Contract management languishes inlimboGregg BarrettA FEW minutes before writing this article, I was on the phone with the head of IT of alarge South African blue-chip organisation. We were discussing contract management.I must mention that we had been discussing contract management at the organisation inquestion 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 systemsthat need to be implemented.However, I feel this is the correct approach at a company where there is no-one inbusiness who is taking a leadership role in addressing this critical business requirement. Itis for this reason that contract management is in a state of limbo and at the very least, isexposing the organisation to serious risk. This is a problem I encounter daily and I delved into a Q&A session with Tim Cumminsof the International Association for Contract and Commercial Management (IACCM) forthe April edition of the Contracting Excellence publication. I responded to questions heput to me. Here is an extract from the session.Q: Based on your experience, how would you rate the quality of leadership and strategyin the contracts/ procurement/legal groups with which you deal? What do you see assome of the most common shortcomings? What have you observed in terms ofexcellence?A: Out of the groups that I deal with – and generally, legal is probably one of the worst interms of strategy and leadership – it is extremely rare to see or hear of “strategy” in thelegal 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 whatthey do, I almost always get something about “protecting the business”. Clarity on (a)what they are protecting against¹ and (b) how they are protecting against it,² is usually notvery clear and forthcoming.Still on the legal front, as scant as their strategy is their use of metrics. It does not takemuch to work out that the two are related. As the saying goes:You can’t change what you can’t manage, you can’t manage what you can’t measure, youcan’t measure what you don’t know.Legal’s major weakness is technology adoption. I have found legal to be almostbackward in understanding and applying technology. There are some notable exceptionsbut they are few and far between. Although legal tends to be cross-functional in nature, Ican’t say that they always understand other areas of the organisation and their respectivechallenges.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 andtemplate library (an aspect of knowledge management) to support contract creation offtheir own paper. But that is changing (albeit slowly) with many firms at least making aneffort to establish such a knowledge base. The problem is that there are many people whoare still far from this frame of thinking.Without such a knowledge base, enterprise risk management is nothing more than a pipedream at this point. There are still too many individual, let alone functional, silos.ProcurementProcurement tends to be a little better on the strategy front – most firms seemingly haveone. However, many of these strategies tend to be focused on simple price/cost equationsand do not take into account the bigger picture of innovation and value creation in theorganisational value chain.I also don’t always see strong evidence of a link between procurement strategy and theattainment of key strategic organisational objectives – sometimes procurement strategy isjust that – procurement-centric and lacking alignment to the chief executive’s agenda.I think procurement needs to stretch its legs into the rest of the organisation to build agreater knowledge of it, its needs and relationships with internal stakeholders. This willgo a long way to help it attain procurement objectives and broader organisationalobjectives.It’s like when you cross the street and you need to look both ways – in this case inwardand outward and not just outward at the supply base.Contracts³The contracts group is easy. We have yet to see some sort of definition of this group inmost organisations with parts of the contract lifecycle being undertaken and executed bydisparate individuals and functions. The problem – no central responsibility andaccountability for the contract lifecycle/relationship.To sum up, “excellence” is still confined to a few organisations. For the majority, there ismuch work to be done.Q: A high proportion of IACCM (www.IACCM.com) members indicate that a “lack ofleadership” by their management is a source of major concern and limits their careeropportunities.A: In the book, The Essays of Warren Buffett: Lessons for Corporate America, he warnsagainst the “institutional imperative”. It is a pervasive force in which institutionaldynamics produce resistance to change, absorption of available corporate funds and areflexive approval of sub-optimal chief executive strategies by subordinates.Contrary to what is often taught in business and law schools, this powerful force ofteninterferes with rational business decision-making.The ultimate result of the “institutional imperative” is a follow-the-pack mentalityproducing industry imitators, not industry leaders – what Buffett calls a “lemming-likeapproach to business”.
If the “leaders” are not leading, step up and fill the void. Perhaps this is easier said thandone, but if you simply continue to follow the herd on a road to nowhere, expect to landup in Foolsville.Q: Contracting and procurement tend to be tactical and transactional. This situation – beit reality or perception – inevitably limits the value placed on the function by executivemanagement, hence its influence and status. This inevitably limits career opportunity, thequality of people attracted and also creates threats to the question of whether this shouldbe a “retained” or “core” activity.A: If these functions simply automated their respective transactional processes, theywould have more time to focus on more strategic value-adding activities providingexecutive management with ample evidence of the importance of their role and would, inall likelihood, attain greater status, budget and attract better talent.Being stuck in transactional fire-fighting simply leads one all the quicker down the roadto an outsourcing hub like India.Q: Finally, you understand the community that IACCM represents (contract andcommercial management community). Would you recommend this field to youngerpeople? Does it offer interesting job opportunities and a potential career path for leadersof 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 orbreak 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 ourcommunity is well positioned to play a leading role in this successful positioning of theorganisation and the building of these relationships.2) If our community does not stand up to be counted, then expect to be left on thesidelines...............................................................¹ See: Protecting Your Company’s Corporate Reputation – CLASA, Incorporate, Summer 2008, Vol3 No4 ² See: The Legal Adviser’s Role in Protecting the Company’s Reputation – andManaging their Personal Reputational Risk, Tim Cummins http://www.clasa.co.za/-index.php?subid=120-259³ See: Contract Lifecycle Management (CLM): Hitting the Mark with CentralisedManagement, Aberdeen Research Brief, December 16 2008, William Browning