Commercial Management

Theory and Practice

David Lowe

• Publisher: Wiley-Blackwell
• Year: 2013
• ISBN:
  9781118486122
• Edition: 1
• Topic: Technology & Engineering
• Subtopic: Construction & Architectural Engineering
• Index: Technology & Engineering

Commercial Management: theory and practice defines the role of commercial management within project-oriented organisations, providing a framework for and helping to develop a critical understanding of the factors that influence commercial management practice. It also identifies generic aspects of this practice and provides a theoretical foundation to these activities, by reference to existing and emergent theories and concepts, as well as to relevant management best practice.

The book is structured into four parts: Part 1 Introduction – Commercial Management in Project Environments explores the nature of commercial practice within project-oriented organisations at the buyer-seller interface. It presents a Commercial Management framework, which illustrates the multiple interactions and connections between the purchaser's procurement cycle and a supplier's bidding and implementation cycles. Additionally, it outlines the principle activities undertaken by the commercial function, identifies the skills and abilities that support these activities and reviews the theories and concepts that underpin commercial practice. Finally, it identifies areas of commonality of practice with other functions found within project-oriented organisations, plus sources of potential conflict and misunderstanding.

Part 2 – Elements of Commercial Theory and Practice covers commercial leadership; exploring strategy; risk and uncertainty management; financial decision-making; and key legal issues. Part 3 – Approaches to Commercial Practice addresses best practice management; and commercial and contracting strategies and tactics. Finally, Part 4 – Case Studies offers two extended case studies: Football Stadia (the Millennium Stadium, Cardiff; the Emirates Stadium, Islington; and Wembley Stadium, London); and Heathrow Terminal 5.

The book provides a one-stop-shop to the many topics that underpin commercial management practice from both a demand (buy-side) and a supply (sell-side) perspective. It will help develop an understanding of the issues influencing commercial management: leadership, strategy, risk, financial, legal, best practice management and commercial and contracting strategy and tactics.

This book's companion website is at www.wiley.com/go/lowecommercialmanagement and offers invaluable resources for both students and lecturers:

• PowerPoint slides for lecturers on each chapter

• Sample exam questions for students to practice

• Weblinks to key journals and relevant professional bodies

Part 1

Introduction

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Introduction	Commercial Management
Chapter 1	Commercial Management in Project-Oriented Organisations

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Introduction

Commercial Management

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Learning outcomes

After reading this introduction you will be able to:

• Define the terms ‘commercial management’ and ‘commercial manager’
• Identify common activities undertaken by commercial managers (practitioners)
• Describe the position of ‘commercial’ within global, project-oriented organisations

Additionally, this introduction seeks to provide an overview of the format and context of the book.

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Introduction

Commercial exists as a distinct management role in many organisations, particularly those originating from the UK, although it is becoming more accepted globally as a valuable business activity. Despite this, while a basic internet search will generate numerous job advertisements for commercial managers, executives and directors, academic management literature is decidedly quiet on the subject. Building upon the previous publication Commercial Management of Projects: Defining the Discipline (Lowe with Leiringer, 2006), this text seeks to redress the situation by defining and describing in a normative way, precisely what ‘commercial actors’ (practitioners, managers, specialists, executives, etc.) actually do. It also provides a framework for the application of the principles and underpinning theory that support effective commercial practice.¹

Increasingly ‘commercial’ is viewed as a dynamic capability within organisations. The changing nature of business-to-business (b2b) exchanges (economic transactions), resulting from the processes of globalisation, servitisation and collaboration, has necessitated the formulation and management of complex ­inter-firm contracts, agreements and relationships across the resulting value networks. The commercial function within organisations is primarily responsible for the design, negotiation, award and management of these b2b transactions.

What is commercial management?

The terms commercial management and commercial manager have been used for some time, predominantly, but not exclusively, in the following sectors:

• Telecommunications, electronics and ICT
• Services and outsourcing
• Energy and oil
• Defence and aerospace
• Financial services
• Pharmaceuticals and health care
• Engineering and construction

Table I.1 Definitions of commercial management.

Definition	Source
The process of controlling or administering the financial transactions of an organisation with the primary aim of generating a profit	Lowe et al. (1997)
The management of contractual and commercial issues relating to projects, from project inception to completion	Lowe and Leiringer (2005, 2006)
The identification and development of business opportunities and the profitable management of projects and contracts,from inception to completion	International Association for Contract and Commercial Management (IACCM)/The Institute of Commercial Management (ICM) (IACCM, ND)

Definitions of commercial management

Despite its usage in practice, there is no universally acknowledged definition of the term commercial management; although a few suggestions have been proffered. These are presented in Table I.1.

