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Hot Issues, Burning Topics and Scorching Opportunities

“A key trend in 2010 is a growing recognition that contracting is a source of innovation, both in what is offered to the market and what is sought from the supply base. This demands an increased role for market intelligence; contracts professionals (buy-side, sell-side and legal) will be expected to understand the significance and economic value of contract terms and structures.” (Trends in

Contract & Commercial Management, December 2009)

Financial Times, January 6th, 2010

Business open to losses from

risks taken on in slumpUrgent solutions expose companies to

fresh perils

� Weaker supply chains

� Rushed product development

� Lower supervision

� Rush into unfamiliar products and territories

� Increased contract liabilities

� Low-cost outsourcing

� Warning of consequences (policing)

� Managing consequences (reacting)

� Preventing consequences (proactive change)

� Build from the exciting developments in 2009

� Contracting – ‘a core competence’ (Willcocks)

� Contracting – ‘a source of value’(Vitasek/Cohen)

� Contracting – ‘ a cost determinant’(Williamson)

� Contracting – ‘an instrument for cooperation’

(Macneil)

Innovation Focus

Collaboration FocusLong-

term

Large

Low High

Cost

efficiency

Business

improvement

Innovation

for growth Co

pyrig

ht IA

CC

M 20

09

. All rig

hts reserved

.

Pe

rfo

rma

nce

Imp

act

Short-

term

Small

Cost

cutting

Sustained

cost

reduction

From Willcocks & Craig,

‘Collaborating to Innovatë’

Cost efficiency

Contract

Administration

PHASE 1 PHASE 2 PHASE 3 PHASE 4

Contract

Management

Relationship

Management

Collaborative

Innovation

Copyright IACCM 2009. All rights reserved.

Time /

Value

Behavior

Purchase order

Relationship agreementPartnership or alliance

Do it yourself or make an

acquisition

High

High

Low

Negotiated agreement

� New contract models for ‘complex’ projects and relationships

� Growing sophistication in termination and change management provisions

� Drive for industry standard contracts and contracting principles

� More adaptive approaches to contract pricing

� Making collaboration a reality

“One of the key trends must be that the top decision levels in a company are better aware of the great importance contract management has in modern business life. And that contract management truly is a cross-functional and interdisciplinary applied science”. (Rene Henschel, Professor of Law & Economics, Aarhus School of Business)

Financial Times, January 6th, 2011

Business shows dramatic

improvement in managing

risksCommercial innovation overcomes perils

of global markets

Based on research by……

Is there a better way to Contract for Outsourced Services?

“The significant problems we face

cannot be solved at the same level of thinking we were at when we

created them.”

14

15© Kate Vitasek 2009

The Game of Outsourcing


Contracting in Complex Deals is Really Just a Bet


Why Do We Act this Way?

“Morality is what people should do.

Economics is what people do.”


How SHOULD we ACT and CONTRACT

WIIFWE


Win –Win

is

Really

Beautiful!


Adam Smith said: “The best results comes from everyone in the group doing what is best for themselves.

That is incomplete.

The best result will come from everyone in the group doing what is good for himself and the group. It is the only way we all win.”

“Adam Smith was wrong….”


5 Rules of Vested Outsourcing

WIIFWE


1.

Outcome

Based vs.

Transaction

Based

Model


How Healthy is YOUR Outsourcing Agreement?

10 Ailments of Conventional Outsourcing Models

1 Penny Wise and Pound Foolish

2 The Outsourcing Paradox

3 The Activity Trap

4 The Junkyard Dog Factor

5 The Honeymoon Effect

6 Sandbagging

7 The Zero Sum Game

8 Driving Blind Disease

9 Measurement Minutia

10 The Power of Not Doing

Not following the Vested Outsourcing rules typically leads to the following Ailments


Vested Outsourcing Implementation Plan


When to do a VO

Vested approaches should be used when a supplier can help you find the Pony! Don’t go through the effort if there is not high potential and a win for everyone!

HIGHLOW

HIGH

LOW

Pote

ntial Valu

e t

o t

he O

rganiz

ation

Organizational Expertise

Conventional

Outsourcing

CoreActivity

for the

Company

Don’t Outsource

To be driven primarily by

Financial Consideration

The Rule

Outsource Here

Don’t Do

Vested

here!

Vested Outsourcing

Apply Vesting Thinking “When It Makes Sense”Vested Outsourcing Performance Partnerships are a new classification for managing complex outsourcing relationships.

