SENSEMAKING IN CONTRACT MANAGEMENT: OVERCOMING AMBIGUITY AND UNCERTAINTY

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SENSEMAKING IN CONTRACT MANAGEMENT:

OVERCOMING AMBIGUITY AND UNCERTAINTY

Master thesis, MSc Supply Chain Management

University of Groningen, Faculty of Economics and Business

January 26, 2015

ANDREAS KLASSEN

Studentnumber: S2624850

Email:

a.klassen@student.rug.nl

Supervisor/ University

Dr. H. Broekhuis

Co-assessor/ University

Dr. K. Scholten

Supervisors/ Company

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I would like to thank my university supervisors Dr. Manda Broekhuis and Dr. Kirstin Scholten for guiding me and providing me with helpful feedback throughout this thesis project. Furthermore, I would like to thank Alexander Vink and Rob Posthuma for offering me the great opportunity to conduct my research at Gasunie. Moreover, I would like to thank all the participants and employees of Gasunie who helped me with all their insights. Finally, my gratitude goes to my family, Lilli, Johann and Inna Klassen, and to Aline Jansen, Thomas Gollackner, Tim Wijnsma, and Fragkiskos Polakis for their support.

Abstract

This qualitative research aims at identifying how the four features (experiencing uncertainty and ambiguity, using past knowledge, developing a common language, jointly communicating and taking actions) are applied in contract management in order to overcome uncertainty and ambiguity and how this changes the contract outcome. To analyze these relationships a multiple case study was conducted with a total of three contracts as cases and nine interviews involving contract managers, internal customers, and contract supervisors. After analyzing each case separately, the cross-case results and discussion show that a higher degree of sensemaking reduces the degree of uncertainty and ambiguity in CM and thus increases the likelihood of a contract to result in a positive outcome. This study contributes to theory by discussing and extending the meaning of CM per se and how sensemaking is applied in CM in general. Practically, this research suggests that the responsibility of CM should reside on the focal business and that uncertainty can be overcome by useful tools like the DAP.

Key words: sensemaking, uncertainty and ambiguity, contract management, shared understanding

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1 Introduction

The importance of contract management (CM) process referring to a buyer-supplier relationship is twofold: First, it involves activities to ensure that all parties of a contract perform according to the terms and conditions agreed upon in the contract (Reid, 2010). Thereby, Aberdeen Group estimated that companies with an annual spending of $500 million on purchasing, loses $30 million every year due to poor CM (Saxena, 2008). Second, it can serve as an antecedent of supplier relationship management since it covers tasks going beyond the conditions of a contract, i.e. mutually paving the way for a long-term relationship by initiating supplier involvement programs and world-class supplier awards (Seshadari and Mishra, 2004; Camén et al., 2011; Lumineau and Henderson, 2012). Companies have noticed the value of closer relationships with their suppliers for their overall business performance (Trend, 2010). However, deciding whether to establish a long-term or short-term relationship with a supplier will depend besides the importance of a product or service to the focal company also on their supply chain strategy. Thereby, CM plays an important role as it serves as the basis for SRM (van Weele, 2014).

CM is defined as “the process of ensuring that the parties to a legally agreed-to contract fulfill the requirements, expectations, and terms and conditions of the agreement” (Trend, 2007, p.135). CM takes place in a highly complex decision-making environment as a variety of interests (Golob et al., 2013) of stakeholders (both focal company and suppliers) is engaged in contract management. Due to the decisions made by parties, which are based on local interests, inefficiency is forged, i.e. each stakeholder tries to enforce his own interests and take the greatest advantage possible out of a contractual relationship. The outcome of CM is often reduced by constant individual decision biases (Wu, 2013). Moreover, van Weele (2014) mentions inefficient decision making caused by lack of clarity of authority in larger companies leads to serious performance problems since stakeholders often are unaware of their responsibility (see also KPMG, 2012). Similarly, misunderstandings and misinterpretations of what has been agreed on both buyer and supplier side have become an issue leading to ambiguity of performance of the contract (van Weele, 2014). PWC (2013) calls the operationalization of contract management a challenge that managers need to face. According to the authors managers often focus on cost cutting oriented strategies in procurement projects while implementing and neglecting the management of the actual contracts causes a 25 per cent contract value leakage. All this makes it seem obvious that managers sometimes not only misunderstand how CM processes function but also underestimate the benefits of appropriate CM. As a consequence all these issues described above cause ambiguity and uncertainty among practitioners resulting in bad outcomes for CM.

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introduced the so called sensemaking perspective from which both scientists and practitioners benefit in such way that it provides transparency in the processes of decision-making (Maitlis, 2005). Sensemaking is defined as “the ongoing retrospective development of plausible images that rationalize what people are doing” (Weick, 1995, p. 409). Due to its applicability in highly complex decision making environments sensemaking is suitable for an examination in CM. Four interrelated and subsequent features of sensemaking have been identified which altogether lead to overcoming uncertainty and ambiguity when applied appropriately. Thus, the research will be driven by the following research question:

How can internal stakeholders create joint sensemaking of contract management in order to overcome ambiguity and uncertainty?

The aim of this research is how sensemaking is applied in contract management. Based on this, this research develops propositions which might be the basis for improvement undertakings and further research.

The scientific contribution of this study is represented by the identification of how sensemaking is applied by stakeholders in CM. It tries to provide an exclusive meaning of CM, which, as later stages will show, has not been discussed critically in literature. From a managerial view this research might be interesting to the extent that companies get useful insights on how the process of sensemaking works on a practical level: Examining the application of sensemaking in the CM context might give more understanding of the decision-making process which eventually might result in performance improvements, e.g. clearer communication, clarity and increased understanding among functions and activities involved.

