Digital Transformation » Digitalisation – a recipe for a legion of lawyers? 

Digitalisation – a recipe for a legion of lawyers? 

Digital transformation may bring a set of challenges associated with third party participants, says Ian Sadler, partner at accountants RSM.

For many, digital advancement has long been something to be fearful of – from robotics and artificial intelligence to the world of big data and analytics. And it isn’t going away any time soon. Within a decade we will all be living with technologies that directly influence how we go about our daily lives. But for now, it presents many unknowns for society as a whole.

In a business context, technological change will not take away people’s livelihoods, at least not for those who are willing to adapt. Rather it will change the fundamental modus operandi of how individuals and businesses think and operate in the future.

It will alleviate, or even remove altogether, mundane administrative processes. It will pave the way for staff to focus more on determining how technology is deployed and how they can use their human judgement to analyse, interpret and work together around the outputs it produces.

Finance leaders, like any other business function, must lay the foundation for this change. They need to keep pace with the technological change, driving projects that transform how financial transactions are processed, how business insights are shared and how resources and risks are controlled.

In a period where the role of individuals in a finance team is likely to change irrevocably, they will need to upskill staff and to change culture and working practices. But is this enough to optimise the digital revolution in an organisation?

Recent surveys suggest that the IT revolution will not only increase the array of external software vendors working alongside the finance team but will also accelerate the use of outside IT and accounting outsource providers.

Interactions with this burgeoning group of suppliers, all of whom have an important role in delivering digital change, may generate a new approach or way of thinking – what some academics call a constellation model, where organisations and their partners collaborate to present a unified front to the rest of their business as well as to the outside world. Codifying the terms that make this type of multi-party arrangement successful carries both risk and opportunity.

To deliver a truly integrated business relationship of this kind, there’s an unnerving assumption that traditional contracting methods are fit for purpose. I don’t believe this will be the case – as the adage goes, contracts don’t deliver projects but drive behaviours.

The traditional method is founded upon numerous frameworks of rigid, arms-length terms and conditions set out between the business and its suppliers. In an era of digitalisation, with daily interactions necessary between participants in the constellation, the traditional model is likely to need an army of lawyers on stand-by to interpret and adjudicate with alarming regularity.

I am not suggesting that objectives measured around performance have no part to play, but I believe there is a need to shift the contractual underpinning of this new approach to a single framework with a pre-eminent focus on common goals, collaborative modes of behaviour and equitable profit-sharing arrangements amongst the participants. But does this structure exist?

Model thinking

Some of the largest infrastructure projects to build bridges, dams, roads and railways for example – may hold the key to a more appropriate contractual model. With multiple stakeholders, working alongside prime and sub-contractors across an extended time period, these major programmes offer the opportunity to govern the constellation more effectively.

Infrastructure projects are, of course, littered with failures generating enormous cost overruns and only realising a fraction of the anticipated value. However, programmes that have used relational rather than traditional forms of contracting tend towards a higher success rate with their focus on a common programme culture, a spirit of transparency and unity of purpose, equitable cost-sharing amongst all contractors and a flexibility to reassemble the participants as business needs evolve.

The construction of Terminal Five at London’s Heathrow airport – an on-budget and on-time project – is a case in point where relational contracting was used effectively between the British Airports Authority (BAA) and its key project suppliers over a six-year period.

The relational terms accommodated flexible design changes; encouraged collaborative behaviours between the parties through regular communication (openly sharing, for example, relevant product cost data); supported strategic alignment of goals through an open book and transparent culture of operation and ring-fenced participants’ profit share, with incentives for parties to exceed expectations.

Taken together these terms should resonate loudly with businesses signing up to large-scale, long-term outsourcing and software deals and operating across lots of inter-linked and dependent parties. Essentially, the Heathrow project was able to “discard hard-nosed lump-sum forms of contracting for others that nurture cooperative, long-term relationships…” (Gil 2009).

For those in finance, fearful of digital change, this may offer a viable means to capture and equitably share the benefits that digitalisation offers. Co-located internal and third-party participants in the finance team, working together to serve the wider business needs, may just be a recipe to keep the lawyers at bay.


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