Tag Archives: best practice procurement

6 Top Tips For Starting A Law Firm Performance Management Process

Law firm performance is not managed very effectively in most organisations as shown here. Stacey Coote offers 6 top tips for starting a law firm performance management process.

I have seen millions of pounds in benefits delivered from good law firm supplier relationship management (SRM) processes despite the fact that they are not always managed very effectively. Below I have provided 2 case studies on why you should initiate an SRM process for law firms and 6 Top Tips on how to initiate a law firm SRM process:

Case Study 1

Background

Programme instigated at the end of the panel process saw the law firms and client meet once a month to go over feedback from the business and the law firm provided 360 performance feedback.

Results

£5M+ in benefits from:

– Two law firms recommended new market offerings, which resulted in £4M in revenue generation.

– A law firm highlighted that a number of business units (BU) were sending the same documents multiple times (leading to increased review costs) so a new policy was written to eradicate this behaviour.

Case Study 2 

Background

SRM programme instigated which saw law firms provide detailed performance management information (MI) and meetings were held quarterly with the client to discuss the same.

Results

£2M in benefits from:

– Law firms had numerous associates and partners attending weekly calls, delivering no value to client or law firm. Outside Council Guidelines changed so firms only attended calls / parts of calls they needed to and only associates / partners required attended the calls.

– Evidence found of firms consistently settling claims too early (to benefit from the low fixed fees agreed). Work moved to other panel firms who performed more in the client interests (NOTE: this was driven from good MI).

Below are my six top tips for starting a law firm performance management process:

Step 1 – Stakeholder Engagement

To be honest this might be the hardest step in the process. I was literally shouted at by a GC when I first tried to initiate an SRM process for her law firms – so it’s not an easy nut to crack!

However, the best bet (as I learnt from that experience – and other equally bad experiences!) is to meet with key stakeholders (e.g. key decision makers) and agree the key objectives (step 2) of an SRM programme.

NOTE 1: It’s likely an easier sell if you don’t refer to it as an SRM process – the typical response I have received to this terminology being ‘we are not monitoring a paper clip supplier here you know!’

NOTE 2: If you have a small amount of legal spend and only a few stakeholders it will likely be possible to engage all stakeholders. However, my approach above is based on companies where hundreds of individuals engage law firms daily for the organisation.

Step 2 – Agree Objectives

Once you have stakeholder engagement you then need to agree the objectives of the SRM process e.g. innovation, savings, better case management, better litigation outcomes, identifying key lawyers you work with and want to work with more and ones you think are poor and want removed from the account etc.

Whatever the objective is it needs to be agreed up-front with all stakeholders so that everyone participates actively to ensure the process delivers benefits.

Step 3 – Agree Ownership

You need to agree who will own what e.g. will Procurement work with the firms to improve performance or Legal Operations or the Legal COO etc.

I have seen organisations where procurement were not interested in running performance management processes so it was all managed by the Legal COO office. Equally I have seen procurement teams run the whole process.

Overall, I feel a team approach is the best approach and this is where the most benefits are delivered in my experience.

Step 4 – Agree Approach

It is then important to agree upon the approach and some areas to think about include:

  • What business units will be in scope
  • What support will the business units need to provide to ensure success
  • What firms will be in scope
  • What incentives will there be for the firms to participate (if any)

Step 5 – Agree Frequency

You also need to agree the frequency of the SRM process. For example – you might want to have monthly management information but a file audit is completed just once a year.

In my experience, less is more. Trying to do things too often means you lose momentum and you get poor engagement as people have too much to do already. Remember SRM is generally a bolt on to someone’s day to day job. Ideally you would have a team managing performance full time but it is unlikely you will have this luxury.

Step 6 – Agree what happens to results

Finally, once you have the results you need to decide what happens i.e. do you share with everyone, with the firms and key decision makers only, do you meet firms to go through results etc. and what actions are required plus associated timelines for remediation.

360 Feedback

One final point – I have found 360 feedback from firms the most valuable element so please don’t forget this component. It might tell you things you don’t want to hear and two quotes that spring to mind include:

‘You have us join calls we are not needed on, which is costing you money unnecessarily’

‘You are not paying us on time so we have to increase our rates to take account of being a free credit service provider for you’

However, sometimes firms have amazing ideas that can generate extra revenue (Case Study 1) so please do get their feedback on how you can be more effective as an organisation!

I wish you good luck in implementing an SRM programme!

Stacey Coote is a Legal Procurement Expert and a Partner at Coote O’Grady, a specialist Legal Procurement Consultancy.

Grab A Cheeky Donut! 5 Procurement Resolutions You Can Actually Keep

It’s that time of year again. January has come and gone and you’ve realised that, despite the best of intentions, you’re not actually going to deliver on your personal New Year’s resolutions.

Rather than despairing about all those unrealistic “get fit” goals, how about refocusing your energies on some professional resolutions that will truly benefit your procurement career? The beauty of these targets is that they can actually be met, and won’t be broken in a cheeky late-night fridge raid.