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2 Theoretical Background

2.1 Sensemaking

The sensemaking perspective with its set of characteristics serves as the guiding framework for this research. The issues and challenges described above point out that stakeholders involved in CM establish their own interests, behaviors, ideas, and feelings about the contract (and contact) with the supplier. Since each party affected does not have complete information about the other party and since parties tend to perceive transactions predominantly from their own perspective, a situation of information asymmetry is created, which in science is called bounded rationality (van Weele, 2014; Roehrich et al, 2014). Thus, parties create a situation of chaos including a high degree of ambiguity and uncertainty (Maitlis, 2003), which is also the case in CM. That is, uncertainty causes transaction costs in terms of renegotiations, monitoring the contract, and potential resolutions of disputes (Malatesta and Smith, 2014). To reduce ambiguity and uncertainty stakeholders need to create a more common understanding of what CM may involve and how to give joint meaning to both the contract and to CM. Depending on the degree of specification contracts are able to reduce uncertainty since they facilitate measures indicating specific authority, roles, scope, and coordination capabilities. Thus, contracts can serve as appropriate means to uncertainty. However, highly specified contracts limit contract flexibility when it comes to issue resolution (Poppo and Zenger, 2002). Looking at CM from a sensemaking perspective seems worthwhile since it relates to group decision-making processes as applied in CM. Sensemaking aims at organizing people “to make sense of equivocal inputs and enact this sense back into the world to make that world more orderly” (Weick et al., 2005, p. 410). Sensemaking focuses on highly complex group decision making, exposes puzzling questions, and eventually brings groups into action (Tillmann and Goddard, 2008; Rutledge, 2009). It looks at irrational features like feelings and behaviors which represent a considerable significance in business transactions (Vaara, 2003). As a perspective, sensemaking follows a logic of four interrelated features whereby a situation, characterized by ambiguity and uncertainty leading to chaos, serves as the starting point (Weick et al., 2005).

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aim of the focal company is to pay as little money as possible. On the other hand, the supplier tries to achieve the greatest amount of profit out of the deal (van Weele and van der Puil, 2013). Since each party affected does not have complete information about the other party and since parties tend to perceive transactions predominantly from their own perspective, a situation of information asymmetry is created (van Weele, 2014; Roehrich et al, 2014). Thus, parties create a situation of chaos including a high degree of ambiguity and uncertainty, which is also the case in CM. To reduce ambiguity and uncertainty stakeholders need to create a more common understanding of what CM may involve and how to give (joint) meaning to it. Jointly organizing the flux of this new situation might be the problem-solving trigger. As a consequence, a subquestion of the initial research question is derived as follows:

Q1: How do internal stakeholders experience ambiguity and uncertainty in the highly complex environment of CM?

Second, what happens after that is covered by the noticing feature of sensemaking. Here people invent a new interpretation or meaning for the event, which has not yet been giving a term which makes it more meaningful for the community and thus has not yet been considered as a “separate and autonomous process, object, or event” (Weick et al., 2005, p. 411). This feature goes hand in hand with what is called labeling. People strive for tangibility of those impressions by searching for means of labeling them in order to be able to communicate and to share with others. Thereby, people need to impose “labels on interdependent events in ways that suggest plausible acts of managing, coordinating, and distributing”, commonly known as functional deployment (Weick et al., 2005, p. 411). Diekmann et al. (2012) state that uncertainty must be represented in ways that end-users can understand it properly: Evaluative labels indicating the degree of uncertainty (e.g. numerical ranges) may have a positive influence on the understandability of meanings since stakeholders can grasp uncertainty properly and thus becomes more tangible. In a contractual context, this characteristic of sensemaking refers to for instance situations in which both focal businesses and suppliers are faced with troubles resulting from, for example, malperformance as a consequence of not having met the conditions agreed upon in the contract from one or more parties. In such a situation, it is necessary to develop a common language which is important to not only reduce the impact of a possible failure but also to prevent it. Part of building a common language might also be that one party influences or even forces the other party to adapt a certain language so that unequal or unfair benefits emerge. Based on the above, the second subquestion is derived as follows:

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Third, sensemaking is retrospective. People try to scan their environment retrospectively in order to understand and make sense out of it. Scientists, thereby, refer to the cognitive processing where people in the aftermath of an event novel to them associate labeling with past experiences (Henningsen, 2006; Weick et al., 2005). Linking past experience with the labels described above and current events is derived by the presumptive nature of sensemaking. When stakeholders connect past experience and current events with novel labels then this process is based on assumptions (Weick, 2005). Contract managers exploit their experiences about past events in order to be able to cope with uncertainty and ambiguity involved in CM. The third subquestion is derived as follows:

Q3: How do stakeholders use their past knowledge in making sense of CM?

Fourth, sensemaking builds on communication and action. Weick et al. (2005) point out that acting in sensemaking is a consequence because an event is articulated into existence, i.e. labelled and shared by means of communication, and thus the way for taking action is paved. Moreover, sensemaking refers to acting in a thinkingly manner. This implies people to simultaneously interpret experience with given and approved frameworks and mistrusting those by applying new frameworks and interpretations. When people thereby interact which each other they share their understandings with the result that ambiguity is minimized by making the complex novelty explicit, simpler, ordered, and logic for all people involved (Weick et al., 2005; Henningsen, 2006; Rutledge, 2010). Communicating and taking action for contract managers is crucial when parties have to deal with contractual inconsistencies in order to avoid ambiguity. Thereby, often the critical moment appears when it comes to the question which particular action to take in case of, for example, a failing contract. Thus, the fourth feature results in the following subquestion:

Q4: How do internal stakeholders jointly communicate and take actions to overcome ambiguity and uncertainty?

2.2 Contract Management

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must be included. Following this, there is the contractual stage including the negotiation and contract closure, the contract execution phase, where the contract is managed according to Trend’s definition, and the post-contractual stage, where legal claims are treated (Van Weele, 2014). As this difference in opinion between scientists seems obvious uncertainty about the meaning of CM is caused and thus serves as one base for the examination of sensemaking in CM.

Furthermore, buyers and supplier communicate and interact not only through the price system but also by making use of a multitude of formal and informal non-price instruments and mechanisms “to influence the decisions necessary for an efficient exchange between firms” (Seshadari and Mishra, 2004, p. 513). Formal written contracts have several functions as bringing parties together, legal evidence of the nature of the agreement, and the specifications agreed upon (Camén et al., 2011). After closing of the formal agreements the contract management phase starts (van Weele, 2005) on both operational and strategic level.

