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Transforming Contracts Organizations: Three Things to Do Right Now

Organizational transformation is a tough, thankless exercise. When you attempt to transform a group of lawyers, negotiators, administrators and project managers – well, you might as well paint a large target on your chest before even getting started.

This article presents how to execute transformation in a contracts group (sales or procurement) by recognizing some tough realities, making tough decisions, and using existing HR and other tools to execute the basics of change.

This article does not talk about what you should change; it charts how to set change in motion.

Oh, and as for that target, may I suggest red and white paint?

#1: Assess the Impact of Automation & Outsourcing

In the last 15 years, the Contracting professions (procurement, sales & counsel) changed substantially. The role of automation (reverse auctions, source selection, procurement streamlining) drove many simple, repetitive tasks out of the profession and into computers.

The next 10 years will witness a similar impact at the middle level of the profession, as mid-level repetitive tasks involving some judgment are sent to outsourcing centers around the world.

These changes are real, but they tend to build over time. The small changes then reach a tipping point and big changes happen all at once. As a result, the skill sets necessary to run your department may change, substantially, in a very short time.

Think it can only happen in procurement? Another example would be a software publisher who sells only to customers in the United States. The publisher merges with a professional services firm, and suddenly services are involved in every deal. To compound matters, the merger expands the scope of business to global customers, meaning that the cozy domestic contracts must now scale worldwide.

The team of people who ran contracts for a domestic, software-only firm will be seriously challenged by adding services and going global. Compounding the problem, there is substantial inertia in the contracts profession, meaning that people aren’t necessarily going to recognize that perhaps they are no longer qualified. So you try to encourage change, and put the merger at risk with a sub-par contracts team that increasingly resists change.

These are tough problems to solve, but the good news is that the tool to solve them already exists in most companies with an HR system.

#2: Review Job Codes, Classifications & Salary Structures

The job classification system in your company can help you hire and retain the best negotiators, if it is used properly. Start out by reviewing the current job classification structure in place for your teams. Odds are, if your department grew by reorganization and combination, that you have a hodge-podge of job codes, skill levels, and pay grades. The salary levels for your teams may vary widely, and totally out of proportion to the relative value added. Even if your department hasn’t changed in years, the job codes still merit a close look, primarily for what they can do in retention.

Roll up your sleeves; this is bureaucratic, unpleasant work! That said, it is the fastest way to transform your department while minimizing turmoil, avoiding conflict, and ensuring that your decisions do not create a perception of discrimination or favoritism.

There are three considerations here: job definition, ability to progress, and impact on pay. If there are four roles that 90%+ of your people fit into, why not modify existing job codes and align people into them? Most contracting teams can get by with four basic functional areas:

• Contract Acquisition (Sales) or Negotiation (Procurement)

• Contract Administration (Post-award administration of sales or procurement contracts)

• Contract Infrastructure (runs the systems and/or outsourcing arrangements needed to support the contracts effort)

• Manager, Contracts (people managers)

Now, there will be a broad spread of grades, in most systems that will result in an as-is map that looks like the following:

After the job definition work is done, we need to reshuffle to address ability to progress. Start by answering a few tough questions about your organization today.

First, which jobs are appropriate entry-level points to your organization for new graduates? Do people learn things here that translate to the other functional areas?

Second, which functional areas should “top out” by mid-career (i.e. senior level staff in these functions do not add enough value to justify their higher cost)?

Third, where do you need to allow for high-level individual contributors to attract and retain the best talent?

Based on answers to these questions, you may end up with a functional/organizational map that looks like this:

In this organization, the following logic applies:

Entry-Level

• Automation and outsourcing eliminated most clerical and task-oriented work. People entering the organization need to have the education and drive to progress to higher levels without extensive hand-holding by the company.

• New entries start in either acquisition (bids/proposals) or administration, this gives them the seasoning and business experience necessary to progress. Ideally, people spend time in both acquisition and administration to get a full view of the business cycle.

• At first promotion, people can either stay in their current functional area, or rotate to the other. There are also two other paths available: infrastructure (building/managing the systems and relationships needed for the contracts organization to operate) and people management. In both of these branches, specific technical or leadership ability is required for success.

By Mid-Career, the expectation is that:

• People with a genuine passion for their jobs will continue to excel in their functional area.

• Burn-out may start to be a factor, some people will rotate out of the organization into parallel fields (legal, finance, sales, manufacturing).

• People will enter the organization from parallel fields, and need to be brought up-to-speed on processes and skills.

• Mid-career is an ideal time for an assignment in Infrastructure, or formal experience with people management.

• In this organization, there is little perceived value in high-level staff progressing in Administration, this plateau must be clearly communicated and reflected in lower pay increases and minimal progression.

Finally, in Senior & Global levels

• People continue rotating out of and into the organization, but the time to come up to speed for senior level people is going to be quite high.

• Because of salary differentials, some infrastructure positions in technology may start off at this level

• Senior specialists in acquisition and infrastructure should have clearly defined roles, and be viewed as peers to the Senior Managers in the organization, that said, these specialists are not in the chain-of-command, this plateau should be communicated.

• An excellent negotiator (Contract Acquisition) is not usually in-line to be the next Director without significant people management experience coupled with political savvy. This will come as a shock to many, and you will lose extremely high-value negotiators to the competition. Address this by creating a super-category (“Global”) for these unique individual contributors. While they are not in the chain of authority, they outrank senior managers and report directly to the Director or VP.

#3: Encourage a Mix of Stars & Second-fiddles while Avoiding Victims

To recap, say you are in the “top-heavy” organization identified in step #1. The first step was to recognize the changes that put your people out-of-step with the mission of your company (as well as the current state of the profession.) Next, you mapped the as-is and desired organization with job codes, plateaus and salary caps.

