10 Quotes for successful Procurement and Contract Management

Isaac Newton famously said “If I have seen further it is by standing on ye sholders of Giants”.

Procurement and Contract Management (P&CM) may not be as complicated as universal Physics but they equally can benefit from the wisdom of great thinkers.

A well crafted quote, very much like good storytelling, can elucidate fuzzy concepts.

There are many great quotes that seem to crystalise what best P&CM practices look like, however, some of them keep on coming up during our conversations.

Below is a selection of the ones I think are the most valuable in illuminating what good Procurement and Contract Management is.

1. “All models are wrong but some of them are useful” – George Box (Statistician)

I love this quote. There are times you hear about certain models or fads been promoted as panacea to everything. George Box reminds us that there is not one solution for all problems but that we need to take into account the exact requirements and specifications in its case and then, consider the best model to use so we can reach the optimum solution. You can read more about this here.

2. “‘People will forget what you said, people will forget what you did. But people will never forget how you made them feel”- Maya Angelou (Writer)

Emotional Intelligence is a key for successful P & CM as it is a key to successful negotiations (read more about negotiations here and here).

Because of the nature of our profession we sometimes find that P & CM professionals are task focused and/or mathematically inclined.

For those of us who fit this behavioural style, we just need to be aware and conscious of the limitations of our behavioural style and consciously pursue to fulfil the emotional aspect that is inherent to the P&CM interactions. Stakeholder Engagement and the building of Trust depends on it.

3. “We cannot solve our problems with the same thinking we used when we created them”- Albert Einstein

Creativity is a key component of successful P & CM. Our world is becoming more and more complex. The challenges our profession faces follow this trend. Unless we continuously challenge ourselves to think outside the box and to learn and embrace best practices, we face the possibility of been beaten by the competition.

Effectively, “You cannot solve today’s problems with yesterday’s thinking”.

4. “Opportunity arises for the prepared mind” -Louis Pasteur (chemist and microbiologist)

This quote goes hand in hand with Einstein’s quote above.

You should always keep an open mind so that you can identify opportunities as they arise. Do not presuppose that your solutions are the best. On the contrary, let your stakeholders express their ideas freely and assess them on merit.

Especially, for categories that are reliant on innovation, it is crucial to seek variant quotes and assess the responses with an open mind.

5. “A journey of a thousand miles begins with a single step” – Lao Tzu (Philosopher)

Nowadays, considering the optimum modus operandi for an P & CM team, there is a great deal of change to be done in most organisations. This is evident by the amount of organisations that are reported to engage in Procurement transformations. I predict that, in the near future, Contract Management transformations will also gain momentum.

Moreover, even if P&CM teams do achieve to perfect their modus operandi based on today’s standards and best practices, there will always be future opportunities for improvement. So, the journey is bound to start again.

As such, when you embark on a transformation journey, to consider at the same time all aspects that need to be transformed will be overwhelming.

So, pick one, change it and then proceed to the next. Not before long the accumulated benefits become substantial.

6 “Failing to prepare is, generally speaking, preparing very well to do the wrong thing”- Sam Harris (Neuroscientist)

There are a variety of situations in our profession where this quote holds true.

Successful P&CM heavily depends on successful stakeholder engagement and effective project management.

Focusing on preparation e.g. of the strategies, the alternatives and evaluating the desired outcomes means that the final result will not be random but the best possible.

7. “The beginning of wisdom is to define” – Aristotle (Philosopher)

It is evident that a great deal of the issues relating to disputes in negotiations and contracts is due to misunderstandings e.g. what the scope is, what the quality standards are etc.

It is thus, absolutely necessary that the Contracts, SLAs, RFPs etc contain definitions or glossaries.

As an example, take the common used term – SLA (Service Level Agreement). For some, this means the whole contract, for others it means only the KPIs. There are also interpretations that attribute the term SLA, not to the KPIs but, to the “Statement of Work, Scope and Definitions”, and so on.

8. “What gets measured, gets managed” – Peter Drucker

Think of a contract without KPIs and a similar one with well defined, tracked and acted upon KPIs. It is quite apparent that the latter has the better chances of working well.