2.2.1 Operational CM

CM can be regarded as two-leveled. Operationally, CM “is a prudent and proper effort to ensure that the contract document reflects the agreement of the parties and the file demonstrates compliance with all applicable rules – be the statutes, regulations, or internal company policies and procedures (Reid, 2010, p. 71). The operational level of CM covers six main activities.

Implementing the Contract: Developing and following the implementation plan of the contract

means that frequent meetings with suppliers and internal customers are necessary in order to plan the progress being made on both buyer and supplier side and that the contract is applied as agreed upon among all stakeholders involved (Lambert and Schwieterman, 2012).

Administration: The managerial activities aim to provide the conditions, means, and facilities to

execute the basic contract management activities in an efficient and effective way (NAO, 2008). However, as management takes over the administration of CM they have to ensure that all activities and responsibilities are clear and understandable not only to internal CM staff but also to other departments, e.g. executive board or HRM. This preparation of processes prevents staff from mistakes in the application of tasks. Furthermore, a contract manager needs to provide access to the right amount of resources not only in the form of labor but also of financial and physical nature, i.e. office space. Moreover, management has to make sure that the right employees are found for efficiently performing their tasks and also that those employees are formed into the right working groups, if necessary (NAO, 2008; ICN, 2007).

Measuring Supplier Performance/Monitoring: In judging the success of a contract the

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Gopal and Thakkar, 2012). Gaining knowledge by assessing a supplier prevents a focal business from future malperformance and failure of contract (Kumar et al., 2014). Thereby, measurement systems need to be aligned with a company’s strategy (Hald and Ellegaard, 2011).

Develop framework of metrics: Measuring supplier performance requires the development of

appropriate metrics. These should incorporate the supplier’s impact on the company’s business performance, i.e. profitability. This means that managers need to make sure that all internal and external metrics are consistent and appropriate and that they do not interfere with the metrics used in other processes (Lambert and Schwieterman, 2012).

Payment: In the optimal case that the supplier performed according to the terms agreed upon

the focal company has to make sure that the supplier receives compensation (Swinney and Netessine, 2009). These transactions are managed mainly by using ICT in consultation with the accounting department (NAO, 2008; Trent, 2007).

Auditing/Meeting: CM requires staff and managers to meet regularly with suppliers in order to

discuss issues and (project) progress. Locke et al. (2007) state that audits are important to ensure compliance not only on a contractual basis but also from a corporate governance perspective when examining a multinational sportswear manufacturer auditing its suppliers in order to improve local working conditions. Auditing is a tool for information sharing between parties and as such is a supporting mechanism for the contract (Chen et al., 2008). Auditing is applied close with measuring and together is called monitoring which is important to manage risks involved in a contract (Trent, 2007).

It seems as if the tasks are explained narrowly and clear. But mind that this literature mainly refers to supplier relationship management rather than to CM. Thus, it is still not absolutely clear whether these activities are indeed involved also in CM even though it appears to be logic. Having this in mind, the uncertainty and ambiguity aspect in CM is confirmed as there is no proper consensus about CM in literature.

2.2.2 Strategic CM

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the contractual timeframe. If it does, strategic CM takes the direction towards supplier relationship management.

Supplier relationship management is discussed intensively in literature. Both scientists and managers argue about to what extent CM can be regarded as part of supplier relationship management (SRM) or even as an evolvement into SRM: Scientists argue that not all elements of a business deal can be covered by the means of a contract (Dekker, 2004). Intangible assets like trust, goodwill, and commitment are essential parts of a business relation. According to Camén et al. (2011) commitment is crucial as it implies all involved parties that it is worth maintaining the relationship. Furthermore, trust is essential in a business relationship because it includes a party's ability to rely on a partner, which eventually will make a relationship working. Even though those aspects can be missing formulated in a contract, there are essential and need to be considered as they have a remarkable effect on the performance of a business relationship (Camén et al., 2011). Seshadari and Mishra (2004) state that strategic CM and SRM are interrelated since CM provides evolving governance structure for relationships. SRM, on the other hand, is needed within a business as an inter-firm exchange that contracts cannot deal with efficiently. However, it is crucial for businesses to us the contractual basis whenever possible in order to provide the foundation for the enhanced scope of SRM (Seshadari and Mishra, 2004; Lumineau and Henderson, 2012). It becomes clear that the border between CM and SRM is vague and both fields are not always distinguishable. Thus, Seshadari and Mishra (2004) conclude that strategic CM and SRM are complementary and neither would function without the other. However, regarding strategic CM from a supplier relationship management point of view it includes activities requiring a higher degree of communication between stakeholders on both sides rather than one-sided internal communication (as in operational CM) (Trent, 2007). Thus, it includes not only the preparation of business goals (Reid, 2010) which need to be aligned with operational CM activities but also initiatives for supplier development requiring a contractual basis (Krause et al., 2007; Modi and Mabert, 2007). Thereby, managers are always confronted with the issue of balancing relational, i.e. the relationship a business would like to enter in with a partner, and transactional, focusing on short-time and purely business transactions, decision-making (Seshadari and Mishra, 2004).

According to Lambert and Schwieterman (2012) SRM in strategic CM covers activities such as:

Generate Supplier Cost/Benefit Reports: Based on the supplier performance measurement

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related data. This will also support decisions about supplier development initiatives (Lambert and Schwieterman, 2012).

Develop Guidelines for Sharing Process Improvement: Sharing the benefits of process

improvements with the suppliers leads to advantages for the focal company because by doing so they encourage the supplier to invest or put more effort into continuous improvement activities. This has to be done by first developing guidelines which define the benefits and improvements that the focal company and the supplier want to achieve. Furthermore, these guidelines help both parties to oversee the opportunities for continuous improvement (Lambert and Schwieterman, 2012). 2.3 Uncertainty and Ambiguity in CM

As described by van Weele (2014), CM faces several problems. As mentioned before the exact meaning of CM still causes uncertainty and ambiguity as scientists contradict each other (van Weele, 2014, vs. Monczka et al., 2009). This might also be the cause why the literature about the specific activities involved in CM is so limited. There has not been any empirical study indicating a common understanding of CM and related activities in CM.

