Streamlined Contracting: Creating a Source of Competitive Difference

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Streamlined Contracting Creating a Source of
Competitive Difference

• The IACCM Top Ten Best Practices in Commercial
  Contracting 2006 Status Report
• April, 2006

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Best Practices

• What is best practice?
• Why do they matter to me?
• Where can I get some?

This report is based on input by more than 200
international corporations, collected originally
in Jan 2005 and updated in Feb 2006
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THE IACCM TOP TEN BEST PRACTICES IN COMMERCIAL
CONTRACTING

• Ownership and accountability for commitment
  process 
• Terms and structure audit and update 
• Integration with Product Lifecycle Management
• Portfolio risk management
• Value chain focus
• An electronic contracting strategy
• Self-help skills assessment and development tools
  
• Strategically aligned measurements and reporting
• Pro-active change management 
• Differentiation and sources of value awareness
  and marketing

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Executive Highlights 2006 Best Practice Status

• There has been a narrowing of the benchmark
  performance gap relative to best practice in 5
  areas, including accountability, risk management
  and alignment with Product Lifecycle Management
• Performance has declined in 3 areas skill
  development, contract lifecycle management and
  definition of value
• Procurement groups are ahead of sales contracting
  in most areas
• Europe is the most advanced region overall
  largely due to clearer ownership and
  accountability for the contracting process
• Many participants show a lack of understanding
  for the best practice characteristics. It is
  therefore safe to assume progress will remain
  slow without executive intervention

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Assessment of Current Performance
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Assessment of Current Performance(World Regions
Comparison)
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Assessment of Current Performance (N America
Sales / Procurement)
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Ownership and Accountability for the Commitment
Process
Best practice corporations make contracting
a defined and managed process, not fragmented
activities that aim for a consolidated set of
documents or focus on risk containment. They
ensure someone in the organization has ownership
for the effectiveness of the process from bid
inception to contract close-out and is
accountable for the quality of its results.
OBSERVATION The best practice examples are
either in smaller corporations (less than 2bn
annual sales) or within a specific geography (the
UK leads in this characteristic). Overall, US
Sales Contracting groups and all groups in APAC
region are least likely to display this
characteristic.
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Terms and Structure Audit and Update
Best practice corporations ensure the
competitiveness of their terms and the ease with
which contracts are updated / changed. They have
systems in place to capture internal data and
monitor competitive practices. They ensure that
time is spent in the most productive areas, not
repetitively addressing the same
issues.  OBSERVATION Less than 10 of
corporations have systems or market intelligence
mechanisms that generate competitiveness
indicators for their terms. Less than 25 have a
readily accessed portfolio of contract structures
to maximize efficiency and ease of doing
business. Procurement contracts groups are ahead
of Sales Contracts in all world regions. As a
region, Asia Pacific is significantly behind.
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Integration with Product Lifecycle Management
Best practice corporations have aligned contract
resources and tools with Product Management /
Marketing to ensure products and services are
clothed with terms and offering capabilities that
enable competitiveness throughout the product
life-cycle. OBSERVATION Less than 15 of
corporations currently have clearly designated
contract resources interfacing with product
commercialization less than 10 have defined
resources, processes and methodologies to support
Product Lifecycle Management. Integrated Sales /
Procurement contract groups are substantially
ahead. Supply Chain groups are also driving
progress in this area. Asia Pacific is least
likely to have this practice implemented.
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Portfolio Risk Management
Best practice corporations move beyond a
situational analysis of risk to ensure that
internal systems enable a balance between
consequence and probability, that risks are
viewed and monitored as a portfolio, and that
risk mapping techniques are used throughout the
contract and negotiation process to support
highly visible enterprise risk management data
covering both contractual and relationship risk.
OBSERVATION Approximately 35 of corporations
are considering ways to address risks at a
portfolio level. Less than 5 have progressed to
using mapping techniques for overall contract and
relationship risks.
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Value Chain Focus
Best practice corporations have addressed the
integration of buy-side and sell-side commitment
management to ensure efficient, synergistic
relationships that support responsive delivery
capabilities against shifting market / customer
requirements. OBSERVATION Nearly 40 of
corporations have some degree of integration
between sales contracting and procurement (up by
nearly a third on 2005). Several leaders have
progressed to more formal consolidation of a
Value Chain organization smaller corporations
(lt1bn) are also more likely to have an
integrated operation (this is in part an issue of
efficient use of scarce resources).
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Electronic Contracting Strategy
Best practice corporations assess the potential
scope of electronic tools and systems to
streamline their contracting process, from
inception to close-out, and develop a holistic
strategy towards the acquisition, development and
implementation of those tools, including
integration with other enterprise applications
and strategies (for example, e-commerce).
OBSERVATION approximately 75 of corporations
have implemented some element of an electronic
contracting process, but in our opinion less than
10 have an electronic contracting strategy (and
those are typically buy or sell, not necessarily
for both). Implementation is most advanced in
consumer businesses and (according to
assessment data yet to be validated) in Asia
Pacific.
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Strategically Aligned Measurements and Reporting
Best practice corporations use sophisticated
tools and techniques to create refined
measurement and motivation systems that incent
collaborative behaviors between internal
functions. They also determine key performance
indicators that are adjusted to support corporate
goals and strategies, drawing from established
and respected methodologies. OBSERVATION There
has been no progress since 2005. Corporations are
struggling to redefine functional role and
sources of value, with delivery and measurement
inhibited by the continuing lack of data capture
systems. Metrics remain few in number and of
limited use or accuracy in driving new behaviors
or raising executive awareness of functional
contribution.
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Self-help Skills Assessment and Development Tools
Best practice corporations are implementing
tools and support that give substance to global
employee development and effectiveness, at
functional level and to 'empowered' workers who
perform a commitment negotiation or management
role. OBSERVATION There has been significant
decline since 2005, as functional leaders become
more aware of the skills gap relative to the
emerging role / demands for increased value. The
tools at their disposal, for both assessment and
training, are insufficient and mostly beyond
acceptable budget. The shortfall is greatest in
Asia Pacific and the US.
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Pro-active Change Management
Best practice corporations focus efforts on
building their post-award contract resources and
capabilities to drive optimum performance. This
is differentiated by the pro-active
identification of need / opportunities for
change, thereby reducing disputes, maximizing
financial results and cementing relationship
values. OBSERVATION Another area of decline,
as leaders grasp the difference between high
performing contract life-cycle governance and
traditional contract administration and change
management. Less than 20 have yet made
significant investments (APAC data once again
points to leadership in this field, but has yet
to be validated).
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Differentiation and Sources of Value
Best practice corporations have contracts groups
that describe their differentiated role (relative
to other internal groups) and the specific values
they provide (in terms of measured contributions
to business performance, tied to corporate
strategy). They have methods to disseminate this
information in a manner that creates internal
awareness and understanding of their role and
contribution. OBSERVATION The third area of
decline since 2005, as leaders struggle to
balance the need for increased contribution with
limited resources and budget. With some 70 of
professionals expressing disquiet over the
capabilities of their current leadership, it is
perhaps no surprise that less than 40 of
respondents are confident about their value
proposition.