With the growing importance of “commercial excellence,” contract and commercial professionals are increasingly challenged to make decisions that impact both the top and bottom lines - often without the luxury of time and most likely without a complete picture. So what can we do to grow our judgment and decision-making skills, and increase our personal effectiveness?
Their judgment goes straight to the weakest point
Stop for a moment and think about someone you consider a role model in your business, someone whose business judgment you value. It's possible you've presented proposals to them, perhaps looking for approval to bid.
You know the scenario: you've been working on an opportunity and you take it to them for review. You explain the opportunity to them, and then, without fail their first question zeroes in on a specific area: the pricing; the risk; and the scope. Whichever it is, they will have hit on the weakest point in even the most robust of solutions.
How do they do it?
Those with a reputation for good business judgment can quickly take a given scenario, understand and assess its strengths and weaknesses and build it out to predict the most likely outcomes. It may seem as if they make those decisions intuitively but to inform their assessment they'll be drawing on their own considerable library of experience, benchmarks, and comparators.1 And where they don't have a direct comparator they're adept at making linkages and translating from other independent points of reference. So it pays to create our own “library of comparators,” solid information we can use when we need to make a quick judgment call.
Preparation key when time is tight
We are well used to the concept of benchmarking as a resourced task at project or organization level.1 Over time companies and sectors build up their own banks of “should cost” and other data to support project estimating and negotiation strategies, though these are not normally published. These typically support analysis of what a product should cost based on materials, labor, overhead, and profit margin. But unlike the project level process, where there's usually time to identify and use our benchmarks and comparators, in situations where we need to draw on our commercial awareness we often have to make our decisions or judgment calls much more quickly. Even with incomplete information, with preparation and practice, our own personal library of comparators and experience will enable us to demonstrate early insight, predict a likely outcome, make a judgment and take action.
Comparators that tell a different story
The smart use of performance metrics is increasingly being seen as a vital source of useful and telling insights to support individual commercial awareness and decision making. These comparators extend beyond the “standard” consideration of price/cost and reflect other key dimensions of commercial excellence such as timescales and risk, for example:
- multiplier on an employee's salary to calculate the approximate true cost of employment;
- market rate for a particular service or product;
- percent (%) contingency required on a particular risk profile or offering; and
- how long it's likely to take a skilled person to perform a particular task at maturity versus at first attempt of a new task.
The types of indicators most useful to you will depend on your sector, however other productive sources include standards set by regulation such as working hours, or health and safety minimum standards - most of which are in the public domain. Also interesting are non-standard and individual level comparators drawn from formalized experience and "rules of thumb" which can also be useful, although informal and personal. The US Department of Labor and Commerce have made bureaus of statistics available to the public. These are common sources for basic research. Other countries have similar arrangements.2
Keep adding to your library and experience
In addition to more formal research methods and publically available sources of data - such as those that help us understand market dynamics - informal approaches are also available that can help us to develop our library of information and insights. For example, you could do any or all of the following:
- Leverage your role models and use them as mentors. Ask them how they identify any “rules of thumb” they use. Are these based on past experience, or are they drawing on some other wider understanding of potential impact?
- Continuously test yourself and your assumptions. We live in a data rich world, surrounded by data and information graphics, yet how much just passes us by?
- Consciously look for and capture comparators: create time and space to read, research, and investigate, whether on or offline, or through journals and newspapers.
- Exploit your networks: professional associations are great sources of research, benchmarks and knowledge. Do you know, for example, the average value leakage due to contract management issues that exists for your sector?
We are judged by our decisions
We often look to technology and automation as the panacea for many of the challenges we face in contract and commercial management, and yes these are important to help drive efficiency and support decision making. But increasingly, the C-suite is looking for us to support growth - both to the bottom line, by understanding and mitigating the causes of value leakage, and to the top line by being key enablers to new opportunities. Key to achieving both is to do as much as we can to enhance our contribution to commercial excellence, our decision-making skills and commercial judgment. So often our ability and performance is measured not on the quality of reports or presentations we produce, but on the quality of the decisions we make and our judgment. If we are truly going to excel as professionals we need to do all we can to develop and maintain our library of comparators, and learn to extrapolate and use them to fit the situations we face daily.
DEFINITION and END NOTE
- Benchmarking is the process of comparing one's business processes and performance metrics to industry bests or best practices from other companies. Comparators typically include quality, time and cost. To identify best practices management may use metrics to identify the best performing organizations in their industry, or another where similar processes exist. They then compare results and processes of those studied (the "targets") to their own results and processes. Scientific measurement methods determine how well the targets perform and why certain practices perform well.
- Publicly available information includes for example: Bureau of Economic Analysis (US Department of Commerce)
ABOUT THE AUTHOR
Adrian Furner has over 25 years' experience in the area of complex commercial transactions through innovative business models. Having worked in a variety of sectors including defense and security, aviation, and technology, he is Founding Partner of Kommercialize, an organization focused on the architecting of new business models.