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What is the scope of contract management?

November 14, 2011

Recent research by IACCM has revealed that ‘cutting costs’ is the number one issue for both buy-side and sell-side contracts professionals. The focus is on a range of measures, but ‘internal efficiencies’ top the list.

My conversations with functional leaders suggest that the main targets for cost reduction are the traditional budgets for staff, travel, training etc. In other words, savings will be achieved by reducing capability. Yet there are many other – and much larger- impacts that the contracts / commercial function could be having and one example of this was contained in this weekend’s New York Times.

In an Opinion column, Ezekiel Emanuel highlights a study by Harvard economist David Cutler that explored waste and inefficiency in the US health provisioning system. It resulted in a conservative estimate of $32 billion in annual savings from electronic billing and credentialling. 

Errors, fraud and inefficiencies in billing are endemic to many companies (a recent UK public sector survey suggests again several billion Pounds of opportunity from ‘future contract opportunities’. We also know that an insightful contracts organization can drive efficiency in many other areas, such as reducing review and approvals, simplifying contract signature processes or eliminating recurrent sources of claims and disputes.

But these improvements depend on how the contract and commercial groups see their role. If they view themselves as purely tactical, putting contracts in place and perhaps overseeing their implementation and management, then they are missing the ‘golden egg’. The internal efficiencies that can be achieved by cutting existing budgets are trivial and have the long-term effect of further reducing the function’s relevance. The opportunity here is to take an enlarged view of contracting and to recognize that it is the efficiency and effectiveness of the overall process that matters. This bigger view will not only yield dramatic cost reductions, but it will also raise the profile and relevance of the contracts function.

IACCM will discuss this issue – and also the other main pressures on Contract Management groups – in a webinar on November 16th. For details or  to register, see https://www.iaccm.com/events/register/?id=1225

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