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November 26, 2012

Today’s networked computing offers much faster and more extensive access to data, but does this have practical application, especially in a field like contract management?

Many believe the answer is yes, but to date the evidence of effective application is limited. There has been some improvement in risk assessment and benchmarking, but this is not yet pervasive. A few legal and contracts organizations are starting to collect data and undertake analysis in areas such as timing of engagement and cycle times, or causes of claim and dispute. These retroactive analyses are proving useful in the delivery of value and the data certainly raises the profile of the function, because it contributes to policy and process rather than simply reacting to the frustrations of others.

How much further could we go? This week’s Economist magazine offers some insights. In ‘Micro Stars, Macro Effects’, it highlights the growing influence of economists on the way business decisions are made and markets work. It offers examples such as managing internal use of internet bandwidth as a means to contain costs and optimize market prices. Another relates to research on how honest we should be with potential customers about possible flaws in our products or services (for those who wonder, the answer is that greater honesty raises the probability of a sale and an increase in the price realized).

Both of these examples have very clear application to the world of contracts and commercial management. They demonstrate the importance of starting to ask new questions, to challenge old theories and practices. But going a step further, what information is hidden within the contract or contracting process that could assist improved business and market management?

In a third example, the Economist article cites the extent to which policymakers are always reacting to events. Data such as GDP growth, unemployment and inflation rates are typically lagging reality by weeks, if not months. Economists suggest that this is simply because we are failing to change the way we record the indicators. At Google, they have initiated real-time monitors on key words such as ‘job’, ‘benefits’ and ‘solitaire’ and have discovered there is almost complete alignment with the (eventual) unemployment data published by the relevant ministries.

So how might real-time monitoring of contracts change our insights? I think the impact could be considerable. For example, analysis of key words or demands in bid requests or capture of trends in negotiation (rigidity on price, growing concern over specific terms and conditions) will often indicate broader market sentiment – are customers tightening belts or pushing towards growth? Are there specific risk concerns rising to the surface? Are changes in competitive offerings impacting expectations? We know from IACCM’s annual (retroactive) study of the top negotiated terms that such trends exist, so why not capture them in real time and start to review internal policy, practice or offering capability as a proactive measure? Now, that would be revolutionary.

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