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

Contracting Excellence Magazine - Oct 2009

 
 

 

Excellence In Negotiation: The Top Performers

 
Last year, IACCM undertook a study of the companies most admired for their post-award contract management. It resulted in a detailed report that set out the steps needed to achieve this recognition. Over recent months, we have repeated the exercise to establish which companies are most admired for their negotiation capabilities. Today we publish those results. Tim Cummins, CEO, IACCM
 
 

Last year, IACCM undertook a study of the companies most admired for their post-award contract management. It resulted in a detailed report that set out the steps needed to achieve this recognition. Over recent months, we have repeated the exercise to establish which companies are most admired for their negotiation capabilities. Today we publish those results.

Most companies believe that negotiation is an important competency. Yet few are clear about the steps needed to create organizational capability, rather than individual experts.

While personal expertise is important, longer term results are driven by a robust negotiation process. The results of our survey emphasize the importance of planning and teamwork. Good negotiators are not simply wheeler-dealers; they must have underlying knowledge of capabilities and boundaries. Creativity and imagination are valuable qualities - but only if those on the other side are confident that promises will be fulfilled.

 

Other recent research (the IACCM study of the state of the global economy) has shown  diminishing confidence in the ethical behavior of negotiators, both buy-side and sell-side. Trading relationships ultimately rely on trust - and the companies at the top of our chart are generally trusted. They may not be especially liked - indeed, some of them are viewed as inflexible and at times unresponsive. But people believe they will do what they say and at a time of tough economic conditions, that is an important characteristic.

In general, sell-side negotiation appears to be better developed than buy-side. 64 of the top 100 companies were nominated for their sell-side capabilities. In part this is because executives invest more in winning business than in placing business. They understand the need to be more flexible when they are selling. Big companies in particular often believe that when they are buyers, they can impose their standard terms; they frequently do not empower procurement teams to negotiate on substantive issues and do not recruit people with the necessary skills to be good negotiators. This is often a mistake, because it prevents the realization of value and frequently results in poor relationships.

To see the full report visit http://www.iaccm.com/loggedin/library/nonphp/Top Companies in Negotiation 2009.pdf

 
 

The Economy Is Improving - For Some

 
A unique global survey of members of the International Association For Contract & Commercial Management (IACCM) confirms that overall trading conditions have moved to a balanced position, with 32% reporting a continued decline in business over the last 60 days against 29% indicating an upturn.  There is wide-spread optimism that the worst is over, with Asia-Pacific especially buoyant. But conditions vary by geography - and more starkly by industry.   Tim Cummins, CEO, IACCM
 
 
A unique global survey of members of the International Association For Contract & Commercial Management (IACCM) confirms that overall trading conditions have moved to a balanced position, with 32% reporting a continued decline in business over the last 60 days against 29% indicating an upturn.  There is wide-spread optimism that the worst is over, with Asia-Pacific especially buoyant. But conditions vary by geography - and more starkly by industry.

Regional and industry variations indicate a patchy recovery. Optimism is strongest in Asia-Pacific, where 64% of respondents expect growth in the next 3 – 6 months, against 52% in the Americas and just 45% in Europe / Middle East and Africa. Different industries also show stark contrasts, with less than a quarter of those in Services and Oil and Gas reporting a continued decline in business over the last 60 days (and a third saying conditions have already improved), versus nearly 40% in Technology and Software indicating decline and just 27% recording some improvement. The situation in Aerospace and Defense is especially bleak, with a large majority expecting continued decline as Governments cut back on major projects.


Negotiation Focus Varies – But Prices Remain Under Pressure

The focus of business negotiations is starting to change. While 50% remain under strong pressure to renegotiate prices on existing agreements, an equal number are now actively negotiating new opportunities.
 
However, the results suggest that much of this growth in new opportunities may come from switching sources of supply. Researching alternative suppliers is currently a major activity for 44% of buyers – but only 19% of their customers appear to be aware of this.
 
Impact Of The Recession On Business Ethics
 
For those who ask whether the business world has improved its values as a result of the financial meltdown, the answer appears to be negative. 34% feel that current economic conditions have been accompanied by a decline in the ethical standards of business practices and negotiations, versus just 4% who feel they have improved. Supply-side negotiators in particular feel that ethical standards have fallen – 44% report negative experiences, against just 33% of buyers. The issues cited most frequently are unilateral extensions of payment terms; unreasonable pressure to cut prices on existing agreements; and a tendency by sales people to promise whatever it takes to win business.


The IACCM study was undertaken in the period 16th – 24th September and invited responses from 13,000 business negotiators and contract management specialists located in more than 100 countries and from more than 2,000 international companies.

