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Why Contract Management and Digital are incompatible

June 21, 2017

Making sense of digital requires first an appreciation of its different forms – digitization, digitalization and digital transformation. Bertrand Maltaverne[1] recently wrote an excellent article on this topic and made the following definitions:

  • Digitization is the conversion from analog to digital (e.g. digitization of data).
  • Digitalization is the process of using digital technology and the impact it has (e.g. digitalization of a process).
  • Digital transformation is a digital-first response that encompasses all aspects of business …. It leads to the creation of entirely new markets, customers and businesses.

The challenge facing those who are responsible for contract management is that without digitizing their contracts and without digitalizing their process they will increasingly become barriers to the digital transformation of their business.

A core problem – identified in many IACCM studies and capability assessments – is that contract management is not typically viewed in the context of a life-cycle. Contracting policies and terms and conditions are frequently established by different departments; specific agreements or negotiations are undertaken by various groups or specialists who may or may not operate with consistency. Once signed, those who were responsible for creating the contract are generally not involved in its on-going management. With such diversity of participants and (often) limited clarity over roles and responsibilities, it is not surprising that coherent approaches to digitizing and digitalization are proving difficult to achieve. Unfortunately, as IACCM’s recent report on automation observed, contract management software is similarly fragmented and its adoption constrained.

Consumer businesses face a much easier time since they can largely dictate the way they form and manage contracts with both customers and many of their suppliers. It is much harder in the b2b environment, where relationship types are more varied, levels of relative power differ and underlying processes are inconsistent. However, market forces will drive the need for digitization since without it, organizations will be unable to compete. Those forces will result in a new ‘contract management revolution’, even more fundamental than the changes that globalization caused some 15 – 20 years ago. This time, it will drive three major changes:

  1. the development of a life-cycle view of the contracting process, from inception of requirement to completion or close-out of the agreement
  2. an appreciation that digital enablement of contracting is not only about internal process and data flows, but that it is fundamentally about enabling interactions outside the organization
  3. the identification of resources dedicated to oversight and maintenance of digital trading relationship terms and capabilities, covering all relationship types

The IACCM Automation Report is available to IACCM members at http://www.iaccm.com

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