Once this is done, you now must communicate the expectations for each level to the entire team. In the example, this would mean working out a plan with senior-level people in the Administrative functional area, giving them time & assistance to rotate into other areas. People who do not meet the minimum educational requirements to progress within the organization are given encouragement and tuition assistance to obtain the right level of credentialing.

While all of this takes time, the clock is ticking on your organization, you must see rapid and enthusiastic progress from individuals on the team, or move them out.

To this point, our focus was on capability, now let's turn to ambition and passion.

An organization needs a balance of Stars and Second-fiddles to survive. A Star is a high-caliber fast-track high-potential person who closes major deals, revolutionizes administration, develops high quality infrastructure or consistently leads their team to new heights.

All of this is great, but an organization made up of Stars usually ends up infighting as each person tries to get their share of limelight. This is where the Second-fiddles come in. These are the people who deliver consistent quality, and are satisfied with a paycheck and predictability rather than the limelight. This is also great, but an organization made up of Second-fiddles usually lacks the zip for real progress, misses opportunities for executive visibility, and often devolves into Victims if left uninspired for too long.

While an organization must encourage the growth of Stars and Second-fiddles, it must act to limit the growth of Victims. These are the people who find fault with everything, complain incessantly, never come up with an idea, and excel at tearing down others and stalling progress. While the contracts profession has its fair share of Stars and Second-fiddles, for some reason it seems to attract more than its share of Victims. Even a few Victims in a contracts organization will drag the organization down by impairing its credibility. As a leader, it is your job to identify the Victims, give them a road map to improve, and if they don’t change, shove them not only out of the organization, but all the way out of the company.

In a sales contracts organization, I’ve found an ideal ratio of one Star to five or ten Second-fiddles, the precise numbers are less important than the fact that there is a mixture.

In procurement organizations, one Star for twenty Second-fiddles may be more appropriate. Opportunity-based (sales) organizations value and reward the fast-burner Star mentality more than risk-managing procurement organizations.

The ideal mix of Victims is ZERO, but that is unlikely. At any given time, however, more than one Victim per 50 staff will significantly drag the organization. More than 1 in 10, there is likely no hope for the organization without a massive change.

Other thoughts here:

• The fastest way to turn a Second-fiddle manager into a Victim is to move too many Stars through their organization.

• Stars rarely become Second-fiddles - if aggrieved, true Stars simply leave the organization.

• Many Second-fiddles think they are Stars, until they work with one. Then, a Second-fiddle will usually demonstrate the professionalism and self-knowledge to be satisfied with their important role. Occasionally, the example transforms the Second-fiddle into a Star.

• All Victims think they are Stars, just terribly unappreciated.

• Stars tend to get bored unless they are challenged, recognized and promoted frequently. Most contracts groups tend to value long tenure and predictability over quick wins and popularity. Managing this dichotomy is the fundamental challenge faced by leaders of contracting organizations.

• Second-fiddles must see a promotion path that does not involve Stardom. The second-worst thing that can happen to your organization (after a Victim infestation) is an exodus of Second-fiddles. Expect Stars to leave, but pour money into retaining those Second-fiddles.

• In any pay cycle, award promotions and bonuses to Stars, award pay increases and stock options to Second-fiddles, give Victims NOTHING.

So, to continue with the example above, assume that every part of your team needs those Second-fiddle traits of reliability, professionalism and teamwork. Sections of the team friendly to Stars are flagged in Red below.

Rationale

• Contract Acquisition offers the pace, opportunity for recognition and promotion that attracts Stars. Infrastructure is a good place for Stars who have a gift for the administrative side, and a passion for automation, streamlining and other quality initiatives.

• Administration, with its need for stability and governance, often does not provide the opportunity for quick advancement that Stars require.

• Many will find my omission of Stars from middle Management to be disconcerting. My experience is that while Stars tend to be promoted into management, their short attention span, desire for rapid change, and hunger for recognition often cause them to become unhappy in the role. By all means, attract a Star to the top rung of the organization, but encourage the steady, reliable Second-fiddles to lead the various teams.

• Why no space for Stars at the Entry-level and First Promotion rungs of the ladder? At this stage, staff need to be demonstrating that they are capable of high quality, repeatable & desirable work. Encouraging the development of Stars too early can cause the next wave of a contracts organization to devolve into glory-hounding and interpersonal conflict.

• Remember, Stars are valuable because they shake things up, challenge the status quo, and create great new opportunities for the company. They can also be a royal pain because of just those traits. The successful contracts organization wants a core of Second-fiddles who enjoy the job, leavened with Stars to put the fire in the organization.

Summary

• Assess the impact of automation on your organization. Do you have too many people with the wrong skills? Worse, are they refusing to recognize this and evolve?

• Realize that significant outsourcing and offshoring of the contracts & procurement function will be a reality over the next 10 years. Plan your team’s career tracks accordingly.

• Realign job codes and “top-out” points to reflect the relationship of job functions to your corporate mission, as well as where you believe the team & profession are headed. Communicate these as realities, and give people time to meet the new expectations.

• Some people either will not be able to adapt fast enough, or will demonstrate a marked lack of enthusiasm. They need to go before they become Victims and poison the team.

• Enthusiasm & initiative count, so individuals must be encouraged to try. The team, however, needs people who can meet the needs of the company today. Balancing between individual and team needs is why you earn the big bucks.

• Every organization needs Stars and Second-fiddles, your value add is setting the ratios, helping Second Fiddles become Stars, and avoiding the proliferation of Victims.

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