Moreover, inefficient decision making caused by lack of clarity of authority is indicated as a trigger for serious performance problems since stakeholders often are unaware of their responsibility (see also KPMG, 2012). Similarly, misunderstandings and misinterpretations of what has been agreed on both within the internal buyer supply chain and the external supplier side have become an issue leading to ambiguity of performance of the contract (van Weele, 2014).

PWC (2013) calls the formalization of contract management a challenge that managers need to face. According to the authors managers often focus on cost cutting oriented strategies in procurement projects while implementing and neglecting the management of contracts causing a 25 per cent contract value leakage. It seems obvious that managers sometimes not only misunderstand how CM processes function but also underestimate the benefits of appropriate CM.

Furthermore, Golob et al. (2013) mention possibly the most important issue in CM as the variety of interests engaged in contracting. Due to decentralized decision-making caused by local interests inefficiency is forged. Thus, the effectiveness of CM is often reduced by constant individual decision biases (Wu, 2013).

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In sum, CM faces a multitude of problems and challenges which limit the effectiveness of its application and continuously cause ambiguity and uncertainty in CM. Therefore, approaches need to be applied in order to minimize the effect of those and to increase the efficiency of CM activities. The roots might lie in several origins, i.e. information technology, markets, but also human nature (PWC, 2013). The next section will explain in detail, how this research is built in order present the link between the sensemaking perspective, CM, and the uncertainty and ambiguity involved in CM. 2.4 Conceptual Model

Based on the theoretical background explained above, the following conceptual model can be derived. It is partly derived from Stagliani and Ravasi (2012) who examined sensemaking on an individual and group level.

Figure 1: Conceptual Model

This study examines the relationship between the sensemaking perspective with its four features, the degree of uncertainty and ambiguity in CM, and the contract outcome. Contract outcome thereby refers to the degree of problems involved. If contracts are characterized by a high number of problems, the contract outcome might be a failure. On the other hand, if problems appeared only little, the contract outcome can be considered as rather successful. For the conceptual model this implies that a higher degree of sensemaking might lower the uncertainty and ambiguity in CM, which in turn leads to a positive contract outcome. On the other hand, a low degree of sensemaking might lead to a higher degree of uncertainty which eventually leads the contract outcome to be a failure. Sensemaking Experiencing Uncertainty & Ambiguity Using past Knowledge Miscommunication Jointly Develop A Common Language

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3 Methodology

3.1 Qualitative versus Quantitative Approach

This research is based on a qualitative approach. This is based on the social-constructive philosophy of this research. Individuals seek for mutual understanding of the world they live in. By communicating and interacting subjective views are generated which are assigned by the individuals to the objects, events, and environments they are confronted with. Consequently, a multitude of views leads to high complexity which this research attempts to examine (Cresswell, 2009).

Furthermore, Karlsson (2009) proposes a qualitative approach to get in-depth understanding of decision-making, which in this setting is appropriate because, as pointed out earlier, CM on both levels has to deal with highly complex decision-making. In the CM environment individual stakeholders contribute to joint sensemaking by their experiences ambiguities and uncertainties, their labeling of events, their past experiences, and their communications and actions. It is therefore crucial to examine the stakeholders involved in CM in their natural and daily surrounding.

3.2 Research Strategy

3.2.1 Case Selection

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For the data collection a selection of potential interview participants has been created. Since the research aims at the internal supply chain of Gasunie the following functions have been chosen:

∙ The contract manager of Gasunie ∙ The internal customer

∙ The contract supervisor

It was expected to find a communication structure behind the functions as they interact with each other (Figure 2). Consequently, the extent of joint sensemaking could be examined. The selected stakeholders not only were authorized to provide information but also due to the involvement of the chosen functions in CM, a high degree of competence and reliability could be expected.

Figure 2: Internal Supply Chain in CM

Internal Customer Contract Manager Contract Supervisor

The unit of analysis is defined as the process of making sense to a contract within an internal supply chain. Thereby, predetermined criteria relating to the unit of analysis (Karlsson, 2009) have been selected:

Contract outcome: A central assumption was that a process of more intensive and joint

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Language: Further criteria included the language of the contract which appeared to be

important since Gasunie tends to set up the contracts with their suppliers in their local language and the researcher`s Dutch speaking capabilities were limited.

Availability of resources: The availability and readiness of the functions and stakeholders

involved and the accessibility of documents related to the contracts had to be ensured.

Figure 3: Case Selection based on Contract Outcome

Case 1 Case 2 Case 3

Negative Outcome

Positive Outcome

3.2.3 Case Description

As a first step of the research a selection of contracts was made with the support of a contract supervisor. Due to the fact that not all contracts could meet the criteria, the criteria were prioritized. The language of instruction for one case was Dutch. This problem was solved by the support of a second researcher speaking Dutch as the mother tongue. Eventually, three cases were chosen:

The first case dealt with a contract about technical maintenance and facility management, i.e. heating, ventilation, and air conditioning (HVAC). The contract is important to Gasunie as the maintenance of their facilities is vital to keep the gas supply steady. The contract represented a problematic CM as the outcome was described as rather negative; part of it was described as a precarious communication not only with the supplier but also between internal functions within Gasunie. The services covered all facilities of Gasunie in the Netherlands. The supplier is an international facility management service and energy provider, located with their subsidiary in the Netherlands. Gasunie assigned one CM position for this contract. After 4the CM responsibility was handed over to another contract manager due to restructuring. Both contract managers showed interest in being interviewed and provided the researcher with the contract and its attachments on paper. In terms of correspondence only one Email with the supplier could be provided. Therefore, the empirical focus in this case lied on the interviews. Two internal customers were approached, one agreed on being interviewed. Finally, the contract supervisor provided time for a fourth interview in this case.

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is vital for the geographical exploration of land for pipeline construction. The contractual relationship has held for five years from June 2006 until June 2011. It was described as mediocre successful. Only some issues have appeared but could be managed. For the management of the contract, one contract manager from Gasunie has been assigned. The contract manager in this case serves as an internal customer, as well, because this contract was mainly managed by the focal point, i.e. IT department. However, when it comes to issues another contract manager coming from the purchasing department gets involved. The contract supervisor agreed on an interview, too. Documents have been made available through an IT system being usually accessible only by authorized personnel.