 

 

 

 
 
 

IACCM Honors Leaders

 
IACCM is delighted to announce that Margaret Smith, Executive Director for Contract Management at Accenture; Timothy S. McCarthy, Worldwide Director of Contracts & Pricing at Rockwell Automation; and Chris Mead, Commercial Director at QinetiQ Group have been awarded the status of Honorary Fellow, Contract & Commercial Management, following review and election by a peer group of professionals. Tim Cummins, CEO, IACCM
 
 
As President Obama recently observed: “It is essential to have the capacity to carry out robust and thorough management and oversight of contracts”, and it is in this context that this unique international accreditation program is increasingly important. It denotes a select group of individuals with increasingly high value skills, providing professional leadership and inspiration to a fast-growing body of IACCM certified experts. 

The award was made in recognition of each individual's unique contribution to the development of the Commercial and Contract Management profession, both through their work at current and prior employers and also their dedication to the wider interests and status of the worldwide community. This includes support to the development of IACCM and their contribution to its reputation for thought leadership and innovation.

IACCM President Tim Cummins made the following citations:

“Margaret Smith shows unrelenting passion for her field of expertise and has masterminded the development of one of the world’s foremost contract management practices. The hallmark of a true leader is shown by the quality of those they attract – and there is no question that Margaret has excelled in forming and motivating an extremely talented team. However, she has also ensured that individual talent is focused through leading-edge processes and systems that are fundamental to professional discipline and high-quality output.”

“Tim McCarthy generates tremendous respect within his corporate teams and amongst the IACCM membership. He demonstrates a passion for excellence, while at the same time showing a sense of pragmatism and practicality. I have observed the loyalty and enthusiasm that he generates within his staff and across the wider IACCM membership. He is truly an ambassador for our profession.”

“Chris Mead has demonstrated outstanding talent in a series of roles – clearly answering those who question the value of commercial competence. He shows unique understanding of commercial discipline and has overseen the development of an outstanding practitioner group delivering consistent financial value, covering both buy-side and sell-side operations. Chris brings vigour and personality to his role, and has demonstrated exceptional commercial vision and professionalism in assisting QinetiQ’s highly successful transition from public to private sector.”


Chris Mead, Group Commercial Director, QinetiQ, receives his IACCM Fellow Certification from Paul Mallory, VP Training & Development, IACCM


 
Our new Fellows join a select international group of senior managers and executives who hold the FCCM accreditation. They occupy senior positions at world-leading organizations from a variety of industries, such as Hewlett-Packard, the United Nations, Fujitsu, Macquarie Bank, Alcatel-Lucent and BP. IACCM Certification is based on both technical and applied knowledge and candidates are required to demonstrate their abilities through a combination of examination and skills assessment, together with professional contribution, scope of experience and peer review.  Anyone interested in raising their professional status by acquiring IACCM certification (which is available at four levels of achievement) should contact info@iaccm.com
 
 


 

How to describe 'appropriate' security in a contract

 
If you're signing a contract that involves a transfer of data, you need a project-specific security plan. Too often, detailed plans are overlooked in favour of a simple duty: "you must take appropriate technical and organisational measures." Such brevity is understandable – but it is also unacceptable. In this Opinion, Struan Robertson explains why. Struan Robertson, a Legal Director with Pinsent Masons LLP
 
 
It is understandable because the words come straight from the UK's Data Protection Act. They make good sense in a law that has to generalise to apply to myriad circumstances. But such pithiness has no place in a commercial contract, where the parties know what information they have and what will happen to it.
 
It's unacceptable in a commercial contract because it's ambiguous. In the absence of detail, what is appropriate becomes a subjective test and the only certainty is that each party's interpretation will differ. That leads to trouble.
 
If your supplier presents you with such a vague term, do not accept it. You need to prepare a project-specific security plan and you do that by thinking of all the things that might go wrong and then you address them one by one.
 
Don't be afraid to score a red pen through the Zen-like security platitudes in a supplier's standard contract and replace them with a schedule that spans several pages. If your contract involves high-risk or high-value data, you have to be specific about security and the measures must be tailored to your project.
 
So let's say your contract puts your data in a third party's data centre. Here are some things to consider: How will your data be transferred to the data centre? Where is that data centre, and does the supplier have the right to move your data to another location? What happens in the event of a natural disaster? (You can expect more than a force majeure clause). Are there data backup procedures? Is there CCTV throughout the data centre? Is there a plan for penetration testing? Think about what you will need to audit and how often - be specific - and write that down too. Can the third party hire sub-contractors? If so, will you have the right to approve them?
 
