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

Contracting Excellence Magazine - May 2008



Collaborate to Innovate: 2008 Conference Report

Over 400 delegates assembled for this year's IACCM Americas conference. More than 95% identified ideas and initiatives that they will now implement. If you missed the event, you can still check out the agenda and the outstanding roster of presenters at www.iaccm.com/americas. And IACCM members can also visit the Member Library to view all the presentations. Summarizing an event that was filled with so many exciting ideas and methods is hard - so we decided to leave it to the bloggers. This edition of Contracting Excellence draws from some of the many articles that were written as a result of this conference. This first article highlights overall impressions.

Writing on his LegalTech.com blog, David Munn made the following observations:

Another outstanding IACCM Americas conference concluded yesterday in Fort McDowell, Arizona. A record 400+ attendees heard more than 30 presenters on the theme of “Collaborate to Innovate.” This was my second IACCM Americas, and once again IACCM delivered a number of informative and thought-provoking programs.

If I were to summarize the themes of the conference in one sentence, it would be:

Companies are entering into sub-optimal relationships, stifling innovation, and leaving a lot of potential money on the table by spending too many of their contracting resources trying to shift risk to the other side, while focusing too few resources on how the parties could work together more effectively to create additional value from the relationship.

IACCM is unique in bringing together both buy-side (procurement) and sell-side contracting professionals, and IACCM Americas and IACCM EMEA may be one of the few times that happens outside of the contract negotiation context. In fact, judging from the comments of several people at the conference, it seems that even within many companies the buy-side and sell-side contracting people rarely talk with each other.

With contracting relationships seemingly becoming more confrontational all the time, it’s refreshing to see an organization addressing this issue and trying to make a difference.

At SpendMatters, Jason Busch commented:

IACCM Americas just wound down earlier today, but I've gathered dozens of pages of notes from various presentations. In the coming weeks, I'll be sharing some additional dispatches from the event. For those who are not familiar with IACCM, you should be. It's perhaps the most innovative training, networking, conference, think-tank in the sector. IACCM is far from perfect, but I have a lot of respect for the creativity and thinking to come out of the organization. They really manage to stretch the limits of thinking when it comes to the concept of contracting and buyer/seller/legal relationships.

Negotiation: The Point of the Deal

All of the negotiation sessions at the conference scored high marks, with the break-out by Brian Dietmeyer of Think! Inc. scoring especially well. But it was Danny Ertel's session, based on his book "The Point of the Deal", that excited the bloggers. The work draws from his observation that many companies see winning the deal as something quite separate and distinct from its implementation and management. And this, he suggests, leads to sub-optimized results.

Jason Busch enjoyed what he heard. "I'm a bit behind in getting through the rest of my IACCM notes, but I thought it would still be worth sharing some of the advice that Danny Ertel of Vantage Partners gave in his keynote address at the Americas event. For those who don't now Vantage Partners, they're a bit of a specialist player in the entire negotiation/sourcing world. Part think-tank, part consulting firm (and at times, part software company); Vantage occupies the intellectual corner of the negotiation space. Danny's talk focused on how companies can drive innovation and partnership success through better contracting. Arguing that "the root of the problem in deal negotiation destruction is what we do at the table," Danny suggested that we, as negotiators, often operate with a dealmaker mindset and strive to simply get contracts signed.

This forces us to use tactics based on past, rear-facing assumptions of what has worked in the past -- avoiding disclosing information when we don't have to, limiting the number of people involved in negotiations, treating the negotiation process and distinct and separate from implementation, "locking-in" suppliers early and often, pushing for the quick close and a general "politeness" that negates constructive information exchange.

