Transcription
Welcome to the podcast on improving contract management and applying contract leadership. I'm Danielle Goodrick, and joining me today is Colin Linton.
Hi Colin.
Hi Danielle.
Hi, great to have you join us today. I'm delighted to be doing this podcast with you, as contract management is of huge interest to me and our members. To give you some context to Colin, Colin's been SIPS qualified for 25 years and a fellow for 10 years, so has a wealth of experience to share with you today. His 30-year commercial career has spanned across procurement, finance, sales, and marketing, and then he moved into training, consultancy, and the academic world a number of years ago. Colin's been involved with six qualifications for many years and also involved with a number of other institutes and awarding bodies. And for the last three years, he's been involved in research into a number of different areas, including negotiation and contract management, which leads us to the podcast today to share Colin's research and thoughts on how to improve contract management and his concept of contract leadership. Colin's going to now take you through some slides, just for a few minutes, to share his contract leadership model, which we'll then have a chat about in a little bit more detail. Please note that the contract leadership concept and model that will be shared today is under formal copyright protection with a registered trademark, and you would need to seek permission directly from Colin should you wish to use this for any purpose. So, Colin, over to you.
Okay, great. Thanks, Danielle. I first started gathering research data for a Masters in Research, and that I completed at the University of Leicester. And my focus for my research has been the area of contract management, largely because it's an area that I've trained extensively in, and also it's an area that has increased in significance, uh, in recent years. So, what I'm going to talk to you about is re- is research-based. And my initial research was actually, the research was started in 2017, and the analysis of that data took place in 2018. At the beginning of 2018, there was also a second wave of data gathering in 2019, and I'm hoping to do the same at the end of this year. And to, to start the, uh, the process, um, I had interviews with around half a dozen, um, experienced, uh, contract managers, and chatted to them to find out what skills they thought would be essential for new contract managers. So this was really, the particular area of my focus was looking at people new into contract management roles. And following that, I came up with a list of over 30, um, different skills and attributes, and which was too much, so they needed to be honed down. And I completed an online survey, and which incorporated 130 responses, and really to focus on these three key areas. So for people who are new into contract management roles, I wanted to know how well equipped they were for that role when they started, and how they were supported by their organization during their first 12 months. Following that, I wanted to develop a framework of what the core skills would be for someone to be effective in a contract management role. And I was also quite concerned by the number of high-profile contracts that were seemingly performing badly, and in some cases going very wrong. So I was questioning the validity of a number of cash management tools that have been around for a long time, and I was interested to find out from experienced contract managers what their views were.
The results of the, the first wave, and this has also been validated by the second wave of research in, uh, 2019, is that based on the responses I received, 82% of people in their first contract management role received no formal training at all from their employer to improve their contract management skills. Okay, so it's 82% of people new to contract management received no formal training at all during their first 12 months, um, enroll. Eight percent of them had some ad hoc training, ad hoc support, but this was very unstructured and was really essentially just on-the-job training. So only 10% had any specific formal contract management training at all. And probably quite worrying on the basis that 90% had no formal training, 90% of them during their first 12 months enroll were involved in some way in managing a contract with an annual value in excess of 1 million pounds.
This table here of the top 10 skills required by highly effective contract managers, I have actually updated. So this is based on the 2019 data rather than the 2017-2018 data. There's actually only one change. So there was one new entry into the top 10, and that was number five, financial analysis. So in 2017-2018, financial analysis skills were not regarded as a top 10 skill of contract managers, yet they were in 2019. Uh, I, I can't validate this, but my feeling intuitively tells me that the collapse of Carillion in January 2017-2018, um, had some impact, um, on this. So 2018, January, Carillion, um, went bust. So the, the wave that after that, when I was asking, uh, contract managers, and clearly financial analysis, um, skills were already on their agenda.
The really interesting thing from this list of top 10 is that 50% of these skills are soft skills. So it, it's interesting to note that experienced contract managers are really reinforcing the importance of soft skills. And when I think back to my own procurement career, it was an area where actually training was very, very scarce. Most of the training that I had in my commercial career in procurement was more on the technical skill, skill side and harder skill side. Whereas now, contract managers are reinforcing the importance of soft skills.
And then finally, very briefly, do the existing tried and tested tools that we have within our toolkit, do they work? And really the responses I, I received were, it's a resounding kind of, um, yes. The, the tools that we have are useful, but they're not always useful to ensure that the more important contracts are focused on sufficiently. I, I started thinking about this, and it's interesting how we use the word management a lot and leadership not very much. So we talk about contract management, performance management, supplier management, category management, whereas the term leadership, uh, isn't often used in, in the context of procurement-related activities.
