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Contract Management: Is it worth investment?

September 21, 2018

Although senior managers understand that contracts are important, most do not grasp the challenges – or potential contribution – that are associated with contract management. On the surface, it seems such an obvious and straight-forward activity – and therefore struggles to gain investment.

This is the first in a series of case studies on the value of contract management. It focuses on a relatively simple example of contract lifecycle automation and features a software and services company with global operations and annual sales of approximately $2bn.

A successful deployment

The contracts team in this case reports into the legal function and the automation project was sponsored by the General Counsel. “Our deployment of contract management technology means that for the first time we have a shared, centralized and real-time version of truth regarding our commercial relationships. Contract data that once took hours or days to find and assess, or even proved impossible to locate, is immediately available. Through this investment, we have far greater insight and information about our relationships with customers and it is available on-demand not only to my team, but also across finance, operations and sales teams. Because they value this benefit – and now understand what they have been missing in the past – they also recognize the importance of accurate, timely data inputs on new or amended agreements, so we have motivated system users and contributors. For our customers, this means we are able to operate with more accurate information, faster response times and much more intelligent support.”

Was there a business case?

In common with many similar initiatives, producing a fully evaluated business case was not feasible. “We had a largely manual process. There wasn’t an underlying system from which we could extract data. Even something as basic as lead times wasn’t easy to establish. We just knew that the process was slower and less efficient than it could be. We also knew that the worktime of experienced, highly paid staff was often absorbed in finding documents or gathering information that should have been available with the click of a button. Also, extensive efforts were going into fixing issues and problems that really were avoidable – better information, automated alerts would save time, avoid issues and generate better revenues.”

“But in the end, the business case was in large part common sense. We really couldn’t make an accurate prediction of the return on investment because of the absence of data.”

So what are the benefits?

“Perhaps the biggest benefit has been the scale of understanding across the organization that contracts and their management really matters! Suddenly we have data that is making its way into management reports. We have people coming to us seeking data to inform their decisions. The legal and contracts group has taken on a new level of value.”

“Equipped with consolidated data, we are much better at understanding and analyzing customer relationships – for example, multiple agreemens with one customer, or ven searching across customer groups, or industries or geographies. We can recognize differences, compare performance, see areas of risk. Then, when it comes to performance, our work has become far more accurate and proactive; we no longer risk missing renewals, or ‘accidentally’ continuing to operate under an expired agreement. Our renegotiations are planned and they are appropriate the customer’s situation, performance, industry norms. And of course, the increase in efficiency has meant that our professionals are able to focus time elsewhere – all those things they wanted to do, but never had time. That includes things like earlier engagement with the account teams, more involvement in shaping customer relationships, more time undertaking market research and benchmarks (we are in a sector where terms and conditions are in a real state of flux). As a result, we are far more visible and far more included in key discussions. Our technology has not only added value in its own right, it has enabled my function to become a new and vibrant source of added value to the business.”

 

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