The year has barely begun but we’ve already heard some profound advice from procurement leaders around the world, but here’s the skinny – the real McCoy – the five goals you REALLY need to focus on to reach the top.

So, grab a donut (breaking a healthy-eating resolution while doing so), adjust your focus and rebuild your resolutions to become a world-beater in 2017.

  1. Get tech-savvy

Late last year, I predicted that IT procurement professionals will become the next generation of CPOs (Chief Procurement Officers).

So, if you want to stay in the race, you’ll need to get tech-savvy very quickly. This means making the time to upskill yourself so you will have the confidence to make decisions such as:

Decision Skill-set
Whether to store your company’s precious customer data in the cloud or in data centers. Learn about big data analytics and understand the benefits of the cloud versus data centers.
How to protect your company’s IP and customers’ privacy from hackers. Keep up-to-date with the rapidly changing (and fascinating) world of cyber-security.
How to comply with privacy legislation. Build a relationship with your organisation’s lawyers to learn about data protection laws.
Which technology vendors you should (or shouldn’t) tie your company’s future to. Familiarise yourself with the technology landscape and the big players.

2. Become a Play Maker

Last year on Procurious we talked a lot about procurement’s game changers.

When visualising what type of procurement professional you want to be, you could do worse than become what The GC Index calls “The Play Maker”. It reads a little like a horoscope, but to quote – “Perfectly placed right in the intersection of all GC Index’s four profiles, this individual is interested in people and relationships. They’re best equipped to take on the all-important task of stakeholder engagement, but also managing upwards (C-level) and outwards (supply markets). Play Makers at their best will lead through building productive relationships and helping others to do the same”.

To me, the Play Maker sounds like the perfect procurement professional. A relationship expert who is equally at ease managing the C-suite and suppliers will go a long way very fast.

BME’s landmark Procurement 4.0 study also highlighted how procurement will need to network both vertically and horizontally, inside and outside the organization, to thrive in Industry 4.0.

  1. Put on a show

CPOs today are paid to drive global change and (in case you didn’t know), storytelling lies at the heart of every successful change programme.

I recommend that CPOs and other change-drivers adopt the “the Disney formula”, which involves a core idea (the story) being cleverly communicated through a number of different channels. This technique can be easily adapted into a formula that’s relevant for procurement pros: “the book, the movie, the merchandise, the ride – and the tweet”!

If you can’t see how Disney’s storytelling formula could be adapted to your change-management programme, there’s no need to reinvent the wheel. Save yourself some time and energy by finding your own inspirational company who demonstrate best-practice, steal their formula, and get to work!

  1. Network your face off

The “n-word” makes most people cringe and break into a cold sweat – but overcoming your fears and mastering the art of networking is well-worth the effort.

Inspired by Kathryn Minshew’s piece for the Harvard Business Blog titled “Network Your Face Off”, Kate Lee of Fronetics wrote a clever blog article for Procurious where she gave seven reasons why you should focus on developing your network in 2017.

Here are the facts – professionals with larger networks earn larger salaries, they’re offered more professional opportunities, they stay in their jobs longer, they are more “in the know”, and (last but not least), they’re happier!

  1. Cyber-study

If one of your resolutions is to build a habit of continuous learning, you’ll need to throw out your old perceptions of professional development and adapt to the brave new (online) world. You can now access the latest thinking and procurement insights on your laptop, smartphone or other device, 24 hours a day, 7 days a week, 365 days a year. This means there is absolutely no excuse for you not to be plugging those career competency gaps!

Procurious’ learning section is organised into bite-sized microlearning videos ranging from 2–12 minutes, giving you the ability to learn from the best in the business in the time it takes to fetch a coffee.

Never forget that simply asking questions is often the best way to get the answers you need. With 19,000 members (and counting) on Procurious, the possibilities to engage in insightful and relevant discussions are limitless.

Finished your cheeky donut? While you’re picking at the crumbs, let’s make a commitment – to our professional selves, to our procurement teams and to our companies – to supercharge our procurement efforts this year with relevant and achievable career goals. Here’s to an exciting and transformative 2017 for everyone!

Why “Free Help” With Buying Decisions Costs More

As consumers, we’re wary of so-called “free” products and services as there’s always a hidden cost. Why, then, are procurement teams willing to accept free help with supplier selection?

Businesses often seek help with their buying decisions, especially in complicated categories such as telco or energy. Preparing an RFP requires a willingness to trudge through data swamps, while analysing supplier responses requires more than a strong coffee to do properly.

When a third-party broker says that they’ll help – for free – the temptation is to say yes, if only to avoid data swamps and caffeine addiction. However, you need to keep in mind that the people who help “for free” are still going to get paid, just not directly by you. They’ll collect their pay from your suppliers who are willing to pay a commission to get the opportunity to service your organisation. In turn, those suppliers recover commissions from their customers (you), either as a line item on the bill or through higher prices. In the end, you’re still paying for the service, just not up-front.