The, the reality is here. So this contract leadership matrix is based on the variables of how much formalization do we need with contracts versus the level of proactive engagement with stakeholders. The reality is that every contract requires administration because it needs to be added onto a database. But what happens to our most important contracts? You know, the contracts which are strategically important to the organization? These are the contracts that I believe that we need to be leading on as procurement professionals. So we need to adopt a leadership role. And this ties back into the previous slide of, well, what constitutes skills for us to display this leadership approach when we're managing the contracts? So essentially, for somebody who's involved in leading on these most important contracts, they should possess a high level of these 10 skills. I think that's probably the best place to leave it, uh, Danielle. That's just a very quick overview of a, a lot of time and effort and a lot of data gathering, um, but perhaps I'll pass over to you to see if you've got any questions for me.
Great. Thanks, Colin. And thanks for sharing your research. It's really, really interesting. And I particularly found it interesting, and I think it was on your second slide, where you talked about the high number of people who had little or no formal training when entering their first contract manager role. I just find that staggering, really. Why do you think that is?
It is, it is staggering, and particularly when you look at this, Danielle, in the context of how important contract management is these days. Now, so much of what organizations do today is outsourced to a supplier. Now, if we turn the clock back 20, 25, 30 years, then many organizations used to do most of the work themselves. So this shift in, in terms of use of third-party suppliers and broader outsourcing has been significant. And I think a lot of people just kind of stumbled into a contract management role, and they were recruited to do something else. And after they'd settled in, their boss came along and said, "Oh, you're doing really well, you've settled in, we'd like you to get involved in managing this contract." And to an extent, I think it's the, the senior people in the organizations often underestimate how difficult it is to manage a contract and the skills that are required. So I think that's probably the reason why.
And how can contract managers be more better equipped then with the right skills to deliver more value for their organizations? Because if we look at the value of some of the contracts, obviously from your research that people are looking at, there's obviously quite a lot to go at if they're a bit more well-equipped.
Yeah, and it's not just the financial value, Danielle. Think about the risks that we're taking when we're using a third party. And it's, not just the risks with our tier one supply. Think about the risks that arise within the supply chain. Now, this is very topical. There's been lots of instances, um, quite recently, where people involved in manufacturing are earning very, very, very low wage. And, you know, this, this is a high risk for, and the procurement organizations, because they expect their contract managers to be, um, to be checking this. So I, I think that the first challenge always is for the individual to recognize what skills they need to be able to do the job. And sometimes people, in the nicest possible way, are in blissful ignorance when their boss trusts them and says, "You're doing really well, I'd like you to manage this contract." At that stage, they don't always necessarily understand, know what the skills are that they require. So maybe taking some advice, talking to people who are already managing contracts, um, using, um, you know, platforms where you can have access to professionals, you know, looking at the SIPS website, LinkedIn is a great, um, forum to be able to post a question and ask some people who are specialists in the field. But I think sometimes people just don't realize. It's like starting anything completely new, you don't necessarily know what you don't know at that stage. Partly down to the organization to identify these gaps and put them through formal training.
Yeah, it is absolutely. You know, I think it's a really interesting question that, you know, whose responsibility is this? Is it all down to the individual employee, or should the employer take more responsibility and understand exactly what the skills are that are required? Not necessarily on day one, but, you know, we're talking about people here managing contracts with a value of a million pound. Really, somebody ought to be sitting down with them and looking at a training and development plan. Exactly. And especially where risk comes into it on some global contracts, like you say. So, um, that's going to be key, really.
If we can, um, have a look at the slide with the top 10 skills that you listed from your research, and, and if we can have a look at financial analysis, because that's now featured in the top five, which you mentioned. Why is it so important for contract managers to understand cash flow management, balance sheets, ratios, and EBITDA, for example?
Yeah, I mean, this, this really is one of my personal hobby horses, um, at the moment. I, I should declare an interest because I love, I love numbers. And so I was actually slightly disappointed in the first wave of research that financial analysis didn't appear in the top 10. The reality is, I think, particularly now in, in these very challenging times, the facts are that organizations will be looking for all of their different functional areas to contribute towards profit. So if we're talking in the language of the accountant, this is EBITDA, and they will be expecting their different functional areas to be able to contribute positively to cash flow. And, you know, why do businesses go bust? Because, you know, they've run out of cash. So I, I think really, is financial analysis skills to a level are crucial for any function, but particularly a function, you know, which is so closely recognized for contribution to cost reduction.
I, it's really interesting. Over the years, I've run a lot of financial analysis workshops, and people sometimes get frightened by the concept of financial ratio analysis. And I've got books behind me in my bookcase full of financial, um, ratios. If the reality is, in, in the procurement context, in when looking at managing contracts, there's probably 10 or a dozen ratios that that are important. But really, it's contract management is at least in part about risk management. So it's interesting that that came out number four, just above. And what are some of the risks that we run? Well, if our supplier goes bust, and we're critically dependent upon that supplier, then maybe reviewing their finances, so we can get ourselves on the front foot and anticipate that they would be useful, rather than wait for the 15th of January announcement, like we had with Carillion, and that they were bust as of that moment in time.
