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Why is Contract Management software struggling?

September 9, 2014

For years the analysts predicted meteoric growth – and it didn’t happen. Now, the complaint I hear is that the analysts largely ignore contract management software and see it as a sub-set of ERP.

So what went wrong? Why did contract management software fail to meet expectations – and is it doomed to be the success that never was?

Let me start by saying that I believe there is still massive market opportunity, but realizing it will require a significant shift of approach.

Software developers started in this space with the myth that contract management is a largely administrative discipline. This led to a focus on basic functions such as document management, repositories and monitoring milestones and events. The software automated existing processes, rather than challenging businesses to think differently about the issues associated with contracting. The early analysts added to the problem because they focused on high volume procurement contracts, largely in sectors such as retail, and saw the potential return on investment coming primarily from increased efficiency.

This meant that the industry failed to recognize the spectrum of relationships typical to most companies and actually ignored the higher value, more complex agreements that represent strategic significance. Hence, most implementations resulted in high levels of software customization accompanied by expensive consulting services. The resulting software was rarely capable of dealing with an organization’s overall contract portfolio and was not user-friendly, resulting in low adoption levels. Many large corporations implemented multiple packages, none of which gained enterprise status.

Providers and analysts saw contract management software as a tool to manage transactions, missing the point that businesses actually establish relationships and operate with a portfolio of contracts. This meant that they overlooked the big opportunity and the core return on investment – the issue of contract effectiveness and usability.

Struggling to establish a market, the industry has been driven by customer wants, rather than helping to shape their understanding of needs. Even now, most projections of return on investment make contract management software at best marginal and in many cases irrelevant.

To succeed, focus must change (and some providers have already started to grasp this). Here are five key areas that can revive opportunity:

  • Contracts are related to relationships. Software must facilitate the various relationships through which a business operates.
  • Many contracts are interdependent; that is, the performance of one depends on the performance of others (supply networks, teaming arrangements, sub-contractors etc.). Software must create and oversee these connections.
  • The software must be designed to facilitate business users, supporting their ability to make effective decisions and to oversee contract performance.
  • Rather than operate as an adjunct to ERP, it must focus on overcoming the problems created by ERP. Contracts are about interoperability between organizations, not internal efficiencies.
  • Contracts and their performance are one of the great untapped bastions of data. The potential for generating critical management information is only now starting to be grasped – and it can be revolutionary in terms of value, quality and competitive advantage.

These factors cause me to have continued optimism that contract management software will succeed. But which suppliers are the best bet? Well, that is a different question – and a topic for another day!

  1. Thanks! Please cover the topic of CM Software suppliers. Which one is best in your opinion?

  2. Guy Fillmore permalink

    I believe a major hindrance to an effective Contract Management System is that management dreams that it will remove the backache of governance which lies with the contract owners. Simple, clean and intuitive user interface both during and after negotiation will reduce the backache but not remove the responsibility of the contract owner. The unassailable fact is that information has to be captured – a primary challenge is to make this work.

  3. Paul Branch permalink

    Thanks Tim. As always, a thought provoking post. I agree that the successful deployment of CM software has the potential to drive significant value, particularly in complex contracts where the obligations are typically bespoke, the risks are material and changing throughout the lifecycle. From my experiences of deploying a contract lifecycle management tool across a global corporation, I think there are a number of realities that may help also to grow the opportunity:

    1) It’s not green-field: most corporations are heavily invested in collaboration systems and a CM solution that cannot be readily integrated to “play nice” is doomed. For example, some corporations make use of the Microsoft Office suite and have extensive investments in Microsoft’s collaboration technology called SharePoint. CM tools that are SharePoint-based (such as Corridor’s have an inherent advantage over the pure plays in this situation. In addition, a CM solution that is stand-alone will struggle to meet the requirements to reach inventory management, service performance, CRM and financial reporting tools that support effective contract management. In my view, bringing all this corporate data together in one information view for our busy contract teams is a game changer.

    2) Deploying the system is the easy bit: regardless of the quality and capability of the CM solution, it will not be successful unless it makes lives easier for the CM teams. Trite and obvious I know, but I have seen several great systems tank simply because they layer additional functionality without increasing efficiency.

    3) It’s not just about efficiency improvements: a business case for CM solution deployment that is based on efficiency (cost to serve) improvements is missing out on a significant portion of the benefit. Indeed, it may even be the case that the cost to serve increases as a result of deployment (a hard sell, particularly in light of the previous point). Just think though – the costs of doing something like tracking commitment and responding to jeopardy is always going to be more than not bothering, at least in the short term. To see the full picture, we need to look also at the costs of quality. Clearly, in my example, tracking commitments and responding to jeopardies in delivery will drive significant improvements in cost of quality which are orders of magnitude larger than the incremental cost to serve. A complete business case needs to look at both aspects. Most senior executives get this trade-off; it’s our CMs themselves that need convincing.

  4. Tim,

    Fast forward to 2016 , the perspectives you were mentioning about contracts as relationships “vehicles” are amazing and has got great as the performance data glued together with the relationships can provide great value rather than simple value adds as a repository. The issue of effectively and dynamically capturing custom data with no customization with an inexpensive price tag also plays a major role in adopting a CLM software.

    Anne Hertz

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