Contracting Excellence Magazine - Aug 2010
The Core of Contract & Commercial Management
Back in August 2009, I wrote about the future of contract management and discussed the importance of developing a common definition of the contract manager’s role (and for the sake of clarity, I include commercial managers in this definition). At that time, around 2,000 people had read my blog, The Role of a Contract Manager. Today, that number has increased to more than 10,000 (with many of these also having read the sequel ‘Role of a Contract Manager – Revisited’), indicating the growth of interest and – perhaps - continuing uncertainty over what exactly a Contract Manager does (interestingly, many readers are executive managers, perhaps considering organizational change).
Over the last year, IACCM has continued to capture and document ‘best practice’ To date, it has researched post-award contract management and negotiation; currently the focus has moved to pre-award / bid management activity. In recent months, more than 300 IACCM members have worked collaboratively in developing an Operational Guide to Contract Management (due for publication in November) and work is underway on a Strategic Guide (publication early 2011). IACCM’s topical research continues, looking at many aspects of the contract management role, contribution and changing business needs.
Last month, in response to a member question, IACCM set its members the challenge of coming up with a ’30 second elevator pitch’ for their role. The diversity of input makes fascinating reading; yet there was also a growing consistency in the themes. Frequently recurring words included:
The results of the competition will be announced shortly. Interestingly, the winner is not from one of the countries that might be expected to have the most defined view of contract management. The diversity of input represents another step forward in creating a global community. In addition, real progress has been made with the international academic community and their recognition not only of the role, but also the development of specific programs that will enable the emergence of qualified practitioners.
Today, IACCM has more than 4,500 active participants in its Managed Learning and professional certification programs, with the numbers growing by the month. The Association’s membership continues to expand – currently by more than 600 a month – and it attracts newcomers from all around the world (over 120 nations now represented).
So when I look back at that post from exactly a year ago, I see significant progress in the development of Contract Management as a global profession. IACCM has been privileged in its opportunity to lead this movement and to coordinate the activities of so many dedicated and enthusiastic practitioners. Of course, there will never be one standardized job role that applies in every organization worldwide, any more than roles for sales, or marketing, or legal or finance professionals are standardized. Industry, culture, internal politics will all continue to play a part in determining the precise allocation of responsibilities. But we have achieved some important milestones on our journey and there is certainly no question about its continuation.
Contract management – and contract managers – are today an unstoppable force.
Ten Lessons to Improve Collaborative Outsourcing
While most outsourcing agreements offer tangible benefits, a significant proportion of deals result in some level of disappointment. Calculations of this proportion vary, depending on criteria used, from a 'low' of around 30% to a 'high' of more than 80%.
It could be argued that just about every long-term relationship - business or personal - tends to generate some dissatisfaction. But whether or not this is inevitable, there are certainly grounds for believing that there is room for improvement. Part of the challenge is that requirements and goals are often inadequately defined. Another common problem is that requirements change over time, but the objectives and deliverables fail to keep pace. Many suppliers argue that the performance indicators are to blame - customers regularly measure the wrong things, then complain about the results.
There is plenty of evidence to show that the negotiation process - and the resulting contract - often fail to create the right framework for a healthy and open relationship. The governance principles are frequently compromised by aggressive battles over price and risk allocation. These are the types of weaknesses implicit in Williamson's analysis, given his recognition that organizations typically fail to distinguish the cost of transactional acquisition from the on-going cost of the required relationship. By failing to balance these factors, they prevent necessary investments in establishing relational capability - and that will surely undermine the results achieved.
In their paper, the combined forces of academia and IACCM seek to summarize a new and better way of developing outsourcing contracts. The paper can be accessed at www.vestedoutsourcing.com
Contract Management Defined; the Elevator Pitch
In June, we challenged members of the IACCM community to come up with an 'elevator pitch' of contract management. Imagine if, as you step into an elevator, someone says - "you're a contract manager - what exactly is contract management?” How would you sell the concept of contract management to them in no more than 3 or 4 sentences - you've only got about 30 seconds before they leave the lift!
We received many responses from around the world, which showed an interesting range of perspectives - and we are pleased to announce the three most popular submissions, as voted by a panel of judges made up of senior executives and academics in the field.
First place: Contact management manages both pre and post contractual matters which includes the review, drafting and negotiation of contracts, and the thorough monitoring of the performance of that particular signed contract until its close-out. Contract management is really about maximizing profits and minimizing risks in any contracts. In a nutshell, Contract Managers are people who possess the technical, operational and commercial skills and acumen in managing a contract so that it always remain healthy and brings in the optimal and desired results. (Rajini Saudranrajan)
The winner, Rajini Saudranrajan, is a Legal Manager at Iris Corporation Berhadand is based in Kuala Lumpur, Malaysia. She has been working in contract management for 11 years and has been a member of IACCM since attending a training class that we ran in Kuala Lumpur in 2006. We caught up with Rajini earlier this week to find out a bit more about her.