To overcome these challenges, Danny suggests a more open negotiation process that focuses not on getting to signature, but rather focusing on the implementation of the deal itself.  Danny's firm, Vantage Partners, are the folks who came up with the concept of BATNA (best alternative to negotiated agreement). But putting options on the table -- and showing a willingness to develop alternatives -- is only part of the Vantage school of negotiation. As I mentioned in my earlier post, Danny believes that implementation is the most important thing in a deal -- not the process leading up to signature itself. In this regard, "effective negotiators set the stage for how you will work together" rather than simply serving as transactional "deal closers". For example, in the case of structuring a contract that encourages suppliers to innovate and take chances (e.g., for a new product introduction where the final specifications are not complete), a good negotiator will look to factors beyond just price and locking up IP ownership. Instead, they will negotiate and develop terms that work in areas such as the amount of information that is shared or provided and under what restrictions and joint or one-way protections in IP submissions that benefit both parties. If you're curious to learn more about the Vantage Partners negotiating philosophy, you can read more in their learning center (registration required)."


Over on SupplyExcellence, Ken Miklos writes: "I spent most of last week at the annual IACCM Americas conference in Scottsdale. The “Collaborate to Innovate” theme was a great way to frame the discussions, which included globalization, risk management, organizational delivery models, and the impacts of automation and technology on contracting and contract negotiation methodologies. Lots of networking, best practices, success stories and of course…cautionary tales. But the speaker who really grabbed my attention and sparked a lot of discussions was Danny Ertel, the co-author of The Point of the Deal: How to negotiate when YES is not enough.

Danny raised some interesting points based on the premise that the very approach most of us bring to contract negotiations hinders innovation - a goal of most organizations. He argued that measuring negotiators by “what did you get?” and “how little did you have to give up?” results in contractual terms and conditions that are not conducive to problem solving and innovation.

Instead, if successful implementation is truly the goal, he recommended six guiding principles to think about in negotiations:

  1. The Deal is a Means to an End - If innovation is a goal, we need to reconsider restrictive terms and SLAs. Alternatively, we should be focused on objectives, sharing of information, and how we can get there with our trading partners. While it is a reality for many on the sell-side, closing the deal as quickly as possible is not an option that will maximize success.
  2. Broader Consultation Means Better Implementation - Too often, naysayers who are critical to implementation success are excluded from negotiation. Obviously there are limits, but when deciding who to include (and exclude) in negotiations, consider both those that are critical in negotiation decision making as well as those critical to implementation.
  3. Making a First Impression - Negotiation is the first, best example of how you will deal with your trading partner. It creates a precedent for how implementation and the ongoing relationship will take place.
  4. Airing Nightmares Can Strengthen Relationships - We often attempt to hide past failures in fear that we’ll scare off business. Instead, think systematically about the risks that matter and discuss as openly as possible that which will improve the chances of success this time around.
  5. Don’t Negotiate Over-Aggressively - There is no point in getting your trading partners to over commit. It won’t make them, or you, successful. The goal should be a true win-win that benefits both sides.
  6. Define the Finish Line - Too often, organizations look at closing a deal as the end. Emerging best practices make transition to the implementation team part of the negotiator’s role. Some organizations are now having joint debriefing meetings with negotiators and implementation teams to this end. This better facilitates collaboration and success, and gives negotiators and implementers a better understanding of the other’s challenges, which will help everyone be successful.

Good food for contracting thought.


The Future of Procurement

A section of the conference was dedicated to the changes facing today's organization. There were insights on Sales Contracting, Procurement and Legal. Jason Busch paid most attention to the session led by Pierre Mitchell from Hackett Group, which focused on the challenges for Procurement.
At IACCM a couple of weeks back, I had the chance to attend Pierre Mitchell's packed break-out session on contracting and procurement trends. Pierre was in usual form, wrapping up the slides for his presentation sometime earlier that morning. He once described this tactic as "just in time" PowerPoint. I suppose if you're Pierre, you can get away with missing presentation deadlines, but personally, I could never pull off such a feat at the last minute every time. But the fast peddling Bostonian somehow manages to get away with it.

