It takes intelligence to trade.
As a recent article in The Economist pointed out, societies that become isolated not only stop innovating, but over time they actually regress. This is because the drive for specialisation is directly related to the complexity of human interactions.
Complexity and opportunity in trade both come from the free flow of goods and services. By eliminating borders, we maximise the range of goods and services that are available as well as enabling specialisation based on comparative advantage. “The success of human beings depends crucially, but precariously, on their numbers and connections” says economist Matt Ridley in his book “The Rational Optimist: How Prosperity Evolves”.
In order to succeed, we need not only to innovate in the products and services we produce, but also in the ways that we make their acquisition possible. Today, the erosion of borders means that we are competing both to sell and to buy in almost every corner of the world. As was observed in the recent IBM Global CEO Study, this has resulted in unanticipated levels of complexity, as we try to make sense of the best ways to structure and manage our business relationships.
Trade depends on communication – and the purpose of that communication is to establish consensus and consent between the trading parties; to ensure clarity and reduce ambiguity; and to agree appropriate mechanisms that result in trust and confidence. These roles should be achieved through the contracting process, which in turn results in appropriate records and the adoption of the processes necessary to support performance.
As IACCM research has shown, the nature and quality of communication has a direct effect on the quality of the contract – and therefore its success in delivering these attributes of consensus, clarity and confidence. Many of today’s contracting practices run counter to the concepts of a free flow of ideas. Instead, they represent a spirit of protectionism that is mostly determined by the relative power of the parties. After all, it is easy to react to complexity by claiming everything is ‘too risky’ and, rather than seeking ways to manage that risk, simply seeking to avoid it.
It takes intelligence to trade and it takes intelligence to take risks. That is because complexity requires innovation and progress depends upon us learning and re-using that innovation. Those who are charged with the contracting process must become better at identifying and promoting the innovative commercial ideas that assist in managing increased complexity. We must resist the temptation to stick with the tools of the past. Our future is indeed exciting – if we choose to make it so.
About Today’s Guest Expert:
Back in 1997, Tim decided to abandon a career in the Corporate world and to become an entrepreneur. He rapidly learnt a new approach to taking risks and gained real respect for people in Sales, adding to his experience in marketing, finance and contracts. After working to build and sell one venture and successfully establishing a second, Tim returned to the field which really fascinates him and founded the International Association for Contract & Commercial Management (IACCM), a non-profit organization that has become the global forum for innovation in trading relationships and practices. It is a wonderful place to be, offering cross-industry, cross-functional, multi-national insights to the complex world of business and negotiation at a time of unparalleled change. Tim’s background as a student of History, a lover of politics and social development, a fascination for communication and writing have equipped him to use these tremendous experiences as opportunities to learn and offer what he hopes to be helpful insights and ideas on the evolution of business organization, motivation and management.
Tim’s Blog: Commitment Matters