Rajini, how do you feel about winning this challenge?
Winning this challenge has further inspired and strengthened the foundation of my faith in the practice of good contract management. This is indeed a special recognition.
What is your view on CM as a profession?
I have come to realize over the years that good contract management will bring about the desired results and will fulfil the intentions of both parties when performed committedly. Today, thanks to IACCM, more and more corporate companies and corporate individuals alike are placing high importance on the need for good contract management. Excellent contract management practice should begin from day one, the very minute parties get together to discuss a potential engagement of each other as opposed to starting to manage the contract after it’s signed and filed.
Contract Management practices is not about just processes, it’s beyond that. It’s about giving effect and respecting the intentions of parties in any contract. As contract professionals, we can bring about the desired positive changes in the ways parties deal with each other in businesses. The good management of any contract will result in better management of stress levels, unhappiness and dissatisfaction amongst parties. Well managed contractual relationships will ultimately yield more businesses and profits while risks and negative effects of a contract will be reduced significantly.
What are your views on IACCM, and how has it been helpful to you?
IACCM have certainly been successful in creating an awareness on the need to have good contract management practices worldwide. As a result of this, a worldwide recognition is being given in one form or another to contract professionals. Many individuals are keen to take up this role as it’s becoming increasingly recognized globally as a profession. I expect that in years to come, each and every player in the global market will have at least one or two contract professionals working for them.
'Contracting Competence Comes To Asia'
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Software Liability Clauses
Many software providers - whether of stand-alone programs, or as part of an integrated solution - seek to restrict their obligations for performance. It is common to refer to specifications and operations manuals and to disclaim any other representations of suitability for the client's purpose.
This was the scenario when a UK hotel group licensed front-office software from a firm called Red Sky IT. The provider sought to move the risk of suitability onto the customer and established contract terms that are relatively common in the industry. However, the judge found 'that there was a clear disconnect in the way R sold the software to K and the basis on which R's standard terms were drafted'.
In an excellent summary, TRGLaw provides some suggested considerations for those who are drafting or negotiating software agreements. See http://www.trglaw.com/News67.html for details.
TRGlaw provides excellent analysis of commercial law cases in the UK courts. These are presented periodically to IACCM members via 'Ask The Expert' calls or through classroom updates and discussion forums. For information about future sessions, contact pmallory@iacc,.com
Next Generation Pricing
The outsourcing industry has travelled a bumpy road in terms of pricing models since its birth in the late 1980s / early 1990s. Initially pricing was input-based: prices were set in terms of the amount of resource used, for example, the number of days effort expended, the number of MIPS of processing power utilised, the MBs of storage used, etc. Despite resistance, this trend was followed by service output-based pricing, for example, a price per application supported, a price per desktop seat managed, etc. The resistance to accepting a move from the ‘old’ regime was down to suppliers being concerned about the risk transfer inherent in a service output-based model: they were being asked to take the risk on the amount of resource required to deliver the service output. From a client perspective, the move was driven by exactly the same reason: why should clients take the resource requirement risk when they were not in control of the resource utilisation? In time though, suppliers have warmed to the new regime: it gives them control over the service inputs and, therefore, whilst suppliers bear the resource volume risk, they equally enjoy the rewards of delivering the service outputs in a more efficient manner. So what next?
The future, which has already seen the light of day in some enlightened deals, is business outcome-based pricing, where what the supplier is paid is directly linked to the actual business benefits realised by the client. This concept begs the question about how benefit realisation is managed and measured, but this question has been answered many times in the past and there are tested methodologies for so doing. So, to avoid going off on a tangent, let’s accept that for present purposes benefit management and measurement is achievable.
As was the case with the move to service output-based pricing, there is supplier resistance to this further move, the reason being the same as previously, namely the risk transfer to the supplier inherent in such a move. On this occasion there is possibly more justification for the resistance: as opposed to case where the resource volume risk passed to the supplier where the supplier was in control of the resource volume, in this case the benefit realisation risk is not wholly in the control of the supplier – the client arguably has a hand in the amount of benefit realised. However, from the client’s perspective, it has been sold one too many stories of the amount of business benefit that the supplier will deliver, for the supplier then to hide behind a technical service specification when the business benefit failed to be realised.
So, is this all bad news for suppliers in the evermore competitive outsourcing battlefield? No is the answer for a variety of reasons, the main ones being those outlined below:
1. If business benefit is to be the yardstick by which supplier reward is determined, then that business benefit must be the language of the contract so that achievement can be measured. Writing specifications in these terms will avoid dispute in the future as to whether the supplier has delivered what it promised – a well worth investment from both the supplier and the client’s perspectives.