I took some five pages of notes during Pierre's presentation and I thought that I'd share a few of the highlights with Spend Matters readers. In the spirit of not giving away too much benchmarking data -- even though it was shared in a public forum -- I'd suggest reaching out to Pierre directly (drop me a line for his details) if you'd like some more information. I'll only share a small minority of the information from the presentation in this blog entry.

Enough set up. Let's get right into it. Pierre began his chat by talking about an oft-quoted Hackett statistic showing that a 23% delta exists between the costs of procurement for world-class organizations versus average performing ones. Part of this delta comes from staffing level differences. Simply put, top performers do more with less (and spend more on strategic talent -- and less on tactical resources -- and technology to do so). To wit, world class organizations have, on average, 49 procurement team members for every $1 billion in indirect spend. This compares with 84 for organizations in the middle of the pack.

Skipping around a bit in my notes, another statistic that jumped out at me is the gap between how procurement organizations view themselves versus how their company views them. In this regard, in Hackett's latest research, only 9% of company executives and managers view procurement as a "valued partner" -- the lowest percentage among four choices in their recent study. The largest percentage of executives still views procurement as an "administrator". And sandwiched in between these two labels from a percentages standpoint are "negotiation/sourcing expert" and "gatekeeper". Hmmm ... not necessarily the type of results we were looking for. But perhaps the fact that only 20% of average performing organizations view procurement as "exceeding expectations" ratings from internal customers is contributing to this bureaucratic, non-value adding perception.

(These are just) a few of the hundreds of metrics Hackett Group tracks in their procurement advisory practice. Indeed, I barely scratched the surface on the types of information they track. But Hackett also has a qualitative -- some might say almost a literary side -- as well. Or at least Pierre Mitchell does when he uses the word "STORM" to describe the situation that procurement organizations find themselves in.

What does STORM stand for? The "S" is all about savings. And in today's environment, savings are hard to sustain because of supply market challenges which include currency, trade, tax/tariff, and commodity price inflation to name just a few areas. The "T" comes next. T represents "top notch technology and talent" both of which are in short supply in practice (if not in theory). Far too many organizations get one or both of the areas wrong, either by licensing software that sits on the shelf or goes underused or by failing to match skill-sets and packages with the capabilities required to get a job done.

Next in this acronym comes "O". And "O" is all about operations. Or operational challenges to be exact as companies focus too many efforts on "lower value processes that divert precious attention and funds "R". And I'm sure you've got a good sense of at least one of the word it stands for. That would be risk -- but to risk Pierre also adds regulation and the challenges of keeping up with reporting and compliance. Fair enough. But I'd argue that risk should be an even larger priority for many procurement organizations today. That brings us to the final letter: "M". M is simple. It stands for more, more, more! Everyone wants procurement to do more. CEOs want more growth, more innovation, more brand enhancement (e.g., green/CSR procurement policies) but without more investment. Customers also want more for less and they want it now, creating shorter and more volatile product lifecycles.

So there you have it. All of our Spend Management challenges boil down to the perfect STORM brewing outside. But there was also a storm of confusion about to hit the projection screen in his presentation as well following this simple, elegant description. Coincidentally, Pierre jumped straight from this clear, easy to grasp topic in his PowerPoint to one of his famous eyesore charts which clearly shows that he has at least twice the average intelligence of everyone else in the room. Alas, the Spend Presentation Master is getting better at simplifying his arguments, but sometimes we still get a glimpse of the old Pierre.


Is the legal profession finally positioned to take advantage of the technology revolution?

This is the question that inspired David Munn in 2007 - and the latest conference started to offer exciting answers. Keynotes from James Jenkins, Senior Vice President and General Counsel at Deere & Co., and from Graham Allen, Vice President and Deputy General Counsel at Cisco, demonstrated thought-leadership emanating from two very different companies. Each described a vision that moves those in Legal and contract management from the role of 'gatekeeper' to 'gateway'.
Graham Allen mapped out the technology strategy that is transforming the way that contracts are negotiated and managed at Cisco. James Jenkins described the benefits of technology adoption at Deere - and then took us into the virtual world, explaining work that is exploring the role of 'second life' and avatars in the future of negotiation and relationship management.