The third case covered another ICT contract for contract work. Gasunie outsourced some of their IT work, such as programming and network maintenance, to an external supplier. The contract is important to Gasunie since ICT is highly important to maintain all systems and to develop new technical opportunities, which are vital for the business performance. The case was described as a successful contractual relationship having to deal only with minor problems. The supplier, is a multinational IT service provider. The contract is managed, similar to the second case, by the focal business of Gasunie and in case of an escalation a contract manager from the purchasing department gets involved. One contract manager is responsible for the CM and serves at the same time as an internal customer. Both the contract managers and the contract supervisor offered their insights in two interviews. Documents have been made available through an IT network, similar to the second case.

3.2.4 Data Collection

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Table 1: Interviewees and their functions per case

As a first step, the provided resources were screened for narratives in which sense is made. This aimed at the extensive review of documents for each case and later the conducting of interviews. The documents in all three cases were comprised of the main agreement and additional attachments. The attachments dealt mainly with issues of warranty, service or product specification, and copyright infringements. All main agreements contained a definition of key terms in the first paragraphs of the contract. With regard to sensemaking this has been identified as interesting since already in this stage a development of a common language must have taken place.

Thus, to get a deeper insight into how sense is made internally between the internal customers, contract managers, and contract supervisors, the researcher conducted interviews with stakeholders. Furthermore, most of the interviews have been held by those two researchers. The interview protocol was comprised of an introduction to the respective researches in order to give the interviewees a short insight in the context and their role in this research. Furthermore, the questions were provided offering the interviewees the opportunity to prepare themselves. 26 subquestions categorized (Bryman and Bell, 2011) into the four areas of sensemaking (experiencing uncertainty and ambiguity, labeling, problem-solving/communicating and taking actions) and one general category provided the base of the interviews. As part of the general questions, the interviewees were asked about their function in that case, what CM means to them and what effective CM is. The questions began open-ended and broad in order to make the interviewee feel comfortable and to get the most insight out of the interview. Over the course of the interview the questions became more specific and related to the sensemaking perspective. Appendix I gives an overview of all interview questions. Meeting rooms on the Gasunie site were organized and coffee and water supply was ensured before the interviews took place.

The interviews were conducted in a semi-structured approach by two researchers. Thereby, one researcher actively interviews the interviewee while the other researcher serves as a passive, notes taking observant. Furthermore, the second researcher during the interview made sure that the technical equipment functioned and that the environment is comfortable. He also supported the

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interviewer for translation situations when interviewees were looking for an English word they did not know. The interviews lasted between 45 minutes and 1,5 hours. Finally, and as an important requirement for the transcription, the interviews have been recorded after receiving the permission of each interviewee. As an increasing effect, this instalment provides reliability and visibility since it allows for repeated examinations of the answers (Bryman and Bell, 2011) and it opens up the data available for public inspection (Karlsson, 2009).

3.2.5 Data Analysis

As a next step, the recorded tapes of the interviews were transcribed by utilizing the software InqScribe (Bryman and Bell, 2011). The advantage of this software was that the speed of the sound could be lowered in order to avoid acoustic mistakes. Furthermore, the software provided functions to automatically assign roles to each passage spoken. That is, passages of the interviewee were assigned with their specific function within the CM supply chain. The protocols and documents have been documented in order to produce a written baseline for the analysis of the gathered data. This accumulation of documents was entered into a case study database (Yin, 2009). Subsequently, the interview transcripts have been reviewed by the participants in order to ensure accuracy (Karlsson, 2009).

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Assigning codes to text passages from both interviews and documents was supported by the software Atlas.ti. The software helps the research in creating and working with the case study database. Coding is made convenient as the software incorporates all interview transcriptions and documents and allows for the creation of a coding scheme. As a consequence, a coding scheme was developed categorizing the passages into codes and themes. Appendix II shows the coding tree, which is based on the conceptual model. Thereby, sensemaking, uncertainty and ambiguity in CM, and CM serve as the themes. These were subcategorized into further classes. Table 2 shows an overview of all codes and themes. Moreover, definitions of the codes and examples from the three functions (contract manager, internal client, contract supervisor) are given in order to clarify the purpose of each code. This was the necessary requirement for the analysis following thereafter.

Next, an extensive within-case analysis was conducted. This was done by repeatedly reviewing the codes for each case. Thereby, the different functions were taken into account since the perspective of a contract manager might differ from that of the internal client or the contract supervisor. The underlying structure for the within-case analysis was comprised of the theoretical background which means that the four sub-questions built the basis for the structure.

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Table 2: Coding Scheme

Code Name Definition Example Contract Manager Example Internal Customer Example Contract Supervisor

Uncer ta inty & Ambig uity Miscommunication Failure of communication between parties causing uncertainty and ambiguity.

“And the internal communication, but also the communication with the supplier, in my opinion, is not good at the moment.”

“There's no feedback back to Gasunie from the supplier.”

“The meeting when I was in there was basically an escalation and was already French warfare. They were stuck in their trenches and we were stuck in ours.”

Authority & Responsibility

Responsibility, tasks, roles involved in CM.

“No, and in a way for us, as Gasunie it is really difficult to get the titles right, am I the contract manager or am I only commercially involved.”

“And the signing is done by Contract Manager 5 or somebody higher, because of the amount of money involved.”

“Because, although technically the business has taken on the responsibility to take on the contract, IT DIDN'T. Taking on responsibility to do contract management, does not necessarily equal in actually managing the bloody contract.”

Opportunism

Parties primarily pursuing their own interest.

“So there are a lot of different people involved because these are only team managers. We also have project managers, we have management teams, and we have purchasing, and then there's me. So a lot of contact. So the suppliers are busy talking to everyone and getting all the information. So if it goes well, everybody is happy. So they're not really working towards adding value sometimes.”

Multitude of interests

The sum of all different interests of stakeholders involved in CM.

“A lot of stakeholders were changing in the last year which didn't make it easier.”

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Table 3 (continued): Coding Scheme

O pera tio na l C M Supplier Performance Management Measuring a supplier’s performance by predefined metrics.

“At Gasunie, we have one process of SPM divided into three areas: materials, service, and contracts. I was there when Gasunie started it. So I introduced it for ICT and after one year I think it was too general. So we wrote an own ICT version. So the 9 questions are still the same but we made answers for ICT.”

