Contract management languishes in limbo

Gregg Barrett A FEW minutes before writing this article, I was on the phone with the head of IT of a large South African blue-chip organisation. We were discussing contract management. I must mention that we had been discussing contract management at the organisation in question for about four years now and agree it is a critical area that must be addressed. At this organisation, IT plays a supporting role with business taking the lead on systems that need to be implemented. However, I feel this is the correct approach at a company where there is no-one in business who is taking a leadership role in addressing this critical business requirement. It is for this reason that contract management is in a state of limbo and at the very least, is exposing the organisation to serious risk. This is a problem I encounter daily and I delved into a Q&A session with Tim Cummins of the International Association for Contract and Commercial Management (IACCM) for the April edition of the Contracting Excellence publication. I responded to questions he put to me. Here is an extract from the session. Q: Based on your experience, how would you rate the quality of leadership and strategy in the contracts/ procurement/legal groups with which you deal? What do you see as some of the most common shortcomings? What have you observed in terms of excellence? A: Out of the groups that I deal with and generally, legal is probably one of the worst in terms of strategy and leadership it is extremely rare to see or hear of strategy in the legal department of organisations I have worked with. In legal, the approach most often is to just keep on doing what we do. When I ask what they do, I almost always get something about protecting the business. Clarity on (a) what they are protecting against and (b) how they are protecting against it, is usually not very clear and forthcoming. Still on the legal front, as scant as their strategy is their use of metrics. It does not take much to work out that the two are related. As the saying goes: You cant change what you cant manage, you cant manage what you cant measure, you cant measure what you dont know. Legals major weakness is technology adoption. I have found legal to be almost backward in understanding and applying technology. There are some notable exceptions

but they are few and far between. Although legal tends to be cross-functional in nature, I cant say that they always understand other areas of the organisation and their respective challenges. For example, many legal people I have spoken to know little about finance, operations and procurement. Most companies in South Africa do not yet have a standard enterprise-wide clause and template library (an aspect of knowledge management) to support contract creation off their own paper. But that is changing (albeit slowly) with many firms at least making an effort to establish such a knowledge base. The problem is that there are many people who are still far from this frame of thinking. Without such a knowledge base, enterprise risk management is nothing more than a pipe dream at this point. There are still too many individual, let alone functional, silos. Procurement Procurement tends to be a little better on the strategy front most firms seemingly have one. However, many of these strategies tend to be focused on simple price/cost equations and do not take into account the bigger picture of innovation and value creation in the organisational value chain. I also dont always see strong evidence of a link between procurement strategy and the attainment of key strategic organisational objectives sometimes procurement strategy is just that procurement-centric and lacking alignment to the chief executives agenda. I think procurement needs to stretch its legs into the rest of the organisation to build a greater knowledge of it, its needs and relationships with internal stakeholders. This will go a long way to help it attain procurement objectives and broader organisational objectives. Its like when you cross the street and you need to look both ways in this case inward and outward and not just outward at the supply base. Contracts The contracts group is easy. We have yet to see some sort of definition of this group in most organisations with parts of the contract lifecycle being undertaken and executed by disparate individuals and functions. The problem no central responsibility and accountability for the contract lifecycle/relationship. To sum up, excellence is still confined to a few organisations. For the majority, there is much work to be done. Q: A high proportion of IACCM (www.IACCM.com) members indicate that a lack of leadership by their management is a source of major concern and limits their career opportunities. A: In the book, The Essays of Warren Buffett: Lessons for Corporate America, he warns

against the institutional imperative. It is a pervasive force in which institutional dynamics produce resistance to change, absorption of available corporate funds and a reflexive approval of sub-optimal chief executive strategies by subordinates. Contrary to what is often taught in business and law schools, this powerful force often interferes with rational business decision-making. The ultimate result of the institutional imperative is a follow-the-pack mentality producing industry imitators, not industry leaders what Buffett calls a lemming-like approach to business. If the leaders are not leading, step up and fill the void. Perhaps this is easier said than done, but if you simply continue to follow the herd on a road to nowhere, expect to land up in Foolsville. Q: Contracting and procurement tend to be tactical and transactional. This situation be it reality or perception inevitably limits the value placed on the function by executive management, hence its influence and status. This inevitably limits career opportunity, the quality of people attracted and also creates threats to the question of whether this should be a retained or core activity. A: If these functions simply automated their respective transactional processes, they would have more time to focus on more strategic value-adding activities providing executive management with ample evidence of the importance of their role and would, in all likelihood, attain greater status, budget and attract better talent. Being stuck in transactional fire-fighting simply leads one all the quicker down the road to an outsourcing hub like India. Q: Finally, you understand the community that IACCM represents (contract and commercial management community). Would you recommend this field to younger people? Does it offer interesting job opportunities and a potential career path for leaders of the future? A: I would like to think that it does offer opportunities and careers for future leaders. Hopefully, this is not merely in our own thinking. Two factors that I think will make or break this: 1) Organisations that succeed will be those with the strongest value chains. These value chains are built and managed on relationships. One would like to think our community is well positioned to play a leading role in this successful positioning of the organisation and the building of these relationships. 2) If our community does not stand up to be counted, then expect to be left on the sidelines. .............................................................. See: Protecting Your Companys Corporate Reputation CLASA, Incorporate,

Summer 2008, Vol3 No4 See: The Legal Advisers Role in Protecting the Companys Reputation and Managing their Personal Reputational Risk, Tim Cummins http://www.clasa.co.za/index.php?subid=120-259 See: Contract Lifecycle Management (CLM): Hitting the Mark with Centralised Management, Aberdeen Research Brief, December 16 2008, William Browning