Vested Outsourcing offers a “vested” outsourcing relationship where there is a positive tension backed by “skin in the game” to succeed

However, it’s NOT the more permanent solution found in a strategic alliance

Reward to the Organization

Ris

k /

Ma

rke

t D

iffi

cult

y

Routine

Strategic

Strategic

Alliances

Performance

Partnerships

Preferred

Suppliers

Transactional

Higher R is k

/

Higher R ew ard driv

es

s upplier in

no v atio n

27

© Kate Vitasek 2009

TRU ST


Is there a better way to Contract for Outsourced Services?

“The significant problems we face

cannot be solved at the same level of thinking we were at when we

created them.”

28

From Law to Economicsshifting measurements of success

March 23, 2010

© 2008 Huron Consulting Services Inc. All rights reserved.

Americas 2010 Conference

Discussion Topics

• Legal – Changing workload and role

• Prioritizing the contract portfolio

• How attorneys spend their time – Client Sample

• Defining escalation criteria

• Using business objectives to define measurements

Nancy JessenManaging Director, Legal [email protected]

202-585-6841

Increasing workload and changing roles

32

Cost Discipline and Growing Responsibilities Stretc h Law Departments Thin

Before 2000 2000-2002 2002-Current

Legal Demands

Legal Resources

How to manage the gap?

Reactive Services Proactive Service

Cost-Consciousness

Corporate Responsibility

Need to prioritize the contract portfolio

High

HighLow Impact onCompetitive Advantage

Pot

entia

l Ris

k

Task 1 : Prioritize contract types based on “Value” to the company, considering:

• Potential Risk: The extent to which specific types of contracts can create a negative impact for the company, e.g. financial, regulatory, reputation.

• Impact on Competitive Advantage: The degree to which the type of contracts drives competitive advantage and supports the corporate strategy.

Task 2: Determine legal’s involvement and the level rigor and scrutiny to be established in the approval process based on the value of the contract types the company.

Evaluating how attorney time is spent

34

Need to question if Effort is appropriately aligned with Value based upon the “Value” of the contract type

Value Effort Type of Contract/Work (FTE %)

Higher 27%

• Mergers and Acquisitions (9%)• General Advice and Counsel (6%)• Information Technology (6%)• Special Projects (3%)• Construction (1%)• Co-Manufacturing (1%)• Training to Business Partners (1%)

Medium 68%

• Advertising, Marketing and Promotion (23%)• Non-Disclosure/Confidentiality (13%)• Consulting (11%)• Sales and Distribution (11%)• Supply of Goods and Services (6%)• Real Estate (4%)

Lower 4% • Outside Counsel Management (4%)

CLIENT SAMPLE

>1/3of time

3535

How is attorney time being spent?

Attorneys Paralegals

Dollar ValueCur.

FTE %Cur. FTE

Opt. FTE Diff. FTE

Cur. FTE %

Cur. FTE

Opt. FTE Diff. FTE

< $100K 21% 0.22 0.03 -0.19 61% 0.41 0.43 0.02

$100K < $500K 23% 0.25 0.12 -0.13 32% 0.20 0.22 0.01

$500K - $1 Million 23% 0.25 0.31 0.06 11% 0.07 0.07 -

>$1 Million 32% 0.36 0.16 -0.21 0% - - -

Total 100% 1.09 0.62 -0.47 100% 0.68 0.72 0.04

* FTE based on 1,900 hours.* Total # of Ppl will not equal the sum of the number by type because each person responded to multiple types of work* 26 people entered a % of time for at least one of the Contracts subtypes on the Analysis tab

Almost 50% of Attorney time on low dollar value

contracts

CLIENT SAMPLE

3636

How is attorney time being spent?

Attorneys Paralegals

Type of ContractCur.

FTE %Cur. FTE

Opt. FTE Diff. FTE

Cur. FTE %

Cur. FTE

Opt. FTE Diff. FTE

Non-Routine 53% 0.58 0.50 -0.08 21% 0.14 0.14 0.01

Routine 47% 0.51 0.12 -0.39 79% 0.54 0.58 0.03

Total 100% 1.09 0.62 -0.47 100% 0.68 0.72 0.04

* FTE based on 1,900 hours.* Total # of Ppl will not equal the sum of the number by type because each person responded to multiple types of work* 26 people entered a % of time for at least one of the Contracts subtypes on the Analysis tab

Almost 50% of Attorney time on routine contracts

CLIENT SAMPLE

37

Use of defined escalation criteria to determine involvement of legal resources

SAMPLE CRITERIA FOR LEGAL INVOLVEMENT RESPONSE NEXT STEP

1. Value: Is the contract value greater than $X? No � #2 Yes � Involve Legal

2. Duration: Is the contract duration longer than X months? No � #3 Yes � Involve Legal

3. Customer/Vendor : Is this a new relationship? No � #4 Yes � Involve Legal

4. International: Is this a new geography? No � #5 Yes � Involve Legal

5. Legal Terms : Have high risk legal terms been revised? No � #6 Yes � Involve Legal

6. Potential Liability: Is it higher than normal? No � #7 Yes � Involve Legal

7. Overall Risk to Company: Is it outside normal parameters?

No � #8 Yes � Involve Legal

8. Other: TBD, (e.g., Type of Contract – Enterprise Outsourcing)

No Yes � Involve Legal

38

How is success defined?

