What Does it Mean to “Be Commercial”?

Procurement professionals should be more ‘commercially aware’ by better understanding the business structure, the market, the suppliers and keep up to date with future trends.

I was once in a meeting with a former manager where I was urged to be more commercial in my outlook. When I asked for a definition, the answer I got was along the lines of just be more commercial…

I contrast this with an episode earlier in my career where I was said to be too commercial in my outlook. This word “Commercial” is a word that gets thrown around with abandon, yet do we truly appreciate what it means to be commercial?

There are companies that adopt a commercial approach, as procurement professionals we are urged to be “more commercial”. I have met with people who need their Contract managers to be more commercially aware and people even have it in their titles whilst doing utterly different roles. Roads have been named after it and even whole districts!

So what does being commercial mean?

The dictionary definition of commercial has the following explanations:

1. concerned with or engaged in commerce: “a commercial agreement”

2. making or intended to make a profit: “commercial products”

having profit rather than artistic or other value as a primary aim:

“their work is too commercial”

3. (of television or radio) funded by the revenue from broadcast advertisements.
4. (of chemicals) supplied in bulk and not of the highest purity

Ignoring the last 2 (for purposes of this article), I think the more applicable definitions are concerned with commerce (i.e. all the comings and goings in a supply market) and making a profit.

But perhaps the biggest question is: How can we translate this into actionable items for us to consider?

Commerce is the activity of buying and selling. Therefore in order to be commercial in this aspect we need to have:

• An understanding of our business and the wider business environment in which it sits.
• Familiarity with the end product or service that we buy or manage.
• How it fits into our organisations service provision and ultimately its Value Proposition to the wider market (those of you playing consultant bingo can cross that word off).
• A grasp of the activities of our organisation and how your role impacts this.

We also need to have an understanding of the wider marketplaces where we interact daily and be able to:

• Know how the major players in this particular market are performing at present.
• Find out who is dealing with whom, and which companies have won important contracts.
• Think about what the future will bring and what it means to you, your category and your organisation.

Profit is central to any business and should also be for those not solely engaged in the activity of making profit (i.e. public sector or not for profit). As someone in the not for profit sector once said to me, “whilst we are not for profit, we are not for loss either”.

Understanding profit and how organisations make profit should be central to any sustainable procurement strategy. Will these suppliers still be around next year, the year after etc, what are the sources of profit and how do changes in the global market place affect them (commodity pricing, changes in labour force, legislation, global catastrophes and competition).

Commercial awareness then, could be summed up as:

• An interest in business and an understanding of the wider environment in which an organisation operates: its customers, competitors and suppliers.
• Understanding of the economics of the business and understanding the business benefits and realities from both the organisation’s and the customer’s perspectives.
• The need for efficiency, cost-effectiveness, customer care and knowledge of the market place in which the company operates (current economic climate and major competitors).

So how do we actually become commercially aware? Here is a 5 point plan to become more commercially aware:

1. Keep up to date with what is happening about the future for your organisation, and the markets in which your organisation operates. Check your organisations business plan and strategic vision for clues on this.
2. Understand the nature and structure of external supply markets, list out the things that affects them and keep a track on when they occur. (See earlier article on scenario planning).
3. Understand any historical patterns which will help us to predict future trends. It’s particularly useful to be aware of any typical cyclical patterns, such as how wider economic conditions tend to affect a particular industry. On a smaller scale, it could be helpful to be aware of the cycle of the financial year and the effect it can have. For example, organisations may be spending up their budgets and this will have an impact on supply.
4. Understand and map out the key strategic relationships you have with your suppliers. What is their strategic vision and do you feature? Gather data on the suppliers and supply market/s you serve and are served by and pay attention to the trends.
5. For any piece of analysis you do, remember to ask SO WHAT!

So why is this important? I think for a number of reasons depending on where you are in your career…

According to the Association of Graduate Recruiters, commercial awareness is the number one skill shortage amongst graduates.

Most “future of procurement” documents talk about the need for more commercial awareness in procurement activities and professionals.

A key deliverable of contract management (i.e. actually delivering the benefits found in sourcing) is to be commercially aware of their actions during the contract lifecycle.

So consider the 5 point plan to be more commercial and ask how you could apply it to your environment and the next time your manager asks you to be more commercial ( or less) you will have a handle on where to start.

Article by Gordon Donovan.

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