It feels that the amount of attention a Customer pays to define the expectations and manage the contracts resembles the amount of attention the Supplier will invest in return.

So, taking the time to agree on the measurements and then act upon them means that, the quality remains a focus and the contract will be more easily managed.

9. “Simplicity is the ultimate sophistication” – Leonardo da Vinci

We have all come across contracts that are pestered with errors or are poorly written e.g. they contain long confusing sentences and overcomplicated verbose paragraphs.

Spending time on enhancing the clarity of the contract will ensure that there is no ambiguity for the Contract Manager to later follow up on.

Considering the amount of contracts and workload for P&CM nowadays means that it is essential to have contracts with simple style, form, ideally short in length, and with clear and lucid meanings. This will ensure that the contract will be understood, followed upon and eventually be a success.

Blaise Pascal made this point quite well. He, almost apologetically, wrote at the end of a very long letter.

‘Sorry for the length of my letter. If I had more time I would have written a shorter letter’. Blaise Pascal (paraphrasing from the original)

10. “One standard is worth a thousand committee meetings” – Dale Dauten

Nowadays, there are countless hours lost in meetings that reach no outcomes.

Forming a standard, e.g. a KPI or a process means that, there is clarity is what the benchmark is. Hence, people are focused and meetings have clear targets they need to arrive at. Having standards means that the ambiguity is removed and everyone is working towards the same well defined target.

These quotes are a selection from a wide variety of very useful thinking out there.

What are your favourite quotes that guide your behaviours at work?

This post first appeared on the The Source e-news February 2014. Press below to read it there

10 Inspirational Quotes for Successful Procurement and Contract Management

 

5 Approaches to a Negotiation – (Negotiations and everyday life)

The ability to negotiate effectively is one of the key skills to have in life.

Do you have a practical model to think about a negotiation? Something that will work at a fruit market as well as a high status negotiation table.

Read on if you want to find out about a model I have found extremely useful and easy to explain to my 9 year old, as well as, esteemed colleagues and can be used as an additional framework for any occasion.

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WHAT IS YOUR PREFERRED STYLE?

Before you read about this particular model check the below case study and choose your 2 preferred responses.

This will provide an indicator to your preferred negotiation style.

CASE STUDY

You hire a component for a particular gadget and the contract is up for renewal. Your supplier, who you have used for a while has good service quality but not excellent. Your company is expanding with the requirement for this component increasing by 30%, and therefore are looking for a reduction in the price. You would settle for no price increase; your boss would be satisfied if an increase was held to 2 per cent. Your supplier’s first offer, taking into account the increased volume, is at the same unit price as last year. How do you respond?

Potential Responses

  1. Accept the offer
  2. Explain you were looking for a 10% reduction, ask to be met halfway, i.e. a 5% reduction in the unit price
  3. Explain that you should also be looking elsewhere as a matter of company policy
  4. Stress the 30% increase in business you have to offer and the fact that the basic cost of the equipment has fallen, due to improvements in technology
  5. Suggest improved payment terms and a longer contract period in exchange for a better offer.
  6. Show appreciation for the offer that has been made and mention the ‘bad time’ users have given you over servicing

Now, spend a minute to consider your answers. Remember choose only two of the above six choices.

Ready. Well done! Let’s move on.

THE MODEL

Categorisation is essential for it is the way to frame and really understand how things work. In this model, the negotiation approaches are split in the below general categories (the #numbering corresponds to the above suggested responses):

  • Logic #4
  • Threat #3
  • Emotion #6
  • Compromise #2
  • Bargaining #5
  • and then there is Acceptance #1 but then this is not really a negotiation (if Acceptance is the first response).

So, which were your preferred responses?

Your choices are an indicator of what is your instinctive preferred style is.

What you choose to use at every negotiation should be quite different and should dependent on the context, the relationship, the required outcome etc.

Using one behavioural style at every negotiation despite the different power dynamics and the different preferred outcomes is not wise as this would not enhance the potential for maximising the value of the deal.