Yeah, and that ties back into the value that obviously contract managers can deliver for their organizations, doesn't it? Showing that they understand it, and where they can contribute will help elevate their profile too within the organization. So, yeah, you can see it's full circle, really.
It will. And, you know, there's an age-old debate, uh, around, you know, the procurement circles about, what is it that procurement has to do to gain a seat in the boardroom? And, you know, these places, and on the table in the boardroom, are not just dished out to anybody. You know, you can't force an invite to someone's party, you need to demonstrate, you know, through credibility, that, that you, you've earned that right. And the fact is that for many organizations, profit-making organizations, um, they are driven by profit and cash flow. So I think it's, you know, it's incumbent upon us as professionals to be more attuned to that, especially in the current climate as well.
Cash flow is going to be key, isn't it?
It is. And, you know, I, I think, you know, it would be fair, anybody watching this thinking, "Okay, so, um, I understand this list of skills. I've never had any, uh, financial analysis training. Know what can I do? What, what should I do to upskill myself?" Well, you know, there are, there are plenty of things. Look at the SIPS qualifications. That I would guess, if we were to go through the whole suite of SIPS qualifications that people will be studying, and all of these things, SIPS workshops, and, you know, other training. One of the great things with, um, lockdown is that there's been a whole range of different, um, online training courses. Many of them are free, some you have to pay for. It's been a great time, I think, for people to upskill themselves and get their CVs, uh, um, fine-tuned.
And really starting to apply what they've learned as well. So, yeah.
Yeah, and I think that's a really important point, Danielle. You know, the, the world is full of theory. When I reflect back over my career now, there's lots of theory, there's lots of tools, lots of techniques, lots of models. But the really important thing is, know, so what? So what? What do we do? What are we doing with these? We can learn all about risk management, we can learn about financial analysis, but, you know, what are we actually going to do and change our behavior so that we can add more value to the organization? And that action will lead to building credibility and that seat at the table, ultimately, won't it?
So it will. Yes. Okay, brilliant.
And if we stay on that slide, then your research into these skills shows that 50%, um, of the skills identified is around soft skills. Um, so has this changed over the years?
Well, certainly there's very little change from 2017, but compared to if I reflect back to when I was a procurement practitioner working in the commercial world, absolutely. It's really interesting. My first role in procurement, and I probably spent 95% of my training and development time on technical skills and doing my qualification, um, 5% on soft skills. And my role after that, I moved into sales, and it was really interesting because, of course, in terms of training and development, turn that on its head. 95% of the training and development I did in sales was soft skills. So it's quite interesting as a comparison, a, over the years, and b, compared with different functional areas. But I think people are realizing now that, you know, a contract is 50% the contract, the terms, the documentation, and we can go through a process where we award exactly the same contract to two different suppliers, and the experience with one could be fantastic, the experience with one could be much more challenging. And what's the reason for that? Well, it's because 50% of a contract is a documentation and all of the, the legal aspects. The other 50% is how we manage the relationship and how we can work together. So I think that, you know, there genuinely is now much more of a recognition that soft skills are more important, plus of course, in how we engage internally. If we want that right, that seat at the table, we must be able to engage more effectively with stakeholders.
Definitely. And that's, we've found that from our research we've done on there, salary guide as well. Soft skills have really dominated this year's research, um, in terms of performance. So, yeah, it's interesting that that came out too.
And how do you see this changing in the future? Obviously, recently we've had coronavirus, and we're coming out the other side of the pandemic, well, hopefully so. How do you think that's going to impact in the future?
Yeah, obvious, a great question, Danielle. And of course, we've got, um, Brexit, we've got, you know, other continuing themes around emerging technologies. Um, it would be really interesting to see how this table looks in 10 years' time, and hopefully I'll still be conducting the research at that stage. I, I would imagine that maybe financial analysis, risk management, may be slightly higher. I'd certainly expect them to, to be top 10. And I'd expect to see still an emphasis on key skills. I guess, in, in part, it depends really what the trends are within the procurement world. Certainly, there's been an increasing trend towards, um, the use of third parties. Personally, I think that because of COVID, that organizations, you know, as we speak now, organizations will be looking at their fixed cost base, you know, what is it they can do to eliminate fixed costs? Sadly, a lot will be looking at what can they do to reduce headcount. And easy solutions, sounds easy, difficult to implement, but the obvious solution often is to use a supplier to do something for us, because we then remove the fixed cost and turn it into a variable cost. So I would expect to see that happen within the relatively short term. But things have a habit of going around in cycles, so maybe 10 years' time, this would have gone full circle.