These are just some of the questions a customer should ask.
 
Nobody would sign a contract that defined the price as "quite a lot of money" yet many contracts contain security provisions that range from vague to meaningless.
 
Many organisations are alive to this risk today and they will fight for effective security provisions in new contracts. But some will overlook their existing contracts, the contracts that are routinely renewed without amendment. So consider reviewing your existing contracts, too, or at least the high-risk and high-value ones.
 
It's prudent for any organisation to check the security obligations in both new and existing contracts. It may find that they're simply not appropriate.
 
By Struan Robertson, a Legal Director with Pinsent Masons LLP who specialises in technology law. Struan is also editor of Pinsent Masons' legal information service, www.out-law.com.
 
 

Are face-to-face meetings a thing of the past, or has technology made them future-proof?

 
A recent IACCM survey on business travel revealed that 66% now use 'viable alternatives' to travel, as a replacement to face-to-face meetings. While many are pressured to find alternatives, many also find them very useful - embracing web-based conferencing technologies that they claim can, at least in some respects, enhance communication. In an interview with Brett Pauly from Cisco, IACCM's Sandra Lewy examines some of the pro's and con's of the virtual meeting for those in the world of contracts and negotiations. Sandra Lewy, Business Analyst, IACCM
 
 
At a time when many are cutting back on business travel, some have speculated that the traditional face-to-face meeting may be a thing of the past. We are frequently reminded of the cost - both financial and environmental - of travel, leading to fears that the resulting drop in face-to-face interaction will be detrimental to business relationships.
 
Communication across a global marketplace
 
Managing effective communication in a global corporation, supply chain or with foreign clients can be a challenge. There are a many difficulties to overcome, not least the time zone and cultural differences. Of course, understanding cultural differences is the responsibility of those involved - but there are a number of tools available that can help with the rest. 
 
Brett Pauly, Director of the Service Provider Commercial Office at Cisco, understands the issues surrounding international communication very well. Communicating on a weekly basis with people on five different continents, he relies on modern web-based applications in order to maintain close contact with his staff. He explains that ‘Cisco knows a good deal about collaboration. We use software such as Webex, which features a number of great tools, enabling us to effectively manage meetings across time zones.’
 
Brett also highlights some of the other benefits to using such software in group collaboration. 'Groups can share folders, individual employees can post content to the group, and they can keep documents in the same place and edit them.' This ensures that, across continents, team members are always on the same page.
 
'But', Brett points out, 'it wouldn't be the same without TelePresence'  (a videoconferencing system developed by Cisco). According to the Cisco website, TelePresence 'helps people meet, share content, create high-quality video recordings and events, consult with experts and deliver powerful personalized services'.
 
Can online collaboration improve communication?
 
While some may be hesitant to adopt the virtual meeting due to concerns that they will not be able to read body language and facial expressions, and that negotiation will be slower and less effective, Brett claims that TelePresence addresses these issues. The system allows the remote participants of a meeting to appear 'life-like and life-size', thereby abating the frequent criticism of virtual conferences - that important cues such as body language are not visible.
 
‘We all have desk top cameras', he explains. 'If I call another Cisco user with a desk top camera, we can have a teleconference straight away. TelePresence is a higher end version of that... you can clearly see how they look - if they are getting bored, are confused, and so on. It really makes communication so much richer.’ 
 
Moving to this sort of visual communication can, says Brett, improve communication between team members. ‘I have my team members in the UK, New York, Colorado, Sydney, Tokyo and Boston. Constantly traveling to these destinations to have 1 on 1's with team members would not be feasible, so  I always hold video conferences instead of talking over the phone. The distance seems far smaller when you can actually see somebody.’ This allows Brett to hold face to face meeting with his team members far more regularly than would otherwise be possible.
 
However, there are some real-life problems with the virtual meeting place. ’We are a victim of our own success’ admits Brett. ‘It can be difficult to book a room for TelePresence, they are so popular.'
 
Virtual negotiation - just a compromise?
 
Despite the apparent advantages of virtual meetings, the question remains as to whether they can actually improve the negotiation process, or if they are merely a substitute for the 'real thing'.
 
Brett is very confident in this respect. ‘No doubt about it, negotiations are improved.' There is no issue with one of the negotiators being tired after traveling, and all participants can feel more at ease within a familiar environment. Brett also points out a major pitfall of phone-based negotiations: 'the more detached you are from the person you are trying to influence, the more likely you are to disagree with them.  The closer you are to them, the more likely you are to see their point of view…and for them to see yours too'.
 