For example, as an extreme case, imagine you have decided upon a collaborative approach for R&D (mutual product development) with a supplier but your natural style is to Threaten (#3). Well, this is not an approach that builds bridges towards greater collaboration.

WAYS TO USE THE MODEL AND BE EFFECTIVE AT A NEGOTIATION

1. Know what you naturally prefer (in this CIPS white paper there is a test that more accurately measures your negotiation style)

2. Pay attention on what is the preferred method from the other side.

An easy way to do this is to identify key themes. Notice again the above 6 responses and compare them for key differences.

3. Get on your team people with natural talent at different negotiation style.

4. Prepare, Prepare, Prepare. Prepare on what style and arguments you should use. Prepare for what naturally you would expect from the other party. Prepare BATNA, WATNA etc

FURTHER USEFUL READING

Previous Blog posts about Negotiations:

  • Definition on what the term negotiation really means (here).
  • The first step towards an effective negotiation (here).
  • A useful guide to identify and avoid bad reasoning in a Logical argument (here).
    A checklist on prerequisites for an effective negotiation (here)

Great Books

  1. Clive Rich- The Yes Book
  2. Robert Cialdini – Influence
  3. Roger Fisher & William Ury – Getting to Yes

 

 

 

 

[Image courtesy of Andalousia / www.morguefile.com]

The Iron Triangle – A great tool for successful Procurement and Contract Management

How do you distinguish if you pay too much? What are the elements you need to have in mind when putting together a deal?

There may be a lot of books and literature that describes this point. Nothing I have found though, makes this clearer than the concept of the Iron Triangle.

The Iron Triangle was part of a presentation by Sara Cullen at an IACCM workshop in Melbourne last year (you can find this concept in her book Outsourcing: All you need to know).

After hearing about this concept, I found that I was using it in discussions with colleagues more and more and that it was very useful to clarify situations and issues.

So, I thought I’d share it with you along with some tips on how to avoid been caught in what is called the “Winner’s Curse”.

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THE EXAMPLE

Sara, in her book, mentions the example of a retailer’s IT department (the Customer) who chose to go to tender for the data centre operations placing big emphasis on the price, on the belief that the services and the providers themselves were undifferentiated. So, the lowest bid (30% below the second lowest) won the tender. Value for money was not assessed or thought it was of importance.

Very quickly in the deal though, scope and price variations became the norm. KPIs were not achieved as these had been set up as targets and not as minimum standards and the Customer had not dedicated time to develop an SLA that was customised to the Customer’s needs.

Additionally, the Customer had now to dedicate a full resource to variation management. Demand peaks had not been accounted for within the tender price and so, even more resources had to be acquired. The story goes on.

So, as you can appreciate the total cost of this contract was very high. Actually, Sara reports that it was higher than the highest bid and the Customer was constantly preoccupied with fighting fires rather than adding value.

This a typical case of what is called the Winner’s Curse.

THE IRON TRIANGLE AND THE WINNER’S CURSE

To better understand what happened, we have to look at the concept of the Iron Triangle (picture above).

The Iron Triangle reflects the basic three elements of a successful deal. These are:

  1. Scope – what the products / services are.
  2. Performance (Quality) – what standards are required for the products / services
  3. Price – what price will be paid for the products / services

Focusing on the Price levels for now, this concept depicts three different price levels with the analogous levels of Scope and Performance (Quality).

1. The Winner’s Curse – This is the price a bidder will bid in order to win a tender. (P1)

2. Price to do – This is the price required to do the job including a reasonable margin (P2)

3. Price to act in Customer’s favor – The highest bid of all which corresponds to the highest quality and scope (considered in Customer’s favor) (P3).

In the above example, what the IT department (the Customer) failed to understand is, that selecting the vendors based on the P1 price level (the Winner’s Curse) means that the Provider needed to cut corners to recover its cost and potentially make a margin.

On the other hand, the expectation the Customer has in terms of Performance (Quality) and Scope usually resembles the corners of the Triangle corresponding to price level P3.