“We check if it is done what was defined. We do that with the check of locations by reports. There is a check and then we have a supervisor who checks the activities of the supplier.” Framework of metrics Developing the requirements for SPM by setting metrics and KPIs.

“So you scale it as well in a scale from one to five, I know not really but like this. When an installation is new it gets a 1 and if it gets older the value will become lower. So that’s a norm we described that they had to use.”

Audits & Discussions Meetings and discussions among the stakeholders in CM.

“Then we got some discussions as well about the hourly tariffs.”

“There are monthly meeting where we sit together and talk about the problems, planning, finances. But if there's a problem, I wouldn't wait until the next meeting. I will call immediately. Then the problem will be solved immediately.”

“Last year we had a frustrating meeting, this year again.” Administration Providing stakeholders with infrastructural, human, and financial resources for the management of the contracts.

“What I see that a lot of resources are available, also when you ask for it. But there are not always used right.”

“And because the system is not totally placed within the regulations, but that doesn't help. We have to work on it. That makes CM a little bit more difficult.” Str a teg ic CM Supplier Relationship Management Managing all interactions with suppliers.

“You want to make sure that we are a good customer, which we were not. You want to make sure that what they're asking of the supplier is reasonable. Because you are in the role to protect the supplier as well. If we demand too much, which happens often, then you have to protect the supplier as well.”

“Normally privately I would go to another shop if I would not be satisfied with a shop. But with this software we do not have this possibility. A vendor lock-in is not the right word. But you have to build a relation with this vendor and try to achieve modernization of software through this relation.”

“I know the management and we know each other. And if something is happening, that is part of my role, then I can pick up the phone and have contact with the right people.”

Strategy Building for

CM

Setting up a strategy for CM in order to clarify the goals and the long-term direction.

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Table 4 (continued): Coding Scheme

Sens e ma kin g Experiencing Uncertainty & Ambiguity Exploring and understanding uncertainty and ambiguity in CM. Exploring ways to understand them.

“In the beginning it was difficult to form the contract and get all the definitions right and, and, how to interpret the definitions.”

“When experience that kind of thing in the application, then we have a difficult period with the supplier/with the vendor. And we had a lot of discussions in the beginning of this year, we had a big instability problem with the software, which was caused by the software internally and so we had everyday a telephone call we Huntsville, America, about the problem. Which was escalating very far in the organization of the supplier.”

“The main issue was that it was not clear how the orders will be placed or what the role of the supplier was or the role of Gasunie because they have to do something for a long period.”

Using past experience

Exploiting past experience and lessons learnt in the past to overcome uncertainty and ambiguity.

“Learn from the period we have now and bring it into the new period and not changing it now.”

“Because we don't have the knowledge, they have the knowledge so they need to install it here in our environment.”

“HVAC is not our core business. And then we don't need too much knowledge about it. And then you have to go to a partner where you can lean on. They will help you.”

Jointly create a common language Developing a language understandable to all stakeholders involved in CM.

“Yes, and a simple good test is ask your wife at home who knows nothing about the subject, taking that as a given, and let her read it and then she must be able to understand it. It is that simple actually. It is not rocket science.”

“Sometimes it needs some explanations. But usually we understand each other, we speak the same technical language. Because they have their technical knowledge, but also financial knowledge.”

“I want to have facts so I ask them "show me, give me figures and facts or emails".”

Communicating & Taking

Action

Interacting with other stakeholders and taking action against

uncertainty and ambiguity.

“So in the talks, you start talking about things you do actually not want to be talking about. So you are then starting to ask questions: how are you organized? What is holding you back? What is holding you up? Why can't you resolve the problem? Do you have the power to solve this problem? Is it your problem to solve, or somebody else at the supplier working on this? So you have to involve those things too. And that is something you actually don't want to get into. The guy you bought it from, you want him to solve it, end of story.”

“I am using my fileshare and sharepoint, but most of the documents are confidential, so you cannot share this with your whole team, so it is something Contract Manager 5 and I can see, but we can't share it. So we cannot put this in our document information system because everyone can see it then. So these are the difficulties that we have. So the file of your contract could be better.”

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4 Results

4.1 The case of a Heat, Ventilation, Air Conditioning Contract

The case of HVAC is different from the other cases it does not cover ICT and moreover, the contract was handled by two contract managers. This might shed some light on the contract manager’s perspective on sensemaking, CM, and uncertainty and ambiguity. Table 5 at the end of this section gives an overview of the key findings in this case.

4.1.1 Experiencing and Understanding Uncertainty and Ambiguity

This section focuses on the process of creating sense of and in CM. The four features of sensemaking, which are described in section 2, thereby, are incorporated in this analysis.

One part of ambiguity and uncertainty in CM forms the nature of CM. It appears that stakeholders do not have a full common understanding of what CM is. The interviewees explained CM very differently. For example, one contract manager said: [CM] is to get your goals clear. What do you want to get out of it? And what are the things that are important to steer on. That really has to be clear. And: It is to make sure that you always know that you are capable of giving an answer to yourself 'do I still have my goals in picture?' Are you still going the right direction? Clearly, the contract manager points out the importance of the strategy and goal-setting aspects in CM. Referring to the strategic level of CM, the contract manager foregrounds goal-setting rather than operational aspects. When asked about the meaning of CM to the second contract manager, the following was said: It is communication and sharing your expectations and goals. That's one thing for me I learned in the past and I can see that now in the Gasunie again. You have to be clear and you have to be specific with your goals and share your goals with each other. You can have separate goals but you have to align them in order to have the one and only end goal together. Again, the goal-setting was underlined with respect to the strategic dimension of CM. Furthermore, this contract manager points out the importance of communication with other stakeholders. An interesting view on CM was also given by the responsible contract supervisor who said the following: Managing a contract is a sole activity. CM is everything involved. Communication. Because there you also have an owner and a manager. And the owner, he owns the business because you make a contract for a business and not for CM. Here, a differentiation is made between CM as a process and managing the contract as an activity being part of CM. And again, communication was pointed out also by the contract supervisor. Finally, the meaning of CM for the internal customer is the following: CM [means] all the actions in relation to the contract. Actions like scope changing, planning, all that actions that belong to the scope. While this explanation