In view of this vision and enthusiasm, David's article is worth reproducing, because it reflects not only the use of technology, but also the opportunities to redraw how work is performed through the use of offshore and outsourced resource - enabling a high-performing service delivery model. 

"I find it fascinating how certain themes sometimes come together in interesting ways all at once, and this is even more interesting to me now, as I'm just finishing reading Malcolm Gladwell's "The Tipping Point".

A reader posted a comment yesterday asking about an item I had written more than a year ago called “A Glimpse of the Future?” In that post I referred to something I had seen that I thought had the potential to cause a revolution in the way corporate counsel practice. I hadn't thought about that in a while.

I still can’t talk about the specifics of what I was referring to, but the general theme is no longer terribly novel. It has to do with the convergence of two major trends. The first it that the web (Web 2.0 if you like) is giving us access to powerful technology that is much easier to use than previous generations of software. The second trend is the outsourcing of legal work.

I haven’t written about outsourcing for a while, but, starting with the outstanding IACCM/Americas conference in New Orleans last week, and continuing with several items that have crossed my desk this week, the inevitability of that trend is really hitting home. Ken Adams’ interesting article on Sending Contracts Offshore. His article is definitely worth reading. 

Several of the speakers at the IACCM/Americas conference talked about how they are using offshore resources, including lawyers, for some of their contract functions. Then yesterday I saw

Adams discusses two companies that are offering offshore services for contracts, and notes “both companies don’t simply offer an India-based version of business as usual. Instead, they emphasize their process-based approach. Reed and Perla each described to me how his company has systems in place to ensure optimal workflow and has invested in proprietary systems to handle tasks such as contract monitoring. As a result, the economies they offer aren’t driven only by the lower salaries they pay their Indian lawyers.” 

But here’s another reason why I think offshoring of legal work is ready to take off. Adams writes “Like Guarente of Oracle, Reed and Perla both note that the morale of a company’s contract personnel will improve if they are freed of lower-value, repetitive tasks.” It's not just cheap labor anymore. It's also systems that allow offshore teams to work more effectively.

Finally, this item on The Effects of a Flattening Legal World by David Galbenski came to my attention. The theme is similar. Galbenski writes about "legal architects" who "can act as a trusted advisor for in-house counsel to help them integrate labor outputs into their strategy."

As for the implications for law firms, Galbenski writes: "The downside for law firms is one word: change.  There will not be the opportunity to practice law in the same way since competition with legal outsourcers may take work that used to be very profitable.  Law firms will need to evolve how they deliver service to their clients.  They’ll need to discover how they can do it faster, better, and how to make it less expensive.  They’ll need to think like entrepreneurs.  It will constitute a dramatic cultural shift.  And, law firms will need to change with the times—or wait until the market forces them to change."

Many of us have been waiting for years for the technology revolution to really take hold in the legal profession. Besides the general tendency of lawyers to resist change, I believe there have been two primary impediments to greater use of technology in the legal profession: (i) software has been too hard to learn and too hard to use, and (ii) often the use of technology actually results in a greater workload, as lawyers have been forced to become administrative assistants. We now are seeing ways to address both of these issues emerge. 

So, I think we may finally be on the verge of the long-promised technology revolution, which will result from a combination of better technology and lower-cost, but skilled resources using sophisticated dedicated systems who can free us from some of the drudgery that now prevents the legal profession from using technology to its full potential. 

This change will probably take hold in corporate legal departments well before it makes significant inroads in private law firms, but it will eventually take hold there as well.