This means that the eventual triangle the Customer would require consists of the highest Quality and Scope levels but the lowest price. This results in a skewed triangle and is unsustainable.

Hence, what ensued the deal in the above example was the breakdown of the relationship and the spiraling of costs.

So, reflecting on the Iron Triangle, sourcing should be a search for the best value for money deal, taking into account the Scope, the Performance and the Price from the start.

TIPS TO AVOID BEEN CAUGHT IN THE WINNER’S CURSE

So, what are some tips to avoid been caught in the Winner’s Curse?

  • Be informed about what you want (specifications), how you want it delivered (quality), what value-additions are required (if any).
  •  Be in the know, from a Total Cost of Ownership (TCO) perspective e.g. estimate the transition costs for changing suppliers (should you want to add them in the mix) etc
  • A deal made must include clarity around these three items Scope, Quality and Price. Be sure to cover all of those from the start.
  • Have a variation process agreed.
  • Have an exit strategy should things go wrong.
  • Know the triangle you are in at every deal and prepare for any shortcomings if in fact you are forced to go for a winner’s curse.

Do you know what triangle you were part of the last time you did a deal?

Image courtesy of Sara Cullen / www.whiteplumepublishing.com

4 techniques to help you get over the “Perfection Syndrome”

“Don’t let perfect be the enemy of the good” – Mark and Mike (Manager Tools).

How many times have you hesitated to ship a project, verbalise an idea, start on a venture, make a phone call because you considered your preparation to be less than perfect?

This is a very common situation I like to call the Perfection Syndrome. It can be quite debilitating as it does not allow individuals and teams to be creative and effective in the workplace to their full potential.

Read this post if you want to find out 4 techniques that can make these dilemmas go away and put your mind at ease so you can press send, speak up or make a first step next time.

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TECHNIQUES FOR OVERCOMING THE PERFECTION SYNDROME

Let’s look at the four such techniques:

1. Treat everything as a DRAFT and declare them as such.

Simply watermark DRAFT as the background or mention it when you are presenting.

This simple technique communicates the fact that you are open to ideas and feedback and allows you to

i) start the conversation with those around you

ii) create the perfect environment for collaboration.

Now, the pressure is off as Drafts are meant to be imperfect and everyone understands this.

2. Have the important stuff CURATED.

Simply have another set of eyes go through the detail to pick any errors or enhance the presentation, content, style etc.

As an example, in our team we are using each other as an Email Curator. This means that, especially when the stakes are high, emails are scanned for content, purpose, readability by the writer and another team member.

In this way everyone has a better idea of what everyone else is working on and as a result of this process the important emails or projects look and feel much more professional upon submission.

3. Make a list of different versions of things that you previously considered good enough or “perfect” and use them selectively in the future.

For example, if you perceive contracts as jigsaw puzzles where the best elements for each need to be combined and fit for purpose, then having available variations of clauses or Ideas (variations that have been audited, approved and used previously), then you will be never “lost for words”.

These variations provide options so each Contract is fit for purpose.

The alternative would be to use a standardised template which will most likely NOT be the best fit for the purpose and confine our thinking. This is because the scope, quality, governance etc you aim for with each vendor is different.

Don’t get me wrong, some elements of a Contract can certainly be templated (e.g. Legal section including Insurance, Formal Disputes Resolution etc) but others are better not (e.g. SLAs, Governance, Relationship, Work Practices).

An even worse alternative to using a rigid standardised template would be to start each time from a blank page. This is simply counter-productive.

4. Have a Checklist to ensure everything gets covered.

For example, each contract should cover some key minimum sections e.g. the 3Ps – Parties, Price and Product and then a variety of others (e.g. SLA, Governance, Termination, Work Practices, Code of Conduct etc).

Having a checklist ensures that all aspects that need to be covered or discussed are covered one way or another.

These are just 4 techniques you can use as enablers to get over the “Perfection Syndrome”.

Do you use any others?

 

[Image courtesy of jpkwitter / http://mrg.bz/Y18YBz]