Wednesday, October 15, 2014

Stabilizing the Power Pendulum

I was privileged this week to spend a few days with several hundred practitioners in the art of commercial contracting.  The IACCM Annual Americas Forum held in Chicago drew participation from hundreds of companies around the world that are committed to innovation and improvement in contracting process, practices, and skills.

I’ve attended several of the IACCM events over the past 15 years – a testament to the commitment and persistence of the IACCM leadership, notably CEO Tim Cummins.  This year’s conference demonstrated the power of collaboration among the professionals who are committed to improving the quality of Buyer-Supplier relationships.
IACCM (International Association for Contract & Commercial Management) is a unique not-for-profit organization that is committed to improving the quality of commercial contracting.  In this day and age of changing forms of contracting, their mission is more important than ever.

I co-presented a session today focused on the techniques used buy procurement organizations and sales professionals to create new sources of value through collaboration.  Jim Bergman of IACCM joined me in this presentation.  We shared our experiences around techniques to move from transactional buying to shared risk, shared investment, and collaborative innovation. 
While collaborative buyer-supplier relationships are clearly not an everyday occurrence, we observed that certain conditions are essential if the parties share a desire to move beyond a commodity transaction.  These include:

·         Foundation of delivery on core commitments and trust
      ·         Transparency and candor
      ·         Shared risk, shared investment
      ·         Strong contractual documentation

Each of us drew upon our experiences on the buy-side and sell-side of commercial contracting.  In particular, I described the shift among enterprises from requirements-driven to offering-derived contracting.  In a world of “as a service” subscriptions, contracting strategies are increasingly informed by the availability of market-defined offerings. It was a fun session that we named “Stabilizing the Power Pendulum”.
We were followed by an enlightening example of the importance of the IACCM mission.  Dr. John Henke of Oakland University and Planning Perspectives shared the results of his research into the bottom-line contribution attributable to strong and positive supplier relationships, with emphasis on the automotive industry.  It was a compelling example of how strong supplier relationships convert to improved profitability.
It was invigorating to be among so many people who are committed to creating value for their firms through techniques of progressive contracting in a changing world.



Tuesday, October 7, 2014

Build versus Subscribe in a Platform World

Among the many attributes that are different in the world of running a business as a platform, one factor gets brought to the table with increasing frequency:  what’s our new investment framework for proprietary capabilities?
Think about it. The Build-versus-Subscribe decision for a business’ operating capabilities previously led to the creation and nurturing of large organizations of technical and business staff to conceive and implement new functions.  I remember one global bank during the Y2K “event” which cataloged its applications and concluded that over 80% of its operating capability was built in-house. This was a common profile.
The coin is flipping.  Most companies cannot afford to maintain large internal, dedicated staff to develop proprietary capabilities.  Further, they know that innovation comes from a “built for purpose” mindset, and that’s a characteristic of organizations that are serving markets, not unique situations. 

Companies are re-defining the decision criteria for investments in proprietary functionality.  Build-versus-Subscribe requires much more foresight than ever before.  I particularly like the vision of one forward-thinking client who uses a nice taxonomy of future-state traits to help inform the decision making around what his company needs to build for itself versus subscribe to a service.
The criteria for investing in the building of applications functionality centers on five fore questions:

ü  There is an absence of this capability available in the market.  Specifically, is there truly no Service available to which we can subscribe to achieve the functionality we need?

ü  The capability provides distinct competitive differentiation.  If not, then the functionality is common to others and we can gain access to it without carrying the burden of full ownership. We may need to prompt the creation of a market offering, but we don’t need to build the capability for ourselves.

ü  A proprietary capability will be distinguishing for our company over the next N years.  The time horizon varies by business circumstance, but this question forces a consideration of the time and cost to develop functionality in a market of fast-paced innovation. Absence of a market capability today might warrant some form of investment that is external rather than to build for oneself.

ü  The characteristics of the “ecosystem” are aligned with our business strategy.  This recognizes that no business functionality operates in isolation and that dependencies surround virtually every technology-enabled business process – whether built or bought/subscribed. If the source of a capability introduces undue risks or conflicts with the architecture or operating principles of the organization, this may be a significant factor in the decision.

ü  We have the opportunity to monetize our investment at a future date.  This is a speculative question, but one which is becoming more common as companies look to commercialize their innovations in a world of apps-on-demand.  In the past, investments in building application functionality used to be considered the cost of doing business.  Now, those spends are considered opportunities to generate returns more directly than just via improved business performance.
The implications of this move towards subscription over proprietary building of applications are many.  One of the most profound is around the talent required within the enterprise.  I think we will see the skills associated with integration, dev/ops, and risk management take a more prominent place in the organization of the future.  Core development skills will shift with greater pace to the service industry.