Should contract management ever be part of Procurement?
In the past, companies often put contract management resources within the Sales organization. It was seen as an administrative support function.
When it came to Procurement contracts, they rarely had any dedicated resources. Responsibility for overseeing contract performance was often undefined.
Over time, many organizations started to realize that contracts were too important to be left in Sales. They grasped the point that there are too many conflicts of interest. A Sales function – or business unit – is typically driven by narrow financial measurements of revenue and profit, with perhaps elements of customer satisfaction. Contracts are certainly fundamental instruments in winning business and delivering revenue, but they are far more than that. They contain enforceable commitments that can jeopardize an organization’s future and on which its long-term health and reputation depend. Therefore contract negotiation and management cannot be left to the discretion of a function that is directly motivated to maximize short-term financial goals.
Today, except in some relatively small businesses, it is rare to find contract management groups reporting to the Sales organization.
So what about Procurement contracts? What is the problem there? It is actually that Procurement is in many ways the counter-side of Sales. In most cases, it is driven by narrow financial measurements that stand in the way of broader business judgment. Indeed, many Procurement groups see contracts as having limited relevance to business performance. They do not grasp – or are not motivated to grasp – the wider significance of terms and conditions on business risk, achieving value, driving innovation.
High-performing corporations create a close alignment between Sales and Contract Management, but ensure their separation. IACCM’s most recent benchmarking data appears to suggest that the best performers ensure similar separation between Procurement and Contract Management.