The Guilty Secret of Contract Management Software
Contract management software is struggling to make its mark. In spite of continued promotion by the analysts, it simply has not achieved the traction that was expected.
The disappointing uptake is not simply down to a reluctance to buy. It is also due to a failure to achieve widespread internal adoption within many organizations that have bought. So is this due to fundamental misjudgment of the potential value and need for such applications? Is it because the software itself has failed to deliver? Or might it be because of the spoiling tactics of the big ERP players and the inability of the small CM suppliers to overcome them?
While the answer to at least two of these questions might be a guarded ‘yes’, I do not believe these are the fundamental reasons. I am convinced that the failure of contract management software is in the greatest part due to the lukewarm support of the user community. It is because far too often, there is no powerful executive sponsor and there is a distressing lack of vision and understanding among senior management of why contract automation is so important.
Most business processes today are well defined and have a clear point of ownership. Not so contracting. Even though contracts are themselves understood to be important instruments of business management, the activities that lead to their creation and management are generally fragmented. Finance, Legal, HR, Product Management, Marketing, Procurement, business unit management, Sales – all of them have an interest, yet none feels responsible. Often it seems there is more fear of someone else gaining control than there is of the business exposures that are resulting from this lack of control.
As a result, contract management continues to be a football, today owned by one function, tomorrow another; today centralized, tomorrow decentralized; at one moment an instrument for compliance, at the next a source of empowerment. And what about the lawyers or contract managers who you might expect to be desperately making the case for improvement? Sadly they are often the worst culprits, claiming every deal is different and that ‘judgment’, not process, is the critical characteristic of good contracting. In addition, today’s vague and imprecise allocation of responsibilities means that when things go wrong, it is no one’s fault; when things go right, everyone can claim credit; and overall inefficiency ensures continued workload and protected jobs.
No wonder the contract management software suppliers are confused. No wonder that their attempts to implement are often frustrated. No wonder that users then claim that the software fails to meet their needs – because their needs are so varied, frequently contradictory and change so often.
What is the result? Without contract management software, companies are harder to do business with. They commit themselves to added risk because of limited knowledge and visibility of their commitments and obligations. They struggle to react to market trends and improvement because they have no data. The real issue with contract management software – the guilty secret about which no one talks – is the sad failure by top management to understand the importance of contracting in 21st century business; and the complicity by middle management to hold on to what they have, rather than push for a key area of business improvement.
Contracting excellence can deliver substantial bottom-line improvements. Everyone – consultants, analysts, professional associations – is agreed on that. The only people who fight it are the very ones who should be its champions.
Commitment Matters 
Certainly agree on the importance of contracts to business. As someone in the document assembly business we strive to allow companies to create contracts in underlying XML so that they can easily push data into systems such as Contract Management. Another trend which I have seen and would like your opinion on is that companies want to slice and dice the contract data and distribute it to where it is most useful. So for example, taking the payment information and pushing it to the Financials software or ERP and taking the renewal information and pushing it to CRM and then posting a copy into a repository. In your opinion is this distributed model more or less powerful then the centralized CLM model?
For most companies, I think the ability to integrate and pass data to other systems will be critical. They have already made the investments in many of these applications and will not wish to undermine or replicate them. Of course, how that may be affected by Cloud Computing, we can at this point only guess …
Tim, I think you make a number of valid points here. Undoubtedly, the vendor community has confused the market somewhat with contract management software applications that focus on distinct processes, like procurement, which then cannot be applied easily to other contracting processes.
However, the ownership issue of the contracting process is, as you say, probably the single most important barrier to any kind of common technology solution or consistent business process being deployed across many organisations.
There are certain industry sectors where the importance of contract management is recognised and understood, but for many organisations in the public and private sector, contract management remains a silo-based discipline.
For more information on contract ownership in the organisation, see here: http://wp.me/pqsHx-B