This is the message ringing in boardrooms across the world. Ignorance is no longer bliss. Top 1000 Companies now recognise Contract Life-cycle Management (CLM) as essential to being successful is a competitive market. Wastage is loss, and hard earned revenue leaking out through bad deals and missed opportunities is just as bad as not meeting sales targets; because it can easily be avoided.
For every dollar spent, you have to bill 3-4 dollars in order to be profitable, hence greater procurement efficiencies and cost savings drive increased profit as much as the development of new business.
Since the Contract Management Problem is now on the table in most boardrooms, executives are being forced to either act to implement better contract management systems and processes or explain why this is not being done.
The key issues are:
- Visibility into agreements and relationships.
Many organisations still do not know who they are doing business with, what suppliers are charging, and what binding obligations exist in agreements that affect their legal position and bottom line.
- Reactive contracting
Many category managers still rely on their suppliers to tell them what the issues are and when trigger points pass. Contracts are still auto-renewing without buyers having a chance to renegotiate or take poor performing contractors back to market in order to drive greater value. Contracts only come out when things go wrong. By this time it is too late.
- Complex administrative processes
Contract managers are still relying on paper-based or no contracting business processes, meaning that there is no consistency of approach through the organisation and contract managers are left to their own devices when it comes to effective monitoring of SLAs and the handling of disputes. This causes problems if issues escalate and they have not been handled in accordance with documented dispute resolution procedures. Easy access to processes and salient contract clauses is critical. Automation of a consistent business process across the organisation ensures proper governance and mitigation of risk.
- Disconnected Departments
The process of developing and negotiating deals, drafting legal documents and the handover to contract managers is still disparate, meaning that contracts are not being managed with the benefit of knowledge of the key issues and deliverables in the agreement. Accountability and auditability is lacking in the development process.
Boardrooms facing these issues are choosing to implement commercial off-the-shelf contract management systems that will facilitate visibility, and pro-active automation of agreement deliverables and business processes.
A Systems Approach is critical to pro-actively managing high value and/or high volume contracting, and is finally being treated as such.