For large businesses with lots of cost centres, this can be a good way to share the cost of getting help. Branch stores pay their bills and, without realising it, pay for the help you received through higher prices. Procurement managers who use this approach can look like heroes because they claim savings and a successful outcome without having to win broad company endorsement for using expensive 3rd-party assistance.

Selecting suppliers for the wrong reasons

The danger of commission payments is that different suppliers pay different amounts. Some commissions contain a ratchet mechanism with longer contract terms, while higher contract values generate higher commissions.

Unfortunately, brokers who offer their services for free are incentivised to select the suppliers who pay them the most, rather than those who deliver the greatest value to the customer. The usual outcome is long-dated contracts with a single source supplier. At least the billing is easy, but your business will end up paying more in the long-term due to lack of value.

Up-front payments

Paying brokers up-front changes their incentives. Instead of focusing on supplier commissions, they now focus on demonstrating their value to you in a bid to win further business from your organisation. “Brokers” go upmarket and call themselves “consultants”, working harder to realise the greatest-possible savings and service levels. Customer and consultant incentives align.

The positive consequences of fee-for-service payments are shorter contract terms and more suppliers. Shorter contracts reflect a balance between testing market prices with the logistics of changing suppliers. Having more suppliers means you are able to split your requirements across the lowest priced suppliers to get the best possible price for your portfolio of demand, rather than being herded toward a single-source supplier.

“Free” services in IT

For software companies, “free” represents a gateway product, or a way of demonstrating the value of a software product to the customer. It means the software provider doesn’t have to employ a slick-suited sales person and can scale the work of their t-shirt clad developers. Salesforce, one of the leading dealers of enterprise SaaS, costs their customers on average $45,000 per annum. The entry level CRM package is $5 per user but customers quickly pay more to satisfy their needs, getting more value from the base CRM product as they buy additional features and capability.

Our approach at Kansoly is the same. We’re a cloud-based telco procurement platform for businesses running RFPs and reverse auctions. Our base product is free, where we offer to run a telco RFP for you for nothing. What’s in it for us? We gain customer insights and supplier engagement, both vital for making our product better and delivering more value to our larger, fee-paying customers. Our free customers get competition for their services and cost analysis that they would otherwise have to invest in.

Brokers and consultants have always been part of the procurement landscape, but their incentives are defined by the way they’re paid. However, the development of Saas procurement platforms increasingly means that free offers aren’t always related to low-value outcomes.

Bruce Macfarlane is the founder of Kansoly, a telco procurement platform for business. Kansoly runs RFPs and reverse auctions for data, mobile, or fixed line.

6 Top Tips for Collecting Legal Spend Data from Law Firms

Do you have the data you need to understand your spend on legal services? It’s not about the volume of data, it’s about the quality of the reporting.

legal spend

Very few organisations have the granularity of legal spend data they need – they often think they are capturing this information or can get it from their internal systems.

However, when it comes to trying to use this data for a panel review or any kind of spend management project, most organisations very quickly realise their data in inconsistent, limited and simply does not offer the level of detail they require.

Organisations, therefore, often turn to their law firms to provide management information to allow a better understanding of spend levels, cost averages and, to a degree, law firm performance.

Here are our top tips for efficiently collecting this data.

1. Clarity on your reporting requirements

Start at the end. What reports do you want to see created from the raw data? Be ruthless in listing the real drivers for your project. From this, make a list of the key data fields you will need to create these reports.

2. Stick to the above!

It is very tempting to add more and more data fields to your list as your project continues. Very few organisations can actually handle the amount of data they capture, and by handle we mean put to a practical use within your organisation.

3. Be honest and practical

Few organisations have unlimited resources. You need to stick to a core list of reporting requirements. Too often this kind of project is started and balloons into something all-encompassing, becoming impossible to complete.

4. Complete the project

This, again, seems simple but often this kind of project is abandoned or the vast amount of data captured is out of date by the time the analysis is undertaken.

5. Ensure law firm consistency

Ensure you have empowered someone to manage the law firms and insist the law firms comply with this new format. Law firms are known to tweak data fields to suit their internal system.

If the firms provide different data sets it means you can’t accurately compare performance.

6. Some analysis is better than nothing

This really underpins all the above. Have a core list of reports and collect the least amount of data to ensure you can create these reports.

Don’t fall into the trap of thinking you will fix all problems in one data capture. Data is quickly out of date and you do not want to waste everyone’s time.

What to Report On

If you’re not sure where to start, here are some reports you can create using your spend data.

  • Spend by firm – an obvious metric as you need to know the overall spend by firm.
  • Spend or hours by timekeeper – this metric allows you to accurately perform ‘make versus buy’ decisions. For example, whether hiring more lawyers internally would be more cost effective than using external firms. You would also need to consider liability risks associated with this approach.
  • Spend by matter type – you need to understand this to understand the types of legal work being performed (is it M&A work, employment work, etc.).
  • Spend type (fees or expenses) – it is important to understand how much of the spend is on lawyers versus other expenses, and what those expenses are.
  • Number of matters – this allows you to look at overall volume relative to spend. Is spend increasing because matters have increased XX per cent or has the matter mix changed? For example, M&A matters are more expensive, raising overall cost.
  • Spend by matter – this metric allows you to review the big spending matters to see if there is anything you can do to reduce costs.
  • Timekeeper level – this metric allows you to look at the level of lawyer performing the work so you can analyse the efficiency of the lawyer.

