Contract & Commercial Management: An Increasing Role In The Global Economy

Courtesy of the ICCAM: October 2010

According to this year's IBM CEO Survey, the growth of 'interdependencies and interconnections' lies at the heart of increasing global complexity. CEOs are anxious to improve the quality of risk management, to reduce rules and bureaucracy and to become better at managing customer relationships. Quite clearly, customers, suppliers and routes to market are foremost in these interdependencies and interconnections. The issues of complexity go far beyond the historic need to build strong external relationships, because increasingly they span geographic borders, languages, jurisdictions and cultures. They are further impacted by the speed of change and the underlying uncertainties of a volatile and unpredictable economy, both domestic and international. Executives need tools and resources that will assist them in managing this complex new environment. In particular they need methods that can reconcile stakeholder interests and maintain the alignment of relationships (or deal with the consequences of misalignment).

This is where contracting and commercial management must play an ever-increasing role. At their best, they not only safeguard transactional integrity, but they also offer a disciplined and structured approach to exploring opportunities and investigating needs and capabilities. Through formal documentation, they ensure a record of commitment and a platform for the management of change. One of the few certainties in today's business relationships is that circumstances will change during the lifetime of a contract - and those changes will place poorly managed relationships under tremendous stress.

However, it is also clear that in order to address this changing business need, the contracts community must tackle some fundamental issues to make their work and their output 'fit for purpose'. Amongst these is the need to become more focused on business and market intelligence; to create a stronger link between risk management and economics; and to reshape the way that contracts are worded and structured, to make them useful instruments for communication and business management. These issues raise fundamental questions over aspects of today's business organization. One is the extent to which those in 'the business' can be provided with the skills and tools needed to be better commercial managers. The other is to determine the role of the lawyer and the approach to law in a global economy. IACCM is of course not alone in raising those questions.

That is why IACCM is finding a dramatic growth in interest in this field of expertise. The requests for us to speak with management groups or at international conferences has reached a new level. In the last four weeks, IACCM has presented in forums in China, Singapore, France, Denmark, Germany and the Netherlands, as well as multiple sessions in the US and the UK. In the next four weeks, Canada, Brazil, Turkey, Belgium and Sweden will be added to the list. Countries that traditionally operated with very different (and non-contractual) approaches to relationship management have awakened to the benefits that contract management can offer. As one CEO recently observed: "Dealing as we are with so many different languages and cultures, the room for misunderstanding is simply too great. We need a control process and a communication method - and that is what we have found the contract can do for us".

In this new world, contracting is more than just a control and compliance instrument. The process has always been about ensuring needs are recorded and commitments aligned (and not overstated). However, today's contracts and commercial process also needs to be more proactive in recognizing needs. That means growing attention to market trends and intelligence, so that policies, practices and procedures are under continuous review for possible improvement. Indeed, it is through this method that the contracts and commercial community will respond to the needs of the CEO to "improve the quality of risk management, reduce rules and bureaucracy and become better at managing customer relationships".

This edition of Contracting Excellence illustrates some of these points, with articles that highlight the role and extent of market intelligence and the alignment of law and economics. But perhaps most important, the increasingly global nature of contract and commercial management is emphasized by the two articles contributed by IACCM members in India, part of a rapidly growing membership group that is remarkable for its enthusiasm to learn and to establish 'best practice'.

The original article can be read by clicking here