Lawyers need to provide legal advice through a business lens …

• Focus on “higher value” work

• Strategic and proactive advice

• Business knowledge and acumen

• Risk identification and management

• Cost management and efficiency

• Consistency of policy and position

• Central hub for enterprise-wide coordination

39

Prioritized business objectives should drive development of operational measurements for the enterprise portfolio

Cost Savings/Revenue Improvement Efficiency Gains

• Streamline internal operations enabling a reduced internal cost

• Leverage centralized resources across all business units to reduce internal headcount

• Increase management of margin & revenue cycle time

• Increase understanding of revenue streams, leakage

• Reduce costs through leveraging full buying-power with suppliers

• Reduce cycle time for contract negotiation process

• Reduce cycle time for contract routing and approvals

• Reduce number of negotiation cycles

• Manage work load distribution and time allocation based upon type, complexity and value of contracts

• Enable business to identify areas offering the greatest potential for improving efficiency

• Maximize operational efficiencies through streamlined contract review process

Quality Improvement Risk Mitigation

• Identification of relevant contracts in centralized repository

• Structured contract approvals based upon defined criteria, e.g. margin, risk, volume and revenue targets

• Increase consistent use of standard business terms

• Full understanding of customer/vendor relationship to drive increased financial benefit

• Provides better management decision making by ensuring accurate data and audit trails of transactions

• Increase understanding and management of contractual obligations

• Required use of standard terms with alerts and notification for use of non-standard legal terms

• Agreed upon and approved revenue recognition approach prior to contract execution

• Greater compliance with approved authority levels for negotiations, amendments, and change orders

• Improved compliance with regulatory requirements

Thank You

Continued discussion …

Roundtable: “Lawyers Behaving Badly”

Rules and processes that improve the management of risk

Thursday, 9:05 am

Nancy JessenManaging Director, Legal [email protected]

202-585-6841

Contract Management &

Relationship Management

Where Do They Intersect?

IACCM Americas 2010

Relational Contracting Changes The Rules

Innovation Focus

Collaboration FocusLong-

term

Large

Low High

Cost

efficiency

Business

improvement

Innovation

for growth Co

pyrig

ht IA

CC

M 2

00

9. A

ll righ

ts rese

rve

d.

Pe

rfo

rma

nce

Imp

act

Short-

term

Small

Cost

cutting

Sustained

cost

reduction

From Willcocks & Craig,

‘Collaborating to Innovatë’

Cost

efficiency

Relationship Management Goals

Copyright © 2010 IACCM. All rights reserved.

Preparing Ourselvesfor Leadership

Paul Mallory 23 March 2010

What matters most?


12

3IACCM survey January 2010

How do we demonstrate our value today?

Fires extinguished! Messes cleared up!

Bids submitted! Deals closed!

Litigation avoided! Risks identified!

Price of supplies reduced! We come when you call!

Problems exposed! The voice of sanity!


CCM-man

Does this approach enable recognition of our value?

� All MD’s/CEO’s are looking for economies

� Focusing on core competence, outsourcing non-core

� Is CCM core?

� Wrong question... Does MD/CEO view CCM as

core?

� The super hero approach may not be compelling for all MD/CEO’s

� And it relies on personalities


Leadership in CCM

� Lack of leadership places CCM groups in peril

� Our teams need leadership to enable the recognition they seek

� Super hero leaders tend to be too operational, too tactical

� The value proposition for CCM is unclear to many MD’s/CEO’s

� Many organisations do not know what CCM is (even though they may be doing parts of the role, in pockets)


What is leadership?


What does this mean for CCM?

� Vision –� What is CCM for? Articulate, explain, sell, get backing

� Based on: data, metrics, research, increased shareholder value

� Challenge the process –� Look beyond the status quo, innovate for greater value

� Enable others to act –� Help our teams to work out how best to achieve the vision

� Encourage the heart –� Give recognition for achievement

� Model the way –� Set standards of excellence, set personal example


Research to Support Leadership Vision

How can IACCM help?