Caroline O’Grady is a legal services procurement expert and a parner at Coote O’Grady, a specialist Legal Procurement Consultancy.

Perception vs Reality – What Your Suppliers Really Think of You

Have you ever wondered what your suppliers really think about you? How big a gulf exists between the perception (what you think) and the reality (what they think)?

think

You may believe you have effective processes, but do they agree? Do your suppliers really feel like a “valued business partner”, or is that just empty rhetoric?

The Faculty is currently undertaking its Supplier Confidence Index research for 2016. Here are seven common pieces of feedback we’ve gathered across hundreds of suppliers.

1. Organisational Alignment

Some suppliers very confidently told our researchers they were treated as valued business partners. Others, however, stated that they were simply “suppliers”, not partners, but due to the non-critical nature of their product or service this was to be expected.

One recurring comment was that talk of “Business Partnerships” does not always live up to the rhetoric. Procurement frequently uses language about partnerships. However, in a cost-constrained environment, every consideration but cost “goes out the window”, and the relationship falls back to a transactional nature.

2. Relationships and Communications

Suppliers are frustrated by silos within their client’s organisations. Communication issues within your organisation, or a silo mentality where procurement isn’t talking effectively with other functions, are highly evident to suppliers. This causes extra work, as suppliers have to explain the same concepts multiple times to different stakeholders within the organisations.

Suppliers also report that they receive conflicting instructions and mixed messages from different functions. Poor communication between the central and site-based procurement teams was another area of concern.

3. Value Creation Opportunities

Organisations are increasingly receptive to new ideas presented by suppliers. Suppliers report that this area has greatly improved from 5-10 years ago, when ideas were rejected out of hand for not aligning with policy, or for simply being too difficult to implement.

New ideas are now being heard, considered, and then implemented. This encourages suppliers to keep coming back with further ideas for business improvement.

4. Commercial Strength of the Relationship

A common complaint centred around unexpected changes to scope, which increases cost-to-serve. This could be improved through better communication, flagging the changes with suppliers as early as possible so they can plan accordingly.

Suppliers also reported a large amount of discretionary (unpaid or “goodwill”) work. One point to note is that suppliers generally seemed to be understanding about restructures and redundancies, even when they affect the business relationship.

5. Product and Service Complexity

Many suppliers made comments around unnecessarily complex procurement processes, which again increases the cost-to-serve. This issue is present in both the private and public sectors.

6. Business Process Effectiveness

Demand planning is an area of concern. Suppliers have flagged that they’d be willing to help with forecasting and planning processes if there was a better flow of information.

7. Integration and Joint Initiatives

Survey and interview results indicate that systems integration is generally improving, although there are further opportunities to integrate. Suppliers note that non-aligned systems mean they have to bear the cost of extra data-entry staff who would otherwise be unnecessary.

The Supplier Confidence Index is part of The Faculty Roundtable’s annual research program. Please contact Sally Lansbury for more information.

6 Top Tips for Running a Successful Law Firm Panel Process

Running a panel tender for law firm services can be challenging and time-consuming. So what can procurement do to ensure they tick the right boxes?

panel tender law services

A panel tender process can be long and arduous for all parties involved. A recent survey said 42 per cent of law firm respondents spend over 15 hours on each tender, with 19 per cent spending over 20 hours.

Firms complete multiple tenders each month. When you think that most respondents are partner or director level, this adds significant additional cost to a law firm’s operations. This will, in turn, factor into increased costs for the client.

Any tender must be targeted and specific, and aim to get to the right result as quickly and efficiently as possible.

We have set out our top tips to ensure a successful panel process below:

  1. Agree a clear strategy

Whether it is procurement, in-house legal, or claims managers, who ever uses the legal services and, ultimately, whoever is involved in selecting the panel composition, need to agree the strategy for any panel review.

You should consider questions such as:

  • Are you looking to reduce firm numbers?
  • If yes, how will you manage conflicts?
  • Is the aim to reduce costs?
  • If yes, how do you plan to manage increases to ensure firms remain incentivised to provide the best possible advice (and lawyers)
  • If no, how do you plan to manage increases and ensure you are not overpaying?
  • Do you want to look at innovation and technology?
  • Are you focusing on AFA’s or hourly rates?
  • How long will you look to hold rates firm for?
  • How will you manage individual lawyer annual increases? (For example, as a lawyer goes from being 1 year post qualified to 2 years post qualified)
  • Managing exceptions to the panel – how will you do it? (For example, if you need to use a specific partner from another firm due to expertise)?
  • How will you manage historic matters and pricing – especially if a firm is removed from panel?
  • How will you factor in and measure historic performance?

You need to make sure you document this, ensuring everyone is clear on and signed-up to the approach.