In addition to the disruption that will come to private law firms, these trends will inevitably result in the loss of some in-house jobs in the US, the UK, and other areas as well. But the lawyers who are able to take advantage of these trends will be doing more interesting and more valuable work much more efficiently, and at a lower cost—and as a result serving their clients better. With better and easier-to-use tools and routine and administrative work being done by overseas colleagues using sophisticated compatible and integrated tools, I wouldn't be surprised to see lawyers more satisfied with their careers as well.

From my point of view, all of this is very promising."


Managing Risk

Risk management is inevitably a hot topic at any Legal, Contract Management or Procurement event. Of course, at IACCM it tends to receive distinctive handling, pushing delegates to think about risk in new ways and to ensure greater objectivity and balance. Often our approaches to risk actually increase the probability of negative outcomes. But it is often hard to find experts who bring a fresh approach to this topic - and in Bob Endres, we had a repeat presenter who caught the imagination of Jason Busch.

There comes a time in every consultant's life when he would love nothing more than to throw in the towel on his current practice area and try something entirely new. I'm not going there just yet -- after all, we're just starting to build Spend Matters Advisory Services and Azul Partners, my other firm, is set to have an excellent year -- but when I heard Robert Endres from Synaptic Decisions speak at IACCM yesterday on the topic of risk management and sourcing, I almost gave him my resume on the spot. What they're doing is that useful and innovative. Way back in 2006, I wrote about Synaptic Decisions in a previous post noting that "they use options pricing techniques, among other approaches, to understand pricing inefficiencies in the supply chain. As an amateur who was seduced by options trading in his youth, my light bulbs went off when they started to talk about their approach to contracting and risk management in complex supply market environments using financial modeling to uncover volatility, risk and pricing discrepancies. Their hypothesis that suppliers often do not price features or terms of a contract correctly -- after all, how many sales reps have studied Black Scholes options pricing theory -- creates opportunities for savings and risk reduction on the buy side. Fascinating stuff.

Well, in today's market, Synaptic Decisions is more fascinating than ever given the higher volatility and variability companies face across their supply and spend decisions. As an example, with copper prices fluctuating and rising at the rates they have, is it worth floating the underlying commodity price (through an escalation/de-escalation clause or a financial instrument) or letting suppliers assume the risk and price it into a contract (if they will -- which is not always the case)? That's a simple example, but Bob's presentation was an absolute geek's paradise for anyone involved in options theory and pricing and its applicability to sourcing and contracting. And in future posts I look forward to sharing more details on it. In the meantime, if you’re concerned about volatility on the sourcing side of the equation -- or the sales side for that matter – or you think there's an opportunity to profit from knowing more from pricing or trading the risk elements of the terms underlying a contract (even a complicated direct materials agreement) I'd strongly encourage you to get in contact with the firm. I've not come across any other organization doing similar projects on a regular basis.


In Conclusion

So what did our bloggers think of the conference? These two articles summarize impressions - and we end with some of the input received from the delegates. We'll hope to see you at the next IACCM Conference!

The main reason I decided not to fly out early was to hear Tim Cummins' final remarks. For those who don't know Tim, he serves as President of IACCM. But he's not just a back-office executive. Tim's an intellectual leader who loves to push the limits of ideas, testing concepts while inviting others to try on what he has to say. Tim might not always be right -- and he can come off as more ethereal than pragmatic -- but he's one of the seminal thinkers in the space without question.

The main theme of Tim's presentation was how we can call take the concept of contracting up a notch within our companies -- from a procurement, sales and legal perspective. In Tim's view, leaders who succeed at this endeavor might not be the first out of the gate, but they'll "run near the front of the wave" to tackle the next level of complexity in contracting. And they'll do this through what Tim refers to as MMI or maintain, manage, initiate.

For Tim, the concept of maintain revolves around overseeing standards within our companies -- terms, policies and practices. It's a key part of our jobs to protect the business to insure contract adherence and compliance to reduce risk. But simply maintaining the status quo is not enough. We must also manage. Managing involves handling any type of contract deviation from status quo. But more important, it also is about the management of uncertainty. Simply put, how do we help our companies to thrive in today’s environment through better, more creative contracting approaches? One of the answers to this is to initiate change.

