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Contracts & Governance

November 30, 2011
Markets and investors no longer make judgments solely on financial data. Today’s increasingly open and regulated world has resulted in growing focus on broader issues of corporate competence and integrity, because these are better indicators of the future and also drive market perceptions and behavior.
 
Writing about the financial markets in this week’s Sunday Times, Irwin Steltzer comments: “They worry about governance as well as the usual indicators of solvency”.
 
Governance comes in various forms – executive competence, transparency, media relations are among a complex mix of factors. But commercial strategies and trading relationships lie at its heart. No wonder, then, that there is growing interest and awareness in the quality of contract management. Yet this is an area in which data is – in general – curiously lacking. Of course there is publicity when a major deal is won, or if a contract goes badly wrong. But in general (with perhaps the exception of the public sector), there is remarkably little insight to the quality of contracting as an indicator of overall governance standards.
 
As shown by IACCM’s current study on the financial impact of contract management, this should change. The study suggests that the average corporation could boost its bottom line by almost 10% if it invested in improving the quality of contracting. For many companies – especially those in more complex, project-based industries – the prize could be much higher – perhaps as much as 15%.
 
So if governance standards are indeed critical to today’s markets, it is certainly time for management to take an interest not only in closing contracts, but also ensuring that they deliver expected benefits.  That must surely be a major indicator of the quality of governance.
4 Comments
  1. Jon Lee permalink

    Tim
    Can you advise if the research you refer to (“IACCM’s current study on the financial impact of contract management”) can be accessed?
    Regards
    Jon

    • Jon, one of my tasks over the holiday period is to finalize our report.It will be published early in the new year.

      In summary, we are finding that weaknesses in contract management are generating typical losses of around 9% of bottom line revenue. However, the picture varies quite significantly by industry, with some (especially in the project services area) having invested substantially in their contract lifecycle process and skills, while others remain very fragmented in the way they handle contracts and wider comemrcial policy.

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