  1. Full understanding of legal spend

This may sound straight forward but for most organisations it is not. Many organisations resort to asking their own panel firms to provide spend figures to allow for more accurate analysis of historic spend patterns.

Many organisations find that when they come to undertake a detailed analysis of spend, there are limitations on their data. For example, data might not detail fee earner level, or how many hours a firm works on any individual case.

Real data and real analysis allows for side-by-side comparison of law firms, with the ultimate goal being to obtain data that allows for some means of understanding both cost and performance.

  1. Stakeholder Engagement

Too often procurement teams drive panel review processes without real input from those who use the legal services. On the other side, in too many organisations GCs and in-house counsel run tender processes without valuable input from legal procurement specialists.

You are left in a position where many tender processes do not deliver on the strategy set at the outset as old alliances between in-house counsel and law firms remain, or procurement drive too hard for reduction of cost. Some organisations have a more cohesive and collaborative relationship between legal and procurement but these are in the minority.

A real attempt must be made to bring together a “core team” to run the legal tender process, who are bought into the overall strategy and work together to run the process.

  1. Sticking to the strategy

Often great strategies are set but ultimately decisions are taken on hourly rate reductions or past experience with a firm.

While neither of these reasons of themselves are incorrect, if your strategy was to reduce your panel, you need to look beyond relationships, and take tough decisions.

Too often, final panels can be decided upon, only for an unsuccessful firm’s senior partner to get on the telephone to a key decision maker asking that they be reappointed – and they are then reappointed. It is very common and hugely undermines the value of the whole process.

  1. Concise RFP

If all you are interested in is rates, do not draw up lengthy RFP documents. It is still quite shocking to read some RFPs. They require weeks of a law firm’s time and require a whole host of analysts to review the responses. And this doesn’t even consider senior management time to accurately digest responses and take decisions based upon them.

Be honest when setting your strategy. Experience dictates that while you genuinely believe the questions you ask will form the basis of the panel decision, there are only a few core drivers. These include: rate; geographic spread; expertise; and departmental spread (particularly if looking to consolidate your number of firms).

This sounds simple, and many companies believe they are adhering to this. Yet, time and again the examples we see are unnecessarily detailed and burdensome to both sides.

  1. Performance management

The linchpin for much of this is performance management. In our experience, most companies either overlook this entirely or invest very little resource into it. While they will invest a significant amount of internal time and money on a tender process, they then fail to monitor performance, or measure any element of it, during the tenure of the panel.

The next tender rolls around and they undertake the process armed with only rates and anecdotal information on a firm’s performance. Organisations need to focus on understanding what value a firm brings them. Are they getting the best service for the best price, whatever that may be? This involves investment of resources into understanding what value is for you and how to go about measuring it.

Stacey Coote is a Legal Procurement Expert and a Partner at Coote O’Grady, a specialist Legal Procurement Consultancy.

What Tech Start-Ups Need to Know About M&A Deals

While M&A deals have decreased in 2016, broken deals are on the rise. So what do tech start-ups need to know before getting involved?

M&A rules

Christina Wojcik, vice president of legal services at Seal Software, breaks down the steps to consider throughout the M&A process.

With over $5 trillion in deals signed in 2015, it was a record breaking year for M&A activity. However, 2016 does not appear to be following suit.

Over the first eight months of this year global M&A dropped to $2.2 trillion with 28,720 deals. This is compared to $2.9 trillion with 30,894 deals at the same time last year.

In fact, 2016 appears to be a record year for broken deals instead. Between Brexit concerns and US anti-trust regulations, an increasing number of deals are breaking down before they become official.

The Unknown 

M&A deals are complex events that require overcoming a hefty number of obstacles. These include corporate governance, forms of payment, legal concerns, contractual issues, regulatory approval and tax issues.

It’s very challenging to fully assess and understand the kinds of contractual risks, restrictions, obligations, and exposure companies will take on after the deal is closed.

Uncovering this information requires many hours of manual contract review work from either a law firm or lower-cost legal service provider. Before they can even begin reviewing the documents, organisations first must find and centralise all the relevant contracts.

This may sound simple, but tracking down thousands of contracts, which have been created in varying formats, across different departments, and stored in various locations over the years, is an arduous and sometimes overwhelming undertaking.

The Real Work

Once all contractual documents are collected, the real workof extracting contract data begins. It’s vital that the data be useful before closing a deal. Legal teams must review a host of provisions, and not fully understanding assignment or change of control provisions can be especially detrimental to the dynamic of the acquisition.

If your contracts cannot be assigned, or if change of control triggers automatic termination for cause, the strategic value of the acquisition may be called into question. This can, in turn, lead to many hours of renegotiation.

In addition to assignment and change of control, here are a few more to consider:

  • Be aware: Auto-renewal

Many sales organisations work to negotiate auto-renewals and every procurement department dreads tracking auto-renewal provisions. If the goal is to terminate a contract within the specific notification period, you must know which contracts contain the provision and the window for cancellation.

A missed auto-renewal can result in hidden costs that most companies will not have considered. One of our customers, a large energy company, discovered they were auto-renewing a lease costing $400,000 per year on property they didn’t use, three years after a takeover.