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Considering CM as a process, the first contract manager mentioned the following: What is then CM? That it starts at the beginning of when you start and say okay we have a need and we want to have a new contract. And we start and we are going to start a new contract. And then already it starts. This is backed up by the second contract manager as following: I don't agree that it starts with the signing of the agreement. Operational CM maybe, but when you discuss the more strategic thing sin CM, it starts earlier, I think. The first meet-up is already the first step into CM. It already says something about two persons, their expectations and goals. And there is the first layer for the future of CM. CM as a process, the starting point of CM for this contract manager lies in the need specification phase already, which is viewed as pre-contractual by the interviewees. A final point concerning the structure and responsibilities in CM was made by the first contract manager and the contract supervisor. When talking about responsibility within CM, the contract manager said: I think the CM shouldn't be in the procurement. It should be my internal client. Because he should know what his main goal is. He is the one who is needing service or work. The contract

supervisor said: Because there you also have an owner and a manager. And the owner, he owns the business because you make a contract for a business and not for CM. Both stakeholders agree that the responsibility in CM should be in the focal point, i.e. the business for which the contract is made and which eventually receives the service or product ordered. This, currently, does not work as expected by both the contract manager and supervisor.

Besides the structures in CM interviewees mentioned further points leading to uncertain and ambiguous feelings. The first contract manager said about experiencing and understanding uncertainty and ambiguity: The thing, as well, was that the contract was formed by Gasunie, but the

one who wrote it was the supplier, which was a little bit strange in my eyes, because, well, you can do that of course. It doesn’t matter who writes it down, the supplier can do that, but then, still you have to be sure that you as Gasunie understand the text that is in it. Furthermore, the contract

manager adds about the internal client: he is not helping me, he is only frustrating me and the whole

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year or the coming period. Finally, the internal customer’s statement about experiencing uncertainty and ambiguity is as following: In this contract the biggest problem is that Gasunie is not the one holding steering wheel but the contractor does. That's in my opinion the biggest issue. The interesting aspect for this sensemaking feature is that all interviewees recognize severe problems in this case. However, they all see different causes for the issues. This might be an indication for a lack of common understanding of the problem due to missing communication among stakeholders.

4.1.2 Creating a Common Language

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4.1.3 Using Past Knowledge

Subsequently, the third feature refers to the sharing and using of past knowledge in order to overcome uncertainty and ambiguity. Asking the interviewees about their past knowledge about overcoming uncertainty and ambiguity, the first contract manager indicated, I have a technical background but that's just me you know. This makes it a little bit easier, of course, while the second contract manager said: I already experienced it [uncertainty] a little bit in early discussions I had for the new contracts HVAC for 2016. Furthermore, he commented: I have a technical background. Both contract managers indicate their technical backgrounds as a key to joint sensemaking. In a technical setting where maintenance services are provided this appears to be logic since technical knowledge might be required in order to fully understand the terms and conditions of such a contract and also to deal with uncertainty and ambiguity. This is shown also in the internal customer’s statement when he summarized: We have practical experience with the contract and we could bring that into action. Following this, the internal customer identifies the need to apply the technical knowledge more than before. However, the amount of information about using and sharing past knowledge was limited. This might indicate that past knowledge is not considered as the most important feature of sensemaking by the stakeholders.

4.1.4 Jointly Communicating and Taking Action

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Summarized, the results of the first case show that the degree of sensemaking is rather low due to the fact that stakeholders acted rather individually than jointly to overcome uncertainty and ambiguity. In addition, the high degree of uncertainty was caused by lacking communication between the contract manager and the internal customer as this was described as frustrating. Thus, the low degree of sensemaking lead to a rather negative outcome as uncertainty could not be overcome.

Table 5: Summary of Key Findings of Case 1

Experiencing and Understanding Uncertainty and Ambiguity

Issues

 Miscommunication/Lack of communication with internal client and external supplier

 Unclear responsibility and authority (contract manager and internal customer share CM responsibility)

Creating a Common Language

Definitions of Key Terms in the contract  Helpful to only a limited extent Language

 Technical language as a requirement to understand each other

 Communicating with other stakeholders to ensure shared understanding, permanently asking if common understanding is given

 Delivery of facts rather than subjective appraisal of single stakeholders as a requirement for a common understanding

Using Past Knowledge

 Technical background required for joint sensemaking in maintenance setting  Experienced interviewees regarding CM and uncertainty and ambiguity; however,

experience seems not necessarily to reduce uncertainty and ambiguity  Past knowledge appears to be not as important as other features Jointly

Communicating and Taking Actions

 Regular meetings between contract managers and internal customers; contract supervisor was involved only in case of escalation

 Communication in terms of regular meetings and discussions with internal customers and contract supervisor about uncertainty and ambiguity among stakeholders took place; resulted in not overcoming uncertainty

 Joint actions: only meeting and discussing (internally and externally to supplier)  Stakeholders take action rather individually than jointly

Relationship between variables

(i.e. sensemaking, uncertainty, contract outcome)

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26 4.2 The case of a ICT software and consultancy contract

The second case was considered as mediocre successful. It differs from the first case in the distribution of responsibility in the management of the contract since the CM is done by the focal point. That is, the contract manager is assigned to the CM coming from the ICT department and thereby serving at the same time as an internal customer. However, in terms of problem-solving another purchasing manager serves as a contact person supporting the contract manager. Table 6

summarizes the key findings of this case.

The question of what CM means to the stakeholders in this case, one contract manager said about the goal of CM: Eventually I want to have a customer satisfied. Another contract manager explained: I want the supplier to be happy to deliver the things I desired, and the contract manager just does that, that you get the stuff delivered that you wanted, for a fair price and with a level of service that you had in mind. And contract management as you take it as a day-to-day job, it means making sure that the supplier sticks to his end of the promise and it means making sure that as customer that you stick to your part of the promise. While this contract manager sees CM from a supplier protecting perspective, the contract supervisor takes a different position: Contract management is two sides, it is managing the underlying legal piece of paper, the agreements you make and it is managing my relationship with the supplier. This is not the relation as in friends, but making sure that I as a customer am still important for you, or attractive, whatever. And getting things out of it, preferably much more quality than our contracts are getting. Getting the extra mile out of the suppliers. The discrepancy between the two stakeholders seems tremendous. Following a supplier protective approach might lead to an entirely different CM with different aims, i.e. involving the supplier as much as possible; collaborate closely and may be even develop each other as partners, compared to a buyer advantageous approach, i.e. achieving the greatest benefit possible for the buyer. However, the similarity between those two meanings lies in the relationship management aspect. Supplier Relationship Management is put into foreground.

