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If performance matters, why are contracts ignored?

January 14, 2020

Speed matters. So why do so few organizations take steps to reduce contracting cycle times? A few are achieving improvements of 20-30%. Most are not even looking.

Margins matter. Among top performers, a focus on contract and commercial management has yielded margin improvements as high as 2.5% in the last two years. That’s measured, verified improvement – not just wishful thinking.

How do they do it?

Quite simply by making CCM a business discipline with accountability for delivering value. These top performers apply business intelligence; they segment their contracts and relationships; they apply standard models and techniques; they undertake analysis at several levels, to spot opportunities.

And not surprisingly, they invest in skills.

They assess their CCM teams, they educate and equip key stakeholders. Management demonstrates its understanding of the importance of CCM.

It’s interesting to note, many of these leaders make limited use of technology – yet. Only now, with sophisticated understanding and a coherent, integrated process are they thinking of investing in tools and systems. Thats because they plan to stay ahead.

As for the rest ….

Most organizations remain blind to the cost of