While many benefit from the use of new technologies for international communication, having cultural awareness remains very important. These differences are often the hardest to learn and accept. As Tim Cummins, CEO IACCM, summarized in his recent blog Contracts, negotiations and culture, ‘any negotiator or contract manager must understand that cultural values and expectations differ dramatically. If we work with partners in new markets, we must not assume that they share our view of norms or procedures. Whatever we write in the contract, however diligent our management, it is culture that will drive behavior – so be sure that it is part of your risk analysis.’ 
 
 
Sandra Lewy
Business Analyst
IACCM
 
 

From The Blog: Rip Up Your Contracts

 
Commitment Matters is the blog that features opinions and ideas for all those interested in contract and commercial management. In the last 30 days, the most viewed article has been a challenge to the contracts, legal and procurement community to rethink the role and contribution of contracts to the business. It is reproduced here.
 
 

Many trading relationships have become more complex in recent years. They are taking us into new and uncharted waters, yet the methods and equipment we are using for navigation remain firmly stuck in the past. As a result, a high proportion of those relationships prove disappointing and fail to realize their potential value. Neither side feels satisfied with the journey or its final destination.

The factors behind this complexity are varied. They include:

  • Globalization, which has caused many of us to establish relationships in unfamiliar territories, with different rules and values.
  • A shift towards solutions and services, which depend on better definition of requirements and capabilities to ensure that customer needs will be met.
  • The speed of change, which affects the selection process and on-going relationship management, as both parties struggle to deal with shifting requirements, new competitors, innovative technologies, altered regulations and social values etc.
  • Greater inter-dependency, as enterprises depend more and more on external partners to deliver core capabilities; for example, business process outsourcing shifts the entire focus of contracting onto achieving long-term (and often unknown) outcomes.

Given all these factors, we might expect that the process and structure for contracting and relationship management would be undergoing revolutionary change. Yet in general it is not. Organizational models to establish and oversee trading relationships remain unreformed; contract terms show only incremental shifts; internal rules and practices remain stubbornly tied to historic business values; performance incentives – internal and external – have remained stuck in the past.

There are some who say ‘the contract doesn’t matter’. But they are wrong. Complex relationships need agreed goals, agreed methods of governance, agreed rewards. And because they affect so many people, over such long periods of time, and rely upon coordinated action for their success, ensuring these agreements are documented and can be communicated coherently and consistently is critically important. Both sides must have a shared understanding of what they are trying to achieve, how they will achieve it and what they must do if things are not going according to plan. Anyone who believes they can achieve this in a long-term, high value relationship without discussion and recorded agreement is wrong.

It is therefore time for a great debate on fundamental change. We must engage in substantive discussion over how complex business relationships should be formed and managed. For example:

  • What are the criteria through which long term and high-value relationships should be evaluated? It is obvious that  input cost has little relevance; hopefully we do not select our long term partners on the basis of how cheap they are, or whether they superficially look good. So how do we make a better job of aligning culture and values and ensuring we really are likely to have a productive and collaborative relationship a year or two from now?
  • What is the right balance of obligations within a relationship? Spending our time arguing over the consequences when things go wrong hardly seems the best way to ensure mutual commitment to achieving success. Yet that is exactly where so much of the formal negotiation is focused. The dominant party (or both parties, if neither dominates) puts forward its (one-sided) proposals for the relationship foundations and then the battle begins. This causes risks to be overlooked; it results in defensive behaviors and a lack of transparency and honesty which would prove damaging to any meaningful relationship. 
  • Who should be responsible for monitoring and ensuring performance? Today’s approach creates an environment in which neither side has any incentive to admit weaknesses or to accept accountability. Open discussion and timely escalation are rare. It does not have to be this way. Contract terms and improved tools and methods could be used to support much greater openness and visibility within each organization and between organizations. Contract terms could include incentives for honesty and early identification of risk, rather than incentives to point fingers and hide the facts.
  • What is the right governance framework? The framework must reflect the nature of the relationship and its desired outcome. Instead, in most cases, the relationship is force-fitted to standard and pre-approved contracting models which were designed for a different era and a different understanding of economic value.

Identifying what must change is not in itself hard. But achieving the change is made hard by the levels of resistance and the need for cross-functional and cross-organizational collaboration. We are in desperate need of champions who really care about business and economic performance.

Contracts are among the most conservative of instruments; the contracting process is overwhelmed by rules and restrictions that crush innovation and undermine collaboration. It is time for the revolutionaries to step forward!

 
 

 

 


 
 
 
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