Based on an investigation into the role of commercial managers in the UK construction industry, Lowe et al.’s definition focuses on the financial aspects of the function. Their results suggest that within the ­construction supply sector the role was based around ‘looking after’ the profits of an organisation, which entailed minimising its costs and maximising its income, and managing ‘cash flow’. This definition was subsequently modified by Lowe and Leiringer following a study of the commercial role across three, predominantly project/programme-based industry sectors: construction, telecommunications/ICT and defence/aerospace (Lowe and Leiringer, 2005, 2006). Although not explicitly stated in either definition, both Lowe et al. and Lowe and Leiringer acknowledged the centrality of risk management to commercial management.

The definition adopted more recently by the International Association for Contract and Commercial Management (IACCM) and The Institute of Commercial Management (ICM) reflects the application of the term beyond project/programme-oriented organisations and industry sectors, emphasising the function’s involvement in recognising and realising new business opportunities. However, in doing so, the definition is open to criticism: being a rather general delineation of the commercial contribution to an organisation – that is, one that could equally be applied to a more generalist management role.

While all three definitions are concise, they each fail perhaps to convey the breadth and multifaceted nature of the function. This is not surprising. The task of framing an appropriate definition that encapsulates all aspects of the role would probably run into several pages and include numerous exclusions and provisos. It is also hampered by the use of the term to describe the use or exploitation of natural resources, for example, land (forestry and quarrying), fish stocks (fish farms) or animals (poultry, pigs, etc.). Additionally, in a global context there are issues concerning the use of the word ‘commercial’; for example, the French translate the word as ‘sales’, which has the potential to cause confusion as ‘sales’ is a recognised function within organisations and an established academic discipline.

Definitions of commercial manager

Derived from the above definitions of commercial management, two definitions of the term commercial manager have been framed (see Table I.2). However, the reservations expressed in respect of the definitions of commercial management, equally apply to these definitions.

Table I.2 Definitions of commercial manager.

Definition	Source
… a person controlling or administering the financial transactions of an organisation with the primary aim of generating a profit	Lowe et al. (1997)
… is someone whose primary role is in the ­management or execution of such opportunities or projects^2	International Association for Contract and Commercial Management (IACCM)/The Institute of Commercial Management (ICM) (IACCM, ND)

Table I.3 Definitions of contract management.

Definition	Source
Contract management is a niche within the procurement profession, but it has a very broad perspective in terms of the responsibilities assigned to a contract manager. The job scope ranges from the administrative skills of managing, organizing, and planning, to the excitement and challenge of negotiating a major contract	National Contract Management Association (NCMA, 2011)
Contract management is the process that enables both parties to a contract to meet their obligations in order to deliver the objectives required from the contract. It also involves building a good working relationship between customer and provider. It continues throughout the life of a contract and involves managing proactively to anticipate future needs as well as reacting to situations that arise	Office of Government Commerce (OGC, 2002)
Contract management is the process of managing and administrating the … contract from the time it has been agreed at contract award, through to the end of the service period …	Public Private Partnerships Programme (4Ps, 2007)
Contract management is the phase of the procurement cycle in which a supplier delivers the required goods or services in accordance with a procuring authority’s specification	OGC (2009)
Ongoing monitoring and management of the provision of services in line with the agreed terms and conditions	Victorian Government Purchasing Board (VGPB, 2011)

Definitions of contract management

Alternatively, the terms contract management and contract manager have been adopted as descriptors for the ‘commercial’ role in organisations; however, as shown in Table I.3, there is some confusion over the precise meaning of the term contract management. For example, it is often taken to imply a ‘back-room’, administrative, task-orientated or procedural-focused role, and in many organisations the role is restricted to post-award activities in the procurement cycle (those carried out after a contract has been entered into); see, for example, the definitions OGC (2009) and VGPB (2011). In other organisations ‘contract management’ is viewed as a more dynamic capability involving the drafting and negotiation of complex b2b ­contracts and agreements. However, as is evident from the following review of the tasks undertaken by commercial practitioners, while contract management (in its broadest sense) forms a major area of activity, individuals with the title ‘commercial’ rather than ‘contract’ manager generally have a wider sphere of involvement both throughout the project life cycle and in the breadth of activities under their control (for example, relati...

Table of contents

• Cover
• Title page
• Copyright page
• Dedication
• Access to Companion Site
• About the Author
• About the Contributors
• Acknowledgements
• Preface
• Abbreviations
• Part 1: Introduction
• Part 2: Elements of Commercial Practice and Theory
• Part 3: Approaches to Commercial Practice
• Part 4: Case Studies
• Index