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myself, if on the horizontal axis you have time and the vertical axis you have involvement. When finally the contract supervisor was involved due to the importance of that issue, he criticized the attitude of the supplier towards Gasunie: They know they really can't argue against us, because we are in the right. And they have already apparently concluded that this is a lost war for them. In the process of understanding uncertainty and ambiguity, stakeholders looked for root causes. They established programmers to find malfunctions in the software delivered. When eventually they found out that it must be caused by the supplier’s software, they changed their attitude towards a more confronting one and also involved higher escalation levels.

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understand the language of such a contract. Thus, the DAP can be considered as a tool to decrease uncertainty as it grounds the basis for a common language. In other words, making sure that all stakeholders speak the same language seems to lead to a decreased degree of uncertainty.

4.2.3 Using Past Knowledge

In terms of using past knowledge, one contract manager pointed out, you have to be a little bit cheeky or brutal, you have to see it as your own money I believe is very important, and, you have to be a little bit of a buyer to also be a contract manager. But you also have to know the technical details and the impact. It appears that the contract manager developed necessary knowledge and characteristics (cheeky and brutal) in CM necessary to manage uncertainty and ambiguity. However, he also admits that there was a lack of technical, software-related knowledge which made Gasunie dependent on the supplier’s capabilities: Because we don't have the knowledge, they have the knowledge so they need to install it here in our environment. In this context, stakeholders depend on the knowledge of other stakeholders, i.e. the supplier’s capabilities. Only then joint sensemaking can take place because one party relies on the expertise of the other. Experience in CM seems an important requirement as the second contract manager explains: That's why the people from procurement are a little older, generally speaking. They know how to relativize things a little better. And you do that by experience. You have experience right after you need it. It's unfortunately always true. As pointed out, the contract manager anticipates past experience as a requirement for CM since this enables contract managers to exploit their capabilities (i.e. relativizing).

However, similar to the first case, the amount of insights about the use of past knowledge was limited. This might imply that the past knowledge is considered less important in overcoming uncertainty.

4.2.4 Jointly Communicating and Taking Action

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sensemaking in a very creative and efficient way: They approached other companies using the same software product and who were suffering from the same or similar problems. The contract supervisor explained: We also did a lot of searching on Google and forum's with people using the same problems and said "hey, do you experience the same drop in performance from 9.2 to 10.1". Then at least you know, it can't be just us. We found another company I think it was in Australia which had exactly the same sort of troubles as we did. And then we found the root cause and it was you guys [the supplier]. By doing so, the stakeholders used joint sensemaking as an effective means of forcing the supplier to react. However, this way of sensemaking took place externally rather than internally and thus the extent of information about taking actions internally is limited. This is because the interviewees kept focusing on the supplier’s reluctance towards a problem-solving approach.

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Table 6: Summary of Key Findings in Case 2

Experiencing and Understanding Uncertainty and Ambiguity

Issues

 Problem resided on the external supplier side

 External supplier was reluctant to accept their failure  Little uncertainty within internal supply chain Creating a

Common Language

Definition of Key Terms in Contract

 Meaning of key terms changes so that definitions section becomes less clear over time as external conditions change

Language

 Development of DAP, translating complex contract language into comprehendible language to all stakeholders

Using Past Knowledge

 Lack of knowledge internally available is compensated by relying on expertise of other stakeholders, i.e. external supplier

 Technical knowledge required for CM

 Experience and knowledge in CM important since this leads managers to better relativization

 All interviewees with much experience; however, this did not help the contract in succeeding, i.e. solving all issues.

Jointly

Communicating and Taking Actions

 Monthly meetings between contract managers, internal customers, and contract supervisor (and external supplier) helped in reducing the degree of uncertainty  Discussing issues, finding solutions in order to solve problems preventing the

contract from failing

 Problematic communication with external supplier, i.e. supplier’s reluctant attitude

 Creative sensemaking approach: finding other companies with similar issues; forming alliance against external supplier forcing them to change

Relationship between variables

(i.e. sensemaking, uncertainty, contract outcome)

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31 4.3 The Case of an ICT Contract Work Contract

Table 7 at the end of this section summarizes the key findings of this case.

As part of understanding ambiguity and understanding, the interviewees were asked about the issues involved in CM. As a first point, the contract managers made clear, that the degree of uncertainty and ambiguity was rather low. One contract manager said: Actually I don't remember the supplier

contract having any issues. However, he continues: We see room for improvement still. That is,

Gasunie expects the supplier to commit more to the relationship by exceeding their expectations more often. That the amount of issues is limited may be derived from the fact that Gasunie has gathered experiences with the supplier in the past. These former contracts were described as partly critical which lead Gasunie to reposition them right from the contract building on. One contract manager explained: We already worked [together with the supplier] before but that contract didn't

have so many points. So it was difficult to work with. This time we could write what we thought would be logical. […] More detailed but less rules. Focusing on the collaboration.

Another point in understanding uncertainty and ambiguity is the question what CM means to the stakeholders. Here, the interviewees replied differently: I think you have to oversee all the processes, the money, the effectiveness, time. You have to consider the long-term relationship. (Contract Manager 6). The second contract manager replied: Managing a contract is a verb, which means it is an activity. Contract management for me could imply that you have a contract, put it in a desk drawer somewhere and forget about it. While the first contract manager identifies SRM, effectiveness of the contractual performance of the supplier, and processes within CM as major in considering CM, the second one considers CM only as an irrelevant task in the scope of the whole procurement process. This might be logic for the latter since he gets involved only if there are problems requiring him to be solved.

SENSEMAKING IN CONTRACT MANAGEMENT: OVERCOMING AMBIGUITY AND UNCERTAINTY