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Business Thrival Guide 2022: Contracting

by Pascal Baker | 3 mins read

Nearly 8 years ago I stated, during a Public Sector Procurement cycle, “you guys don’t know how to buy innovation”. My statement was seen as a little blunt, but also “not radically off the mark”. Roll the clock forward to 2022 and after a Global Pandemic, the need for organisations to ramp up digital working at pace and with customers being even more choosy about the organisations they engage with, it is still clear that companies don’t understand what digital working is and have even less chance of knowing how to buy it.

My career started 25 years ago in the commodity end of the Semi-conductor market. I got to see first-hand the boom to bust to boom cycle of that industry. It was all about who had what chips with zero lead time and how cheap could you sell them. Undercutting was rife and you could have a terrible quarter followed by the best ever. The game was all about supply chain hedging and making hay when your competitors were producing the wrong products. From a contracting perspective, it was not sophisticated but it certainly taught me that I wanted to be in sectors where value (not price) was integral to customer relationships.

We therefore need to ask ourselves the question of why we still think that buying specialist products and services remains seen as a commodity purchase. Whilst ‘blame’ may be seen as a severe term, I do lay the blame squarely at the feet of two camps:

  1. The Procurement community
  2. The Sales Community

The procurement community is still seen as a necessary function in organisations, rather than a strategic one. Their focus is too often on cost cutting, reducing existing supplier costs or running an RFP (or BAFO) to either scare or replace an incumbent. These processes masquerade as strategic negotiation, as they do encompasses elements beyond price alone (payment terms, payment milestones, SLA’s, Liquidated Damages etc). However, given the punitive nature of all of these elements, all they really introduce is a desire for a supplier to protect itself and manage risk and certainly not to innovate. Innovation takes investment and introduces risk…the very thing that modern contracting forces out.

Outsourcing contracts were famous for the ‘your mess for less’ tagline. The perception being that the providers would deliver work for less cost than their customers had previously and this was seen as a good thing. Quality? What is that? Who cares about that anyway? Outsourcing became a race to the bottom because CPO’s were not tied into the corporate goals and were simply measured on saving money, not growth, not employee experience and certainly not customer experience. Worse still, contracting these deals became 6-12 month workstreams, debating and negotiating risk.  Any hope of innovation was killed off in the first month.

The sales community is equally to blame. The short term (often monthly or quarterly) focus from sales managers, leads to desperation from sales teams and plays into the hands of the tactical purchasing that we see today. It is far harder to be brave, telling a customer that they do not understand what they are buying and how to go about it more effectively. Strategic salespeople are able to do that but are in a real minority. They are seen as ‘maverick deal snobs’ yet are the pioneers for strategic selling.

Working with customers to break their transactional, tactical processes takes audacity, but it is only applicable if you are able to work with a mature client stakeholder that understands strategic change and how it can impact their own business. This is hard to do. It takes time, energy, focus and conviction. It is much easier to play the procurement game and just supply a rate card and hope for the best. The strategic sales community has a responsibility to be stronger in negotiations, to help clients to understand the value of real transformation and to show customers that the agility of innovation can truly be game changing. It will take courage and conviction on both sides of the negotiating table and I have witnessed, that the organisations willing to take a chance on innovation, have seen material benefits. Partners that offer real benefits to their customers must be allowed the opportunity to share in that benefit. It is real conviction selling.  Why would that be discouraged?

How do we overcome this dilemma? The answer is actually far easier than many realise. Hiring curious humans (on both sides of the table) with an eye and excitement for change can fix this. As the new generation of challenger businesses show us, seating innovation squarely at the heart of your business will win clients. You cannot transform your business with outdated procurement practices. To keep buying from the same large global suppliers, will result in the same merry-go-round of disillusionment. In their current form, those firms can easily deploy financial engineering to appear attractive but with the punitive contractual terms that have been signed up to, the risks introduced by innovation will certainly not make the Top 10 of Contract Management. Everyone likes to talk about a change and transformation agenda but without a real Innovation and Change culture across your employees, customers and partners, then any transformation will only ever be surface-deep.

As the great philosopher Rocky Balboa famously told us “if I can change, and you can change, then everybody can change”.

Find out how we can help your business thrive and deliver what we call profound transformation HERE