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Contracts and technology

March 18, 2015

Technology has reshaped business capabilities and business relationships on a global scale. Yet somehow, the process and instruments through which those capabilities are expressed and by which those relationships are managed (that is, contracts) have largely managed to escape untouched.

The lawyers and contract managers responsible for contracting have (mostly) accepted the need to use email and some are very proficient with a variety of applications; many companies have implemented some rudimentary contract management software, though rarely is it enterprise wide and in most cases it covers elements of the process only. For example, the most recent IACCM benchmark data tells us that 77% of respondents have a repository. But that drops to only 52% who use software to support internal review and approval and other functionality falls away rapidly.

Much of this seems to be because senior management fails to take contracting seriously. It does not understand the cost to the business of the inefficiencies and value erosion associated with a fragmented approach to contracting. In most organizations, contracting remains activity- based, spread across multiple stakeholders, lacking clear authority and ownership. In such a situation, it is enormously difficult to build consensus for a solution, let alone gain funding.

But unfortunately, those within legal and contracts functions who could be leading the charge for new and better approaches in general do not do so. In some cases they may be technophobes; in others they lack confidence in the available technologies; and some who should be leaders simply do not lead.

Contract management technology should be transforming the way that the world does business. And before long, I am convinced we will see a true revolution, where software is not simply about raising internal efficiency, but is about creating more sustainable and higher-yielding relationships. Already a few encouraging signs are emerging. Two recent examples are of a system that oversees performance management – at a shared level, with both parties having direct access. This has resulted in a strengthened relationship and revenue growth for the supplier. Another is around the use of artificial intelligence that can remove the pain of dealing with individually negotiated agreements.

I am convinced that we will soon grasp the point that contract management software is not an extension of ERP – it is the application that helps business overcome the fundamental weakness of ERP in enabling or managing external relationships. And I also believe that advanced systems will drive us to adopt more industry standard agreements that avoid the time-wasting battle of the forms. Negotiation will be focused on true value trade-offs and this will be supported by powerful analytics. The contract management or legal group of the future will be targeted towards revenue and profit maximization through intelligent term selection.

And the technology that delivers this really will be something worth having!

One Comment
  1. Anything involving lawyers will be very conservative. 😉

    As a consultant by background, I got tired of the inefficiencies of using Word and Excel and Email to handle proposals (which included the contract language). I helped create an application to create, share, and close online proposals. This has helped companies collaborate more effectively with their customers, helping both sides focus on the business value created by the project, rather than wasting half the effort in preparing the contract.

    This won’t address every situation (some customers send a proposal, then a separate 100 page contract), but it’s an important step along the path. Once you go to online proposals, going back to Word, etc, seems like trading in your smartphone for a 1987 cell phone from the movie Wall Street, which is about the right analogy.

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