What really makes the difference between failure and success in contract management? By laying the right commercial foundations, we position ourselves to get the best benefit possible from the opportunities any contract presents – whether we are buyer or seller.
The commercial part of that includes contracting with the right counterparty from the beginning of the process e.g. using Porter’s Five Forces1 analysis. I think it is a simple but powerful tool for understanding the competitiveness of your business environment and for identifying your strategy's potential profitability.
And this becomes especially useful, because, when you understand the forces in your environment or industry that can affect your profitability, you'll be able to adjust your strategy accordingly. For example, you could take fair advantage of a strong position or improve a weak one and avoid taking wrong steps in future.”2
So the strategy for a great contract or commercial manager includes:
- having the right remuneration-reward strategy;
- getting the financials or economics right;
- having coinciding commercial interests – often described as a “win-win” ethos; and
- having a thorough understanding of the subject matter of the contract itself.
This non-exhaustive list makes an obvious point: if the commercial fundamentals are wrong, then any contract will probably be wrong as well. A contract manager cannot make a “silk purse” out of a commercial “sow’s ear”!
A sound contract accounts for economics, technical performance, competitive rivalry and opportunities within our business sector. An effective contracting process also considers a clear method or path for “mobilization” so parties to the contract know when and how to actually start the process to initiate the contract in a visible, controlled and energized manner. So far, so logical.
But what about you, the titular contract manager? Just who are you? And what qualities do you need to bring to the job?
Plainly we are not looking for superman or super-woman in terms of the manager appointed to handle specific contracts. Some employees will be assigned a contract on an ad-hoc basis. They handle, generally speaking, lower value or lower ‘materiality’ contracts, not contracts that might sink the firm if they go wrong.
Other employees may be appointed to higher level management tasks that absorb a larger part of their daily activities. Still others will be virtually full-time contract managers, perhaps handling one, or a few, major contracts on behalf of their employer. They typically manage strategic contracts associated with major outsourcing tasks of critical importance to day-to-day operations and are sometimes called “vendor managers”-- meaning their primary role is to manage a specific supplier (“vendor”) on a major outsourcing.
It is critically important that people know what is expected of them and have appropriate financial and/or legal delegations and training. Some roles require a genuine level of personal gravitas, as they interact with powerful suppliers or customers who are well aware of their own bargaining strength and the overarching business context.
Other roles could involve a relatively junior person appointed as contract manager. Many employers believe a temporary period in this role is an excellent way to bring on and develop a commercial employee.
But, does a perfect mind-set or skill-set exist that guarantees consistent and successful contract manager performance?
Plainly a contract manager must be moderately intelligent and mature! In some roles, reasonable “technical” knowledge of the subject matter will be a prerequisite. For example, a manager with responsibility for a major payroll outsourcing task in a large firm would probably have past experience of human resources (HR) and associated hands-on payroll activity. Indeed such a contract manager might well report-in to the HR Director and be a part of the HR team.
The figure above highlights the various skills of a topflight contract manager. In adjudication a manager will from time to time have to make judgment calls and be regarded as their company’s decision point on certain contract issues. As an arbitrator, a contract manager must keep various stakeholders focused on the right objectives. If “zero sum game” tensions exist between diverse stakeholders, then the contract manager may be the “obvious” person to make an initial assessment and even to adjudicate on the subject dividing them. That, in turn, requires mature diplomacy skills. The juggler aspect reflects the reality that any sizeable, strategic contract will have multiple stakeholders, work-streams, communications, meetings, decision points and so on.
All this detail must be managed – or ‘juggled’! Inevitably, to a greater or lesser extent, the contract manager is also the contract accountant, keeping a weather eye on the flow of money, both in and out. Lastly, he or she will be considered the contract expert – the person who both knows the minutia of the written terms, as well as how things pan-out on a day to day basis.
My purpose here is not to advise organizations how they identify and appoint contract managers. Readers will form their own opinions as to the sort of skill sets and personal attributes required for their own business sector.
I would however observe this: I believe most people have a personal core style and adaptive style – a factor known well to industrial psychologists. Core style, as its name suggests, is what lies at the heart of an employee – what really makes them “tick” It is a product of many factors, including:
- beliefs, attitudes and values
- education and upbringing
- national culture
- role or function (marketing, procurement, engineering, personnel etc)
- past work experience
Our overall “style” as a contract manager can be thought of as the way we “come across” and the impression we make, as well as the way we typically react in any given situation. Generally style consists of two components: a “core” style which is the larger part (about 80%) and an “adaptive” style which is the lesser (about 20%), and which we can manage in the short run to cope with particular situations.
These ideas are sometimes explored in the art and science of negotiation techniques requiring a thorough self awareness plus an ability to assess the core style of our negotiating counterparty. It is a valuable technique, enabling us to anticipate personality-driven moves by the counterparty. The same lesson applies to contract management, where any contract manager will have personal core and adaptive styles, whether or not they are consciously aware of them.
The four personality “styles” in business management have been argued as:
- warm – empathetic
- tough -- objective
- numbers – focus on detail
- dealer – give, take, spot, seek benefit
The basic idea is that everyone has a dominant core and a prominent adaptive style. Each style entails typical strengths and weaknesses, so we need to be aware of our own style, play to our strengths, and allow for known weaknesses.
A person with any of the core “styles” above should be a competent contract manager. At the same time I do believe that the core style of “numbers” (a focus on and respect for detail) and an adaptive style of “dealer” (a willingness to give and take, and to spot and exploit opportunities), combine to make a particularly strong candidate.
“Tough” and “warm” core styles are pretty much mutually exclusive, but any good contract manager should be empathetic and able to see other points of view. In the same way, being a people-type person helps to get the best out of teams.
If readers want to delve more deeply into negotiating styles then a public article from specialist Andrew Gottschalk may be a useful next step.2
Questions to consider
Reader – do you have a clear idea of your own core and adaptive styles? Can you recognize these traits in other people?
Senior Mangers – do you try to take into account peoples’ personality traits as you identify and empower contract managers?
Reader – in terms of contract manager roles as suggested in the schematic, where are your strengths? As important, where are you weaker and what can you do to firm up your skill sets?
ABOUT THE AUTHOR
Peter Sammons is a director at Buy Research Limited, a Cambridge UK-based procurement consultancy. He is a regular trainer with Procurement Central, a London based specialist in strategic and tactical purchasing skills transfer. The author of many books available online, Peter published Contact Management, Core Business Competence in 2017. The preview of this work may be found here.
- Porter’s Five Forces analysis. See also related article titled Understanding Competitive Forces to Maximize Profitability.
- Business Development & Licensing Journal, Andrew Gottschalk