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Contracts As A Strategic Asset

November 11, 2010

Most intelligent business people long ago stopped believing that ‘Once you sign a contract, you should put it in the drawer’. Yet for many, contracts remain primarily a record of a specific deal, transaction or relationship and, while they may be used to inform, communicate and govern business activity, it is rare to find them perceived as critical assets.

Yet assets they certainly are – and effective analysis reveals an invaluable source of strategic information.

Yesterday I moderated a webinar for Pramata, which describes itself as ‘the contracts intelligence company’. The session featured Tom Carretta, Associate General Counsel at FICO (perhaps better known under its former name of Fair Isaac Corporation). The reason that the session so excited me was because it represented a rare example of the portfolio-based view of contracting that we have long promoted at IACCM. Tom was clear and to the point. By thinking about contracts as sources of corporate data, the law department at FICO has been able to transform its image and become core to strategic business decisions.

As in many companies, FICO long ago invested in a basic contracts repository and document management system. But while this ensured that contracts no longer went missing, it did little to enable in-depth research or understanding of the company’s commitments, contracting trends, client or portfolio analysis. Through their work with Pramata, FICO now has powerful analytical tools. They can review the variations or history within a particular account. They can see the varying patters of commitment, risk or financial performance of different industries, sectors or business units.

Why does this matter? For a whole host of reasons, many of which Tom described and explained. Senior management and account management can now undertake analysis of major customer history; the finance organization can observe varying patterns of discounting or price negotiation; operations can review commitment trends and patterns of ‘deviation’ from standard obligations; Legal is able to review industry risk profiles and testify to regulatory or contractual compliance. All of this data supports in-depth diagnostics – for example, the need to change or update product or service offerings; potential benefits to be achieved through improved sales training or local empowerment; potentially even decisions to invest or disinvest in specifc industries or geographies, based on their economic or risk performance.

Tom described the pressure that Legal were under to use established ERP solutions for contract management. But fortunately, with the support of other executives, they realized that such systems might bring control, but would never offer meaningful business insights that would turn contracts from instruments of control to strategic business assets. Nor can ERP systems readily allow ‘customer intimacy’ in the way that a more flexible, ‘contract intelligence’ system offers.

At FICO, contracts – and those who oversee them – are no longer viewed as a ‘necessary evil’, but instead have become an integral tool to business management and the realization of market value. I commend Tom’s presentation to all who care about their contribution to business performance.

3 Comments
  1. Tim, THANK YOU for webinar yesterday and thank you to Tom for such a great presentation. As a contracts manager consultant for small (US Defense) business clients, I find it interesting how many of them have already decided that their contracts, and the data contained in them, are a strategic asset. However, their large prime contractors haven’t yet embraced such a concept as whole heartedly. I believe this is due to necessity – without such data, an extremely small DoD contractor would fail.

    Due to such small working capital accounts, our clients tend to use highly manual means of identifying and tracking important contract data. But, with only15 or so active contracts at a time this is doable. What I find exciting is that our clients have recognized, invested in, and embraced contracts as strategic assets and can now make strategic business decisions that were impossible before; and how much their companies (and their customers) benefit from this.

    Companies too easily forget about their contracts in the course of traditional capture of revenues. It was great to hear of FICO using Pramata to place contracts, and their value, in a more forward position in the company.
    I found myself nodding in agreement throughout the webinar, and came away with ideas for my own very small clients. Thanks again!

    • Thanks for your comment and endorsement of the points that were raised. I am glad you found the webinar helpful and pleased to learn of others recognizing the value from their contracts.

      Tim

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  1. Webinar Follow Up | Contracts Intelligence Blog

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