Examples of annual and topical surveys• Commercial Policies & Practices

• World Economic Trends

• Service Industry ‘Ease of doing business’

• Benchmark of Limitation of Liability Terms

• ISO 28000; Your view

• Risk Management

• Top Ten Negotiated terms

• Annual Business Themes Survey

• Annual Talent Survey

• Electronic Signature Adoption

• Business ethics and contracting study


eLearning Curriculum


Summary

� Contracting is increasingly recognised as a core strategic competence for companies

� Our people are hungry for recognition, to feel valued

� The leader’s role is to move us beyond superhero fire-fighting

� Fact-basis of research and measurement of our value is key, as is spreading the word

�We can and must become a strategic core competence of our organisation



Developing the Professional Community

• People development for skills: gap assessment, planning,

and closure through competency development.

• Knowledge Acquisition Strategy Development.

• Professional Associations (e.g. IACCM) Connection of those

trained professionals with a worldwide network of fellow-

practitioners and mentors through the IACCM on-line

community.

• Certifications e.g., addition of key personnel to our

worldwide professional network, spreading greater

understanding and mutual respect across traditional

borders and business cultures.

56



• Progressive Job Assignments.

• Facilitative Mentoring.

• Networks and Communities of Practice

(COPs)/Communities of Interest (COIs)

Websites/ Message Boards e.g., experience

in the use and value to be derived from

networked technologies and collaborative

tools.

57



Networks and Communities Require:

• A Steering Committee

• Regularly scheduled “meetings” – virtual and

traditional

• Defined and value-adding objectives

• International and global scope and/

participation

• Possible sub-teams assigned to focus on issues

and efforts.

58



• Get feedback from the user community on

desirable professional development services.

• Share tasks related to alignment to universities

and business schools (discussions, negotiations,

etc).

• Discuss future models, trends, issues, styles,

means of interaction, user experiences.

• Get users’ ideas, case studies, future

development ideas, and share issues on making

Professional Development (PD) happen/how to

implement for best effect.59



• Discuss whether the formation over time of a

User Forum would be constructive (representing

the mass of users, the point of interface in each

company), discuss possible conference for such

users covering a wide range of training

speakers, issues, ideas).

• Review output from talent and skill surveys and

use as input to strategic direction.

• Consider what survey information is

available/needed to meet Professional

Development.

60



• Conferences/Panel Discussions Training e.g.,

development of a cadre of trained contract

negotiators / contract managers who understand

worldwide practices in procurement and sales

contracting.

• Organizational Communication Support e.g., visible

investment in the skills and knowledge of contracts

and SCM/procurement practitioners in the markets

of the future, assisting in support of ethical

standards and the development of international

trade.

61



Knowledge Management:

• Capture and Retention

• Diffusion of Best Practices

• Invent “Next Practices”

62

Copyright © 2010 Accenture All Rights Reserved. 63Copyright © 2010 Accenture All Rights Reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.

Getting to the Top 10 for Most Admired Companies in Contract Management

Copyright © 2010 Accenture All Rights Reserved. 64

Contributions to the Business

Is your mission and vision clear and focused on business results?

• Measuring your Results: Are you able to demonstrate progress?

• Does your team feel part of the business team or arms-length functional support?

• Value Stories: Are you able to communicate accomplishments without puffery?

– Fact-based– Internally and externally


Internal Support and Sponsorship

How short and strong is your chain to the top?

• Mandate: Is CM required to be an integral part of company business?

• Escalation Path: Do you have one? And what happens if you exercise it?

• Separate Budget: Are you entrusted with financial accountability?


Lines of Authority

What are you held accountable for?

• Authority to influence outcomes: How trusted is your voice?

• Power behind the throne: Do you have delegated authority?


Role Definition

Is your role understood and distinguished from others in the organization?

• Will the Business team work call you first?

• How do you communicate your role and responsibilities?


CM as a Profession

Are your team professionals?

• Sponsorship for Professional Membership: IACCM

• Skills Training: How do you build the talent in your organization to remain business relevant?

– Do you train your own teams or leave it to somebody else?


Consistency of Service

Is a Big Mac a Big Mac?

• Processes: Do you have a playbook?

• Adaptability: Are you responsible for all CM teams in all countries?

– Do you have a plan to adjust to local conditions (e.g., recruitment pool, culture, business maturity, etc.)?

• Evaluation: What are you doing to continually assess and improve your game?


The Right People

It’s all about finding and retaining the right people

• Adaptability: Are you responsible for all CM teams in all countries?

• What is the role of your leadership team?

– Escalation point? – Fixer? – People development? – Is there a visible, attainable career path?

• Staff Rock Stars


Questions?

iaccm - hot issues, burning topics & scorching opportunities

Business

contract pricing

contract commercial

contractwiifwe19 kate

bet17 kate vitasek

contracting principles

management provisions

better way

source of innovation