2. With the business outcome being the contractual deliverable, the supplier has greater carte blanche as to how that outcome is delivered and therefore greater reward for delivering it more efficiently.
3. With both the client and the supplier having a vested interest in the amount of benefit actually realised, there is compelling reason for them to work together in partnership to achieve the maximum amount of realised benefit. And it is widely acknowledged that partnership-type relationships deliver considerably more value to both parties than the traditional adversarial-type relationships.
In conclusion, suppliers should accept the inevitable and look to reap the rewards offered by outcome-based pricing. And both parties should realise that, by adopting a mature attitude to the way outsourcing deals are managed, it becomes less a case of sharing between themselves a finite amount of benefit and more a case of growing a potentially infinite amount of benefit for sharing between themselves.
Ten Squared Limited
Copyright Ten Squared Limited 2010
Intellectual Property Management System
Controlling and managing IP to ensure commercial exploitation and curb IP pollution should be the strategy of any organization to survive and assure stability.
Technology has transformed ideas to innovation, shrinking the world further and flatter. The free flow of information is leading to innovations every hour strengthening the value chain. With technology, comes the risk of unethical, unwarranted exploitation of IP and a high risk of IP pollution. Accessibility from any corner of the world is making every innovation vulnerable to violation of Intellectual Property Rights (IPR).Only the fittest management systems managing innovation can survive. Controlling and managing IP to ensure commercial exploitation and curb IP pollution should be the strategy of any organization to survive and assure stability. Organizations should adopt a management system to effectively face the perceived risks.
Organizations leveraging their Intellectual Property (IP) like Patents, Copyrights, Trademarks, Trade Secrets, Service Marks, Know-How, Designs, Geographical Indications, etc, face the challenge of effective planning, implementation and monitoring processes and procedures to ensure optimized exploitation of resources while at various focus areas like, IP identification, valuation, infringement analysis, change management, auditing, licensing, etc, in the IP management life-cycle . As the organization grows, challenges grow with it, hence, it has to adopt some mechanism to manage, sustain and improve these processes. IPMS enables an organization to identify, analyze, plan, project, audit, assess risk, commercialize, sustain practices and drive continuous improvement of the IPM life-cycle and framework.
Is there a need for IPMS?
What does IPMS manage?
- Trade-Secrets &
IPMS can manage other IPs like design, know-how, residual knowledge, geographical indications, etc, too. However, these are set out of the scope of this article.
- Maintaining an inventory and continuously updating it
- Establishing and strictly following the Information Security Policy, Information classification & labeling policy, etc.
- Ensuring an effective configuration management and change management at IT/SDLC as well as at the process level
- Maintaining a team with capabilities to evaluate different IP claims
- License and Contract Management
IPMS follows the Deming’s PDCA (Plan, Do, Check and Act) Cycle (Fig.4.). Thus, the organization can leverage their Information Security Management System (ISMS) and Quality Management System (QMS), if ISO 27001 and ISO 9001 standards have been implemented. IPMS control complements the controls of these standards which also uses the PDCA cycle.
The Stakeholders Expectations & Assurance Level
- Effectively manage the patent grant process
- Identify & manage other protections in the form of trademarks, copyrights, trade secrets, etc.
- Ensure that the benefits of infringement analysis is reaped
- Maintain a single repository of all IPs (Organization, Client & 3rd Party)
- Maintain the confidentiality, integrity and availability of IPs
- Ensure effective process re-engineering
- Ensure configuration management and change management
- Identify IP pollution at the earliest stage
- Ensure tracking of continuous improvements on IPs
- Optimize and commercially exploit IPs
- Ensure appropriate communication and information flow with the stakeholders
- Ensure a governance mechanism is in place
- Ensure continuous improvement in the management system
- Ensures better preparation for IP litigations
- Arrive at an IP policing strategy
IPMS Maturity grows with every PDCA cycle. The organization will notice more folds of improvement in the IPM Life-cycle and the IPM framework with completion of every cycle (Fig. 5.). With time the IPMS will become a system leading to continuous revenue generation with high ROI.
Intellectual Property Management System (IPMS) can give an organization absolute control over its IPs. The system is easy to manage and robust enough to scale up to the organization’s expectations and capabilities. The system demonstrates the assurance of IPs being managed, improved, protected and optimized in the interest of the organization, its clients and 3rd parties. It enables curbing the IP pollution and effectively mitigating the risk perceived. The IPMS projected above is workable, systematic and alignable to any corporate culture and the high ROI will attract decision makers to implement it.
Rajeev T, Manager, Risk Management, Infosys BPO Limited