Yeah, and those suppliers still need managing, don't they?
Which they do. That's what we're talking today. So, absolutely. Going to be key, I think, for professionals to keep their skills up-to-date and at pace with their technical and soft skills, like we've talked about.
Yeah, I agree. And there's obviously lots of different types of contracts and stakeholders, um, involved in the process, and skills will need to be adapted. So what would be your advice to those needing to adapt their contract management approach for different situations?
Well, probably it links in with this. It's about understanding what type of contract, you know, are we involved in? This is a, you know, a key consideration for a contract manager. And, you know, this, this is a new theory that I'm developing. There's no tried and tested theory, which, you know, is still useful. It's about understanding what's the relative financial value of the contract to the organization, and the, you know, the relative significance and the relative risk. This is much more around behavior and what things should we be doing. And now, I think this is one of the first questions that someone new to contract management should be asking themselves. Look at their portfolio that they're managing, understand the significance, and the 80/20 rule probably applies to an extent. We just don't have enough time. I think one of the problems that people experience when they're in a contract management role is they just don't have enough time. They kind of adopt an average approach, which is wrong for most of the contracts. There's nothing wrong with saying, well, you know, this is a routine contract, it's low value, it's low importance, it's all about the administration, let's get it on the database, and that's the end of it. It's, it's about being frugal with how we use our time and really recognizing, you know, that the significance of the contract.
I think people really need to dig deep as well and reflect and think about their own skills and where they're strong, where they're less strong. And if they're involved in managing these contracts which are in this contract leadership and quadrant, where they do require a high level of formalization and they do involve a lot of proactive engagement, really, it's about thinking back to this list of skills to think about, you know, where they need to have some support, to have some development. Because it's, it's obvious that if somebody is less experienced, hasn't been working in contract management, maybe, um, for very long, and they would rate, so imagine we're rating ourselves out of 10 against all of these, with an ideal score of 100 if we were perfect. Now, it's probably a good way to look at it. You know, we'd, we'd need to be scoring 70, 80, 90 percent if we're involved in these more, what I would define as contract, uh, leadership situations. So it's whole, these horses for courses.
Yeah, they're really interesting. And I guess if we talk now about move into this contract leadership, um, approach that you talked about, and move away from just contract management, that sounds, um, a really interesting step. So how could, um, what would be your top tips, for example, for contract managers looking to identify gaps and improve their skills to move more towards contract leadership?
A good question, Danielle. And it is about behavior. And I believe strongly that, you know, people need to reflect more. Um, it's actually something interesting. As I reflect, I probably didn't reflect as much as I should have done when I was in the commercial world. But no, we, we should reflect. It is about building these, um, behavioral skills. And so we need to take opportunities where we can reflect about situations and think about what we need to do to get a better outcome. Now, I think we need to understand what the organization wants as well. We need to look very closely at the performance of contracts and contractors. But a lot of it is about undertaking a self-assessment. And reflection is really important. We're all busy. This is the challenge. And this was always my excuse that when, uh, you know, I was working in the commercial world, and, you know, like, like now, you know, I, I like many people, I do feel like the performing plate spinner, and a few plates get wobbly, and we spend a lot of time getting hold of the sticks to keep the plate going, rather than just buying ourselves a few minutes after we've completed the task and think, "So how did that go? Did that go well? Why? What could I do differently?" And really, the big challenge for us all is when we recognize that we need to do something differently, how do we build that into our routine? Because when we're under pressure, we tend to revert to type and do things in the way that we've always done it. And taking those learnings forward and being proactive, like today, so learning shared learnings, how can I adapt that to a different area or contract? What I think, like you said, and this slide says it so clearly, and like you would position products if you're a category manager, you're positioning your contracts, and you put in your time where you need to, and those focus areas, really.
So I found that really interesting. Thank you so much, Colin. Thank you for your time today. Um, brilliant. And thanks for sharing your and theories and concepts. And can't wait to hear, um, the results of the research next year.
Yeah, great. Thank you very much, um, Danielle. There will be another survey going out at some stage. So thank you. Nice speaking to you.
Yeah, great. Thank you. And I hope our members get involved as well in terms of taking part in the survey. It would be great to get the breadth and an insight from you. And just like to thank everyone for tuning in today. Hope you found that insightful from Colin. And obviously, the models he showed do have a registered trademark, like I mentioned at the beginning of the podcast. So if you would like to use or reference any of these, please contact Colin directly. And if you'd like to listen to any of our other podcasts and download our guidance or see any more videos from SIPS Knowledge, you can access these at sips.org/knowledge. Thank you very much.
Thanks, Danielle. Take care. Bye.
Thank you. Bye-bye.