'Contract management' and 'Commercial management' are terms and job titles that are often used interchangeably. Yet in practice, they mean very different things. We have provided some clear definitions of both, below.
A brief overview
- “Commercial management' is the activity which defines the overarching policies and practices that provide a framework for trading relationships.
- “Contract management” is the discipline through which those policies and practices are implemented and within which individual transactions are agreed and performed.
- At a functional level, commercial management is typically strategic and contract management is typically operational.
Let's explore that in more detail...
Commercial Management
Commercial management is the discipline that both informs and implements strategy and policies, taking into account legal and regulatory constraints. It informs through identifying market requirements and then reviewing and aligning with organizational capability. It implements through ensuring effective and efficient operational procedures which establish and maintain those capabilities.
In going to market, any product or service needs to be supported by performance commitments that are relevant to its customers and consumers. Those commitments may be specific to the product or service (for example, price, delivery, maintenance, and support) or generic to the organization (for example, brand values, ethical standards, or regulatory compliance). Commercial management ensures those performance commitments are gathered, assessed, and reconciled, taking into account the needs and interests of all relevant stakeholders, and ensuring their affordability and sustainability.
At WorldCC, we seek to influence and contribute to the growing body of rules and practices within which global trade operates while inspiring and encouraging commercial innovation. Together these represent the commercial competence that is critical to any organization.
Contract Management
Contract management is a discipline that supports commercial management through the preparation, negotiation, implementation and oversight of legally enforceable performance commitments and risk positions, both outbound (to the market) and inbound (from the market). Increasingly, contract management also utilizes relationship management and governance standards to support successful business outcomes. It converts commercial policies and practices and technical capabilities into specific terms, conditions, and governance standards, that are offered to, or required from its suppliers, customers, or business partners, ensuring compliance or gaining approvals for non-compliance. Through active monitoring of performance needs and outcomes, contract management informs commercial management’s actual and required commitment capabilities, together with their financial and risk impact.
Contract Management and analytics is not simply an operational function overseeing transactional negotiation, implementation, and management of contracts. Increasingly it is a critical vehicle for high value management information that supports strategic decision-making.
At WorldCC, we seek to transform contracts and the contracting process, such that they become instruments of fair dealing, that they themselves, and the process surrounding them, promote trust, generate economic benefit, and support social inclusion.
End-to-End
At WorldCC, definition in both cases reflects a full life-cycle role. Some see 'commercial management' as covering only pre-award activities and 'contract management' covering post-award.In reality, we must all contribute to the quality of outcomes.
While there may be separation of job roles, we must not lose the integrated view of process. Research into 'best practice' contracting makes it clear that divisions are a source of weakness and value loss. High performing organizations have a consolidated end-to-end process, and this is the standard we should all be striving for.