  • No nonsense: Non-competes & non-solicits

Monetary damages can also occur if a company breaks a non-compete or non-solicit clause. It’s important to know whether contracts include these provisions, as a non-compete is a promise from both the buyer and seller to refrain from engaging in activities with competitors.

A non-solicit clause prohibits a company from trying to lure or hire the other company’s customers or employees. This is particularly relevant when two companies in the same industry merge, as many of each company’s existing customers or partners are likely competitors.

  • Identify: Indemnity

The acquiring company should clearly understand what the target company has agreed to indemnify. These limitations of liability can be very complex and should be heavily negotiated prior to closing an M&A deal.

These are often the most negotiated provisions and typically have cross-references which makes them especially difficult to fully comprehend.

Careful review of the indemnification provisions of each contract is needed to ensure that these provisions align with the combined entity’s indemnification standards and practices.

  • Limit: Unlimited liability

When startups are motivated to close a new deal, especially with big, recognisable brands, they will often accept potentially unacceptable provisions. This is commonly seen with limitation of liabilities. Accepting unlimited liability does not necessarily pose a large risk to a startup, because they have much less to lose.

However, it can pose a significant risk to established organisations with much higher exposure if they accept that unlimited liability. It becomes very important for the acquiring company to quickly identify contracts containing unlimited liability. They can then look to renegotiate, amend, or possibly terminate, the contract.

We worked with a software giant which bought a startup and discovered it had inherited numerous unlimited liability provisions. A small problem for the $1.5 million startup, but a much bigger problem for the $1 billion company.

The Silver Lining

As M&A activity increases, especially within the startup world, knowing what’s in contracts is more important than ever. Having easy access to and visibility into contracts data is essential.

Due to the time sensitivity on many M&A deals, and the manual labour often required to analyse contracts, most companies resort to sampling just a small portion of the target company’s contracts. They assume that if the sample passes the test, the rest will as well.

But, countless cases prove that this approach exposes the acquiring company with risk they had not anticipated. Luckily, current contract technology offers machine learning and natural language processing solutions.

This allows organisations going through the M&A process to streamline the due diligence process, to consolidate contracts, pinpoint and understand risk, and uncover vendor consolidation opportunities.

Contract Intelligence Can Reduce M&A Concerns

Contract intelligence solutions can also help to alleviate some of the M&A concerns companies have when it comes to Brexit. By gaining full insight into the terms impacted by the separation from the EU, such as governing law, currencies, and other commercial terms, companies may find that the merger, acquisition, spin-off, etc. will actually give them a competitive advantage or provide for growth.

By extracting metadata and clauses through a sophisticated search and analytics, businesses can quickly understand the risk and opportunities in those contracts and determine if there is still value to the deal. This will help facilitate closures with the added security of fully knowing what is being acquired.

So put away the extra water or paracetamol. By understanding contract terms, you’ll prevent the post-deal hangover that so many rushed deals result in.

Christina Wojcik leads the Legal Service Channels division, globally, at Seal Software. As VP of Legal Services, Christina engages with legal industry partners to create best-in-class solutions to meet the complex contractual needs of Fortune 1000 organisations.

Seal Software is a leading provider of contract discovery. It uses artificial intelligence and natural language processing to help companies efficiently uncover what’s in their contracts.

What Can Procurement Learn From 2016?

From politics to procurement – 2016 has changed our outlooks. But what can the profession learn as we head towards the new year?

politics of change

I’m not a political person, never have been, but maybe 2016 has put paid to that. It could be my advancing years or the direct relevance the events of 2016 have created, but politics has now piqued my interest.

Furthermore, as a business owner, parent and amateur investor, it’s beholden on me to be well informed and to put in place risk mitigating strategies should the worst happen.

Different Outlook

To anyone who knows me, I think I’d fairly describe myself as a cautious optimist. Someone who believes in the enduring power of ‘doing the right thing’. I must say this outlook has been tested to its limits these last three months.

And with the result of last Wednesday’s US election now a reality, I find myself having to re-evaluate this mantra.

I think it’s fair to say that few people in business expected the UK to vote for Brexit. Even fewer expected the US to elect Donald Trump as President. To say that the pollsters who predicted strong contrary outcomes have been wrong-footed is an understatement.

As BBC correspondent Mark Mardell wrote on Wednesday, “it is perhaps ironic that our two countries, with a reputation for stable political systems, have declared political revolutions of such importance”.

Ironic or inevitable, if find myself asking. As Trump put it, his path to victory was ‘not a campaign, but a great movement’.

Undoubtedly from these 2 cataclysmic events there is the notion that globalisation has given folk a raw deal. There is a belief that the gap between rich and poor has widened. This is clearly nothing new.

But the events of 2016 are now showing us that people are willing to express their desire for change in a manifest way, and that the UK’s referendum and US elections have facilitated this expression. Clearly the belief that ‘we need people who change the world, rather than describe it’ has never been more true.

