Contracting Excellence Magazine - Jun 2011
2011 Top Terms in Negotiation released
We enter into contracts because each party believes that there is potential for benefit. But the results of IACCM's worldwide survey show that if we want to maximize the chances of realizing the benefit, we must focus on a different set of contract terms during negotiation.
In its 10th annual survey of the most frequently negotiated terms and conditions, IACCM once more reveals that business contracts are constraining the value that can be achieved from high-performing relationships. For the first time, the study also identifies the most common sources of failure in contract outcomes and this indicates the potential value that could come from a robust contracting strategy and competence.
To see the full report on The Most Negotiated Terms go to http://www.iaccm.com/userfiles/docs/top terms 2011 1.pdf available to members and non-members.
Outsourcing Standards Are In Development
I spent two days last week at the inaugural meeting of the International Standard’s Organization (ISO) working group on outsourcing. The goal of the group (which to date has been endorsed by more than 60 countries) is to develop a worldwide standard that provides guidance on managing the outsourcing life-cycle.
Outsourcing has been an increasingly prominent topic over the last 20 years and shows no sign of diminishing in the near future. Since one of its primary drivers is the possibility for cost reduction, it will remain in many cases a cross-border activity, as organizations seek low-cost sources of supply. It is this aspect that makes the ISO initiative of particular value, since it aims to create more consistency in terminology and understanding, with a view to enabling better constructed and more successful outsourced relationships.
Given its own global reach and the involvement of many of its members in outsourcing projects (including in some cases the outsourcing of their own business function), it will be no surprise that IACCM is closely involved in this initiative. Our membership has a wealth of experience to offer and it is initiatives like this that lie at the heart of IACCM’s mission ‘to increase the integrity and success of trading relationships’.
There will be some who view projects like this as threatening. While they will doubtless couch their criticism in terms of lost creativity or constrained competition, the truth is that standards threaten no such thing. They create a baseline that enables greater efficiency and increases the possibility for more focus on differentiation and innovation. In fact, the only people who lose out are those who make their living based upon avoidable complexity and confusion.
As with all global standards projects, progress will take time. It will require the building of consensus and the various project groups are made up of dedicated volunteers who have full-time job responsibilities outside this project. However, the meeting was able to draw from excellent work already undertaken at a national level in various countries and this provides some initial building blocks for eh international teams now assembled.
At this point, the work is focusing on process and that means there is no plan to produce a set of model agreements or terms and conditions. The contracting process certainly will be addressed – and perhaps IACCM members will decide that there is merit in building from this to produce model contracts that could also be used as a reference guideline.
Volunteers – and ideas – are welcome!
If you are interested in contributing in some way to this project, please email email@example.com
Examining The Value Network - Survey Results
IACCM recently partnered with The MPower Group to undertake a survey that looks at current ‘state of the art’ in buyer / supplier relationship management.
The goal of the survey was to develop a deeper understanding of the extent to which companies are achieving better integration with their trading partners and what ‘next practices’ are emerging that will support them in doing so. We found that many organizations are thinking about or are trying to implement collaborative relationships with their trading partners. You can discover more by accessing the report in the IACCM library at https://www.iaccm.com/members/library/files/TMG_IACCM_Survey_report_LY_110525_FINAL_v2.pdf
We welcome any feedback you may have, or any further questions that you believe we should pose to the IACCM community.
Open Innovation In Large Contracting Relationships
The International Association for Contract and Commercial Management (IACCM) is a successful organization of professionals involved with large contracts, procurement and outsourcing. If you want to know about anything to do with this area, they are the “go to” people, and are very ably led by Tim Cummins. I was delighted when Tim asked me to present at their EMEA conference in Amsterdam in May on the subject of Open Innovation, Contracts and Relationships. I’ll cover some of the learnings in this and following blog posts.
Innovation from suppliers is a rich seam to explore. A recent study by HEC in Paris showed that 88% of companies tap into their suppliers for innovation. However it’s rarely the primary driver in the contracts and relationships that IACCM members develop. It is often part of the contract, but it seems that the relationship is rapidly becoming the most important part (where have we heard that before in Open Innovation?).
Most contracts are about retention of power, minimizing risk and maximizing opportunity. If your position is defensive, driven by legal considerations and less about the business, you are likely to approach innovation in the same fashion.
So, I heard anecdotes about clauses where innovation is “demanded”, for example the supplier needs to deliver twelve innovations per year to the customer; where that innovation is not specified up front and the customer decides unilaterally whether to accept it or not; and where an innovation offering from a supplier is then sent out to tender to secure the lowest cost provider.
Don’t get me wrong; there is a lot of good practice as well. There’s also a fine line. Procurement people are primarily measured on delivery of commercial targets like cost saving, delivery targets and payment terms. They aren’t often incentivized on innovation. So it’s difficult to criticize them if they focus on what their organization asks them to deliver.
Tim and IACCM are strongly promoting a focus on relationships as the key to success, rather than focusing purely on what’s written into the contract. Here’s where it folds quite nicely with Open Innovation, as the quality of the relationship and the foundations on which it is built are probably the most important success factor.
So a lot of the common sense that works well in Open Innovation also applies to large contracting relationships. Here’s a quick summary, I’ll expand on this in a later blog, as well as looking at it from the perspective of the supplier:
- Follow the Want/Find/Get/Manage sequence
- Understand what you want before you engage the supplier
- Share your strategy, customer needs, technology gaps etc before describing specific challenges
- Spend more time defining the problem/opportunity than detailing the solution
- Understand the impact of specific contractual clauses on innovation potential, and don’t let them get in the way
- Directly involve key internal functions in the development and management of the relationship
- Don’t forget the value of personal relationships
Kevin McFarthing runs the Innovation Fixer consultancy, helping companies to improve the output and efficiency of their innovation, and to implement Open Innovation. He spent 17 years with Reckitt Benckiser in innovation leadership positions, and also has experience in life sciences.