The process of initiating change makes us strategically relevant within our companies. To wit, we "must lead, not just manage". We must drive new standards and go beyond just creating sources of differentiation by contributing to the overall framework that supports worldwide trading relationships. Initiating change might take the form of more creative contracting approaches that encourage suppliers to innovate and take risks. Or it might involve helping suppliers to reduce their cost structures even further and sharing in the results. Regardless, initiating requires that procurement and legal together step up to the plate to drive the business in new directions through the capabilities of suppliers. Sound familiar? Does your Spend Management amp go to 11? ...

 When I go to conferences, it's the rare opportunity that I have to spend the full event time attending the festivities. Usually, I follow a fly-in / fly-out model based upon speaking commitments or catching specific sessions (or meetings) that I've signed up for previously. But I decided to stick around for the entire IACCM event, and I've not been disappointed. There's a certain interest I’ve developed around contracting as the intersection of all negotiated agreements. It brings the concept of sourcing to an entirely new level and really causes both the buying and the selling party to sit down and think creatively not only about the core pricing of a good or service, but all of the underlying elements (many of which are never even make it into total cost models). For example, what is the value of a certain type of indemnification clause based on the way it's written? Might softening it reduce the costs of an agreement? The key is getting both parties to sit down and have a discussion -- rather than simply tossing the terms from a sourcing event over to legal to finalize an agreement. And IACCM is facilitating -- on both a philosophical and pragmatic level – such a conversation. My only question is the direction of the organization as well as its future make-up (i.e., procurement, legal, sales, etc.). This is something I'd like to answer after sitting down with Tim Cummins, its Executive Director and CEO, sometime in the coming weeks. So stay tuned.

And no conference review would be complete without the thoughts of some of our delegates:

I thought the conference was WONDERFUL!
I learned so much and really enjoyed all the sessions.
Thank you for putting this on!
Jennifer Mann
Contract Negotiator
Cisco Remote Operations Services


Thanks for a great conference!

Contracts Director, KCI

You throw one incredible conference!
We really enjoyed and it was great to finally get to meet you and your team.
Russ Edelman | Corridor Consulting

The conference in Scottsdale this week was really fabulous and provided a lot of great information that I will be able to take back and implement in my projects. Looking forward to next year’s event. Take care.
Roni Rosson
Commercial and Contract Management
Accenture LLP

Conference was excellent.
Bob Nahum
Senior Director - Global Contracts
Cymer, Inc.

Thanks to you and your team for a great conference in Scottsdale.  I particularly enjoyed the Gurus@play with Scott Gildner; the opportunity to talk to folks across industries who have faced and resolved some issues that I am grappling with right now, and was surprised and challenged to see what other folks had already accomplished in automation and in encouraging innovation. The quality of the keynotes was excellent – particularly David Fields on Risk and Graham Allan on globalization in contracting (and your closing naturally!). Regards, Paul
Paul Branch
Deal Assurance
BT Global Services

Congratulations on a fabulous conference. The amount of energy and attention which goes into an event like this is enormous and no doubt today you are in recovery mode—you certainly deserve a good break! Over the course of the three days I asked many people whether they were enjoying the conference and getting a lot out of it. Without exception the answers were positive; both from returning members and first-time attendees. Kudos on a job exceedingly well done!
Thank you again for including me in an outstanding conference.
David A. Fields
Managing Director
Ascendant Consulting, LLC

I have attended quite a number of conferences over the past 15 years and I can honestly say that IACCM Americas 2008 was as smooth-running an event as I've seen. Well thought-out. Well executed. Well received. Kudos to you and your staff.
Michael R. Levin, Esq.
Vice President, Corporate Integrity Strategy Integrity Interactive Corporation

Fabulous conference.
Bob Endres, CEO, Synaptic Decisions


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