Politics & Procurement

So aside from emotive connotations of such seismic change, what can the Procurement profession learn about these events?

I’ve always read with interest the term ‘Force Majeure’ in contracts, essentially the common clause that frees parties from legal obligation when an extraordinary event occurs. Is 2016 now the year of Force Majeure?

As organisations have historically rushed to globalise their supply chains, are we now going to see a reversal of this and a more localised, protectionist approach to markets? The challenge for Procurement Leaders will be how to predict these events and to mitigate the risks associated with global change.

Without doubt we are entering an era that favours a less politically correct approach of yesteryear, one that rewards forthright opinions and direct action. The new breed of procurement practitioner will need to build this thinking into category plans, sourcing strategies and contracts.

I, for one, will be watching with interest.

Don’t Discount the Outliers – Steal Knowledge From Them!

Outliers are frequently discounted in statistics. But in procurement, it’s worth being more open minded – they may have great knowledge to share.

outliers

The Faculty is excited to share its “Outliers” Best-Practice Case Studies paper here on Procurious.

Stealing from your peers may sound ethically questionable at best. However, in today’s fast-paced and increasingly frenetic business environment, individual CPOs simply do not have the time or resources to develop their own solutions to every challenge.

That’s why peer groups such as The Faculty Roundtable exist. They provide a forum for collaborative learning and knowledge sharing around best practice procurement.

Identifying the Outliers

How do we identify best practice? In statistics, an “outlier” is defined as a data point that is a considerable distance from the rest of the observation points. Depending on circumstances, statisticians often choose to exclude outliers from the data entirely so they do not skew the results one way or another.

At The Faculty, we take the opposite approach. We see outliers as an opportunity to celebrate success, set the standard for the industry and, most importantly, learn from best practice.

The Faculty Roundtable’s recent Benchmarking report measured performance across multiple procurement practice areas, including:

  • Corporate Sponsorship,
  • Strategy,
  • Team Structure,
  • Communications,
  • Environment,
  • Innovation,
  • SRM,
  • Systems, and
  • Training and capability.

Our latest research paper contains a series of case studies highlighting some of The Faculty Roundtable members’ approach to common challenges across many of these practice areas.

Case study participants were selected due to their “outlier” status in specific benchmarks, or because they have taken an innovative approach to problem solving, demonstrating excellence in one or more areas.

Learn from the Best

The six case studies cover best-practice solutions to the following shared challenges for CPOs and their teams:

  1. Influence is Everything: Executive Support in Action at Broadspectrum

Learn how Broadspectrum CPO Kevin McCafferty ensured that Procurement gained recognition at the highest levels of the organisation as a team that creates shareholder value.

  1. A Partnership of Equals: Procurement and Environment at Australia Post

Australia Post’s Head of Environmental Sustainability, Andrew Sellick, explains why a partnership with Procurement is the most impactful way for the Environment team to meet and beat the organisation’s carbon reduction targets. 

  1. Taking the Leap: Moving from Operational to Strategic SRM at Energex

It’s easy to get bogged down in the detail. Brett Mann, Group Manager Procurement & Supply at Energex, explains why you need to have the right people in the room to facilitate a strategic level of discussion with suppliers.

  1. Do CPOs Even Need a Communications Plan? Rethinking Stakeholder Communications at Santos

Santos CPO David Henchliffe argues that a communications plan is only required with stakeholders whom Procurement doesn’t have a working relationship with.

If Procurement is intimately involved in the business, then senior executives (and their teams by extension) will know all about your function’s value contribution, upcoming projects and challenges.

  1. Planning for Success: Executing Locally Crafted Strategies in a Globally Owned Enterprise at BP Asia-Pacific

Even in an internationally-owned business with global category strategies, local planning is more important than ever. This is the view of Lauren Feery, Asia-Pacific Strategy and Performance Manager for downstream procurement at BP. Find out how to connect parallel local and global planning processes. 

  1. Keeping Your Eye on the Prize: Working Towards a Unified P2P System Across 30 countries at Australia and New Zealand Banking Group (ANZ)

ANZ has taken on the challenge of unifying, streamlining and simplifying P2P systems in its offices across the entire Asia-Pacific region. From Melbourne to Auckland, Singapore to Manila, the rollout has required best-practice change-management to ensure every end-user is on board.

The purpose of these bite-sized case studies is to enable CPOs to learn from the region’s best-in-class procurement teams and take proven methodologies back to their own organisations.

  • The Outliers Best-Practice case studies are available to download now from Procurious > Groups > Benchmarking.
  • The Faculty Roundtable’s full Benchmarking report is also available here on Procurious > Groups > Benchmarking.

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About The Faculty Roundtable

The Faculty Roundtable is comprised of an influential group of procurement leaders in the Asia-Pacific region. These leaders gather to share their experiences and insights, to achieve greater commercial success for their organisations.

Through The Roundtable, members have access to leading-edge thought leadership and commentators, a ready supply of valuable expertise through exclusive market intelligence, as well as networking and professional development opportunities for themselves and their team members.

Meetings are held throughout the year in Melbourne, Sydney, Brisbane and Singapore.

For more information, please email [email protected] or call +61 3 9654 4900.

Unpicking The Kraljic Matrix for Procurement

In 1983, the world was introduced to The Kraljic Matrix. But is it still as relevant to procurement today?

kraljic matrix

September 1983: Peter Kraljic publishes an article that will deeply change both the working methodology and concept of many Procurement departments.

The article, published in the Harvard Business Review was titled “Purchasing must become Supply Management”. It introduced a concept that has been a key tool for procurement ever since: The Kraljic Matrix.

In this article, Kraljic advocated and argued for the need for profound transformation of the Purchasing Department into a much more strategic role. He included several examples of large organisations that had already done so, and achieved excellent results.

In order to support the required change to a more strategic role, Kraljic introduced a decision matrix. In this article, we will explain how the matrix works, and how organisations can apply it in their procurement department.

Defining The Kraljic Matrix

The Kraljic Matrix classifies the sourcing scope (also known as acquisition perimeter) from a company according to two factors.

1. Financial Impact

Measures the impact on both the manufacturing costs of the product and its impact on the profit margin.

Look at the example of manufacturing a Lego brick. Plastic would have a high financial impact, both because it accounts for most of the product cost, and because the current volatility of oil (the price of which impacts directly on plastic cost) greatly affects the profit margin.

2. Complexity of Supply

Sorts the market complexity to achieve a stable and uninterrupted supply. In this case, we must consider whether there are monopolies, logistic issues, volatility, or impact of technological changes.

An example of highly complex supply would be the chipset manufacturer for mobile phones Qualcomm. The company took over Intel and Nvidia, giving them a monopoly on the market, and the ability to refuse to supply certain organisations.

Whereas some organisations, like Samsung, chose to manufacture their own chipsets. However, not all companies can do the same.

The Kraljic Matrix

By combining both factors, we produce a chart with four perfectly differentiated groups:

  • Leverage Items

Standard commodities with an abundant source of suppliers. They are usually highly standardised, and easily available, products. Supply risk is low, though there is a high impact on costs and benefits. For example, plastic or raw material for Lego bricks.

  • Strategic Items

These are critical products for a company, and are the key focus for the Procurement team. There is high risk against supply, and a high impact on cost. For example, the Qualcomm chipsets for mobile phones.

  • Non-Critical Items

Those products that have a low impact on costs, and the supply of these is low in complexity. A good example would be, for example, standard screws in a computer factory.

  • Bottleneck Items

These are products with limited source of supply. Their supply risk is high, but do not have a major financial impact. For example, an integral part of technology hardware, the power pack for a laptop.

Analysis and Strategy

Once you have classified the products, you can define the strategies to be applied on each group in order to optimise supply. While each item will likely have it’s own specific strategy, the categorisation in The Kraljic Matrix points to a common direction and goal for each, and shows common pros and cons for each group.

kraljic-categories
Adapted from ‘Purchasing Must Become Supply Management’ – Peter Kraljic, Harvard Business Review, 1983
  • Leverage Items

We are in a so-called “buyer’s market”. Because of this, we need to negotiate to achieve the best supply conditions from a dominant position. Procurement can do this through the use of tenders, reverse auctions, setting specific target prices, or framework agreements.

  • Strategic Items

In this case, the need to mitigate risk is mutual between the supplier and the buyer. The goal here is to ensure long-term availability. Therefore, procurement needs to consider suppliers as an equal and look for a “win-win” negotiation that benefits both parties.

In these cases supplier development strategies, partnerships, and supplier innovation are recommended.

  • Non-Critical Items

There are products with low economic impact and low complexity of supply. This makes them usually the lowest priority in a sourcing strategy.

Habitually supply agreements are negotiated based on high volumes, or Kanban type solutions are implemented. A good example is the screws in the computer factory described above. These would be bought in bulk, but have a variety of suppliers available in the market.

  • Bottleneck Items

These are the opposite to Leveraged Items – we are in a “Supplier’s Market.”

In this case two parallel strategies must be followed. The first is to secure supply through framework agreements, providing for penalties for the supplier due to lack of supply while maintaining good relationships with existing suppliers.

The second, which should be done at the same time, is for procurement to work with R&D or Engineering departments to establish alternative products that can be used. This enables the organisation to reduce supply risk, turning bottleneck items back to non-critical items.

Some Advice to Heed

Although the information provided by The Kraljic Matrix may seem very generalised, it’s purpose is to help set up a basis of supply strategy.

By classifying sourcing activities using the Matrix, organisations can get a clearer picture of its available resources, priorities for negotiations, and objectives it wants to achieve.

The article wouldn’t be complete without some advice. The Kraljic Matrix is a dynamic tool – it changes, so it needs to be reviewed frequently. Markets have become more dynamic, and the supply situation can change significantly in short time periods.

Being able to adapt to these changes is a critical success factor for Procurement. Therefore the tools used to develop strategies must also be dynamic and flexible, which is why the Kraljic Matrix can provide great value for organisations.