio, CEO of Lenovo, represents an important addition to the portfolio of executive views promoted by IACCM in recent months, such as those from Sam Palmisano of IBM and Eric Schmidt from Google. The article demonstrates how critically important it is for our community to understand the role of brand image and trust in ensuring business success and for us to consider how these impact the way we select, negotiate and manage trading relationships. It argues that companies must move past their traditional goal of achieving the lowest price and instead start to understand the need for relationships that deliver brand quality.


WORLDSOURCING REPLACES OUTSOURCING

VIEWPOINT (from the BBC business website)
By William J. Amelio
Chief Executive, Lenovo

Recent consumer safety scandals have brought home the inadvisability of manufacturing products or running any aspect of a business at the lowest possible cost.

So risky has it become, and consumer fears so widespread, that the European Commission and other governing bodies in Europe and around the world have ramped up initiatives to regulate product quality and safety. It is a hard truth though that government regulators can't do everything. Global companies must assume responsibility, and there is a powerful new force that imposes a more potent and far-reaching natural assurance of product quality from global companies - namely "worldsourcing".
By looking out for the best value all around the world, modern companies are building the strongest safeguards of quality - their brands. Worldsourcing is based on the fact that for a company, its brand is the most valuable asset, more important than nationality or location. By reaching out to the entire world in search for the best ideas and talent, a company not only refines its brand and nurtures its essence, but also exposes it to a multitude of probing eyes. Globally, it is evaluated not by nationality, but by the quality of its goods, services, governance, transparency, environmental practices, degree of corporate social responsibility. And the level of value it delivers to customers worldwide.
Worldsourcing is a logic that dictates companies to focus on the best value and quality of products. All aspects of business - including materials, human talent, innovation, logistics, infrastructure and products - are sourced wherever they are best available. And then companies can deliver products to wherever demand is, anywhere in the world.

Necessity to worldsource

It is crucial to understand the difference between worldsourcing and outsourcing. Outsourcing is about lowering costs by shifting non-essential operations to a contractor in order to cut costs. Worldsourcing is about increasing value and quality, not just lowering costs. All parts of a global enterprise are worldsourced to where the best resources, talent, ideas and efficiencies exist. Senior executives can be based in London, marketing can operate from Mumbai and research and development (R) might be headed in Silicon Valley.
In a world united by internet and globalised language and culture, it becomes not a choice, but a necessity, to worldsource.

Everyone does it

By transforming the fundamental rules of global business, worldsourcing ensures protection of consumers and manufactures everywhere. But how can this potential be realised?
Companies that operate globally and worldsource their goods and services around the world are exposed to probing light and criticism from customers and government regulators in all countries and continents they operate. Only by adhering to the highest standards of governance, transparency and quality can companies hope to achieve a global trustworthy brand. In a day when the internet allows information to flow freely, reporting on events as they happen, no organisation can bend the rules or adhere to subpar quality standards without damaging its global brand, which is the most important asset a company has.
  • Nike, for example, performs surprise inspections to make sure its global manufacturers meet worldwide standards.
  • Carrefour worldsources fresh produce by training its supplier-farmers around the world in the use of safe pesticides.
  • McDonald's creates closed, proprietary supply chains on a global basis to assure product quality.
  • BT has developed a "scouting" process with staff deployed around the world from bases in Israel, Japan, Korea, the U.S., Hong Kong and Taiwan to search for the best new technology to use in its products.
All the global companies understand, that a minor glitch in safety or sub-par standards can nearly destroy a brand, as one of the world's leading toy makers can attest.
 
Nationality not important
 
My own company presents another example of worldsourcing: I am an American chief executive based in Singapore. Our European President is Dutch and based in Paris. Our chairman, who is Chinese, works from the USA. A meeting of my company's senior managers looks like the United Nations General Assembly.
 
We have just opened a global marketing hub in India and announced a new manufacturing plant and fulfilment operations center in Poland, to be operational in the third quarter of 2008, our European operations hub is in Paris, fulfilment centres in North America, and factories in China, India, and Latin America.
 
Europe can continue to have confidence in worldsourced brands because those brands have long earned consumers' trust by collaborating globally with the best minds on earth.
As Europe knows, the products of companies that practice worldsourcing may be labelled "Made in the UK", "Made in Switzerland", or "Made in France", but in the new world in which we all now live, they should truthfully be labelled, "Made Globally" or "Made on this planet".
The label on the outside simply identifies the last stop on a complex global journey.
 

William J. Amelio is the President and CEO of Lenovo, a global PC company with research, manufacturing, sales, and marketing operations on six continents.

 
 

IACCM Board of Directors - Election Results

 
The election for the 2008 IACCM Board of Directors was conducted December 6th - 12th. Voting was by electronic ballot and members selected from a total of 20 candidates. The following were successful and will join the Board effective January 1st, 2008.
 
 

The election for the 2008 IACCM Board of Directors was conducted December 6th - 12th. Voting was by electronic ballot and members selected from a total of 20 candidates. The following were successful and will join the Board effective January 1st, 2008.

David A. Barton, Director of Contracts, Agilent Technologies, Inc.
David Connor, General Manager, Supply Chain Management, Chevron Global Upstream, Chevron
Jacqui Crawford, VP Commercial Solutions, Rolls-Royce plc
Michel Gahard, General Manager of LCA's CPE program, Microsoft
Diane Homolak, Director, US Contracts, Hewlett-Packard
KB Iyappa, Senior Vice President, Satyam
John Lickvar, Global Project Leader, Contract Management Improvement, Shell
Tim McCarthy, Director of Contracts and Pricing, Rockwell Automation
Mark McDaniel, Vice President of Procurement and Logistics, Halliburton Energy
Melinda Wilkins, Vice President, Contracts and Negotiations, Global Business Development, Americas, IBM Global Services
Richard C. Wingate, General Counsel, LG Electronics U.S.A, Inc.

The above newly-elected mebers will join the following existing Board Members (not due for re-election)

Tim Cowen, General Counsel & Commercial Director, BT Global Services 
Tim Cummins, CEO, IACCM 
Amy Henderson, Director, Sales Support, W. W. Grainger 
Gianmaria Riccardi, Commercial Business Director, Europe, Cisco

 

Ex-Officio Board Members (Academic Representatives)

David Lowe, Senior Lecturer in Commercial Project Management, University of Manchester
Henrik Lando, Professor of Law and Economics, Copenhagen Business School
Robert Handfield, Professor Supply Chain Management, North Carolina State University
 
A total of 11 new Board members were elected, even though there were only 10 available places. This is because the final three candidates were in a dead heat and, in accordance with the Association by-laws, it was determined that all three would be accepted onto the Board.
 
3,792 votes were cast by a total of 697 members. This represents approximately 15% of those who were entitled to vote.
 
 
 
 

Address: International Association for Contract & Commercial Management (IACCM), 90 Grove Street, Ridgefield, CT 06877 USA. Ph: (1) 203 431 8741, www.iaccm.com.

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