Good governance is key in tendersGregg BarrettGOVERNANCE in procurement can be complicated at the best of times. A colleague ofmine, Tim Cummins, chief executive of IACCM, was re cently asked what governance inprocurement was about.His response was: “Is governance in procurement being referred to in terms of functionaloversight and controls or process oversight and controls?“The two are very different because many procurement groups do not have accountabilityfor the entire process. In many companies, it is unclear what constitutes ‘the procurementprocess’. Cummins said “best-practice organisations are those that have defined to process andwhere governance does not mean control, but does mean transparency and a defined pointof accountability”.The topic “governance in procurement” not only must ensure value from relationships, itmust also monitor performance in areas like ethics, innovation and integrity.How this is achieved will vary, but it raises challenges and questions regarding skills andinformation systems, demanding new metrics and a quality of procurement leadershipthat is often lacking today.Critical is that organisations need to define and implement a comprehensive andstructured Governance, Risk Management and Compliance (GRC) model that isconsistent with the organisations’ strategy and risk management objectives and properlyaligns people, process and technology capabilities.In the US and the UK, while politicians argue over the need for new regulations andcontrols on bonuses and pay, top global corporations continue to steer their own path toenhance governance. They understand the need to balance risk and opportunity, ensuringthe trust of key stakeholders and that making and managing responsible commitments isfundamental to the issue of trust.“As governments worldwide debate regulatory responses to the banking and credit crisis,they should consider the extent to which contracting policies and practices represent akey line of defence for corporate behaviour and ethics,” says Cummins.Contracts are a primary vehicle through which companies identify and defineopportunities and manage risk. In a complex, networked world, many believe the qualityof contract management has become a key indicator of a company’s performance andintegrity.Today’s contract management techniques stretch far beyond the largely administrativetasks of the past. Leaders in this area understand its critical role in relationship andcorporate governance.The IACCM recently released the results of its study of the 25 Most Admired Companiesin post-award contract management. It showed that leading organisations understand that
every transaction undertaken entails some level of risk and that it is prudent to protectagainst this risk.But the challenge is to decide what level of protection is necessary. At what point doesprotection turn to unwarranted caution, causing us to lose healthy and profitablebusiness?The contracting process provides a framework for regulatory compliance, reputationalrisk management and effective change control and offering a source for added value andinnovation. Top companies realise that added value goes much further than simple pricecuts or cost reduction.For leading organisations, the issue is of probability, consequence and outcome that arefundamental to good risk management. Today’s speed of change and market volatilitywith the dramatic shift in areas like reputational risk, have generated a sensitivity to riskthat encourages increased review and approval, more governance and potentialregulation.The real point is that we must learn to adapt our attitudes and systems to cope with thenew world. So we need to adjust and develop innovative risk management techniques thatequip us for the future, rather than the past.The techniques that were revealed at the recent IACCM EMEA Conference in London,revealed that a better use of technology was a key element.Networked technology lies at the root of this new world so it must also be part of theanswer. Specialist applications are part of the solution, but as important is the need tofocus on more holistic and integrated systems . These must be further supplemented bypowerful analytical tools. A new risk regime demands collaboration across specialistgroups which means management must support (or demand) a new shared servicedelivery system. Specialists must adopt a common language and tools that span the lengthand breadth of the entire organisation, to make the risk process seamless.There also need to be clear goals and a shared sense of purpose which must be based oncorporate strategies and objectives .So “governance in procurement” needs to be aligned and implemented as part of theorganisational GRC framework, where transparency and accountability is defined andembedded as a culture into the underlying business fabric, supporting organisationalefficiency with repeatable and sustainable processes.For success, a GRC framework needs:- A formal communications channel to provide a constant mechanism for generating,transmitting, receiving, storing and acting on information in an environment ofcompliance.- To be viewed as an opportunity to make positive changes throughout the organisation.- As an ongoing process of continuous improvement with a holistic view across theenterprise.- As an investment and a way to improve the overall efficiency and effectiveness ofinternal business processes and ultimately to reduce costs.
- Technology plays an important role in achieving sustained compliance.My thanks to Tim Cummins and the IACCM (www.iaccm.com) for producing thethought-leading content that made this article possible