IACCM President and CEO Tim Cummins recently penned an article on the challenges of balancing the need for contracting standards and innovation in the face of a rapidly changing global economy. Tim warns that risk avoidance and the litigious nature of our society has led contract and legal organizations to err on the side of too much command and control. In his opinion, stringent checks and approvals and rigid and standardized contracting lanugage often leads to complexity that threatens long-term control and constrains business relationships. Not to mention elongating contracting cycles.

The answer lies in a new approach to contracting — one that applies the simplification principles of lean manufacturing and management to the contract management lifecycle. I have excerpted Tim’s advice on what lean contracting might look like. The full article is accessible at the IACCM web site.

For many companies, the pressures to reduce cost have already driven the adoption of standards and they typically enforce these through software applications, such as ERP or spend management. The owners of these tools see their role as maintaining control and monitoring compliance. They believe it is good to limit deviations and therefore even requests are discouraged or suppressed (and as a result, we have no record of the extent or frequency of change requests).

In the face of rapidly changing market conditions, we have introduced a strait-jacket that blinds us to market trends and destroys creativity and innovation. To make matters worse, US-based corporations face the additional burden of regulatory compliance that adds to the climate of fear and the cost of change.

Complexity is not going to disappear any time soon. Change shows no sign of slowing. How can we balance the need for control and low cost operations with the imperative of flexibility? Is the only answer to pile in more resources?

The key to survival in the 21st century is the development of organizational competence through superior use of information and knowledge. The truth is, we still operate in a world of heroes - deal-makers, procurement specialists, lawyers and project managers who snatch recovery from the jaws of disaster and excel at fire-fighting. We focus on transactional review of contracts and relationships and individuals hoard knowledge and experience, rather than contributing to organizational learning and corporate competency.

In our new world, we must think in terms of faster and better integration between market needs and business capabilities. Relationships across the supply chain must be kept aligned through terms that create flexibility to adapt. These are tough challenges when change is so rapid. They are unachievable if resources remain organizationally fragmented and transaction or project focused. To succeed, we must consolidate data and experience.

What does this mean? At an organizational level, we see the emergence of process-based competency groups charged with overseeing both efficiency (quality) and effectiveness (value). They will do this through a service delivery model driven by business and market information and monitored through strong performance metrics aligned to corporate goals and strategies. In most cases, the central resources are likely to operate as a shared service center that is evaluated by the business units - and which in turn evaluates the performance of those business units.

A key objective of the central unit is to determine delivery methods and policy. For example, their ability to monitor trends and recommend shifts in policy or resources will be determined by appropriate network-centric technologies, so automation will be a fundamental underpin. Their work will also drive business empowerment - moving responsible decision making as close as possible to the market, in terms of both customer and supplier decisions (since supply chains must be managed to reflect competitive needs and marketing value propositions).

Work may be moved offshore or outsourced, either to reduce costs, or to increase responsiveness or to access specific skills and capabilities. Among the offshore and outsourced opportunities are many of the lower-value procurement and contract management tasks. Outsourcing can often realize traditional objectives, such as cost savings and purchase order compliance, much better than internal resources.

In this new world, the skills needed by ‘commitment management’ resources also shift and their focus starts to change. While they must oversee the company’s transactional competence, cost effectiveness, ethical standards and risk positioning, their capabilities will increasingly be directed at communication, listening and understanding, the ability to manage across boundaries - functional, cultural and organizational. They will focus on business integrity and the creation of trust through selective collaboration. Critically, they will be committed to sharing and to driving continuous improvement from experience and learning.

At IACCM, we identified a set of ‘best practices’ that we are observing in top-performing corporations. These represent a road-map for any organization seeking to re-engineer and equip for the future.

Communities like Legal, Contract Management and Procurement often feel they do a great job, but are not always appreciated. They face the problem that, if they are successful, they are virtually invisible; no one can tell what MIGHT have gone wrong and therefore there is no real or objective ‘value’ measurement. These groups also mostly feel overwhelmed by workload; they often share the frustration of becoming involved ‘too late’ and finishing up extricating others from an avoidable mess, or undoing ill-considered commitments. What this paper outlines is a remedy for those frustrations and for the growing volume of risks that our businesses face. It offers a way for such groups to ensure a high-value, strategic contribution that brings their company to a position of commitment leadership in this era of revolutionary change.

Contact info@iaccm.com if you would like to learn more about the new Service Delivery Model for contracting excellence. Or plan to join us at IACCM Americas 2007, when we will set out the steps to raise value and flourish through change.

Thanks Tim for your insight into contracting success. It is true that the top contract management performers have adopted an organizational and process structure that fosters centralized oversight with decentralized ownership. They have also linked contracting goals with those of the business.

In a previous post, I profiled how Qualcomm has used this “lean” contracing approach to manage supplier, customer, and intellectual property agreements. Debbie Adams, Senior Manager for Qualcomm’s Contract Management Project, will give a behind the scenes look at how her company has employed this approach next month in the second installment of the Top 5 Supply Strategies Web Seminar Series: Sure-Fire Contract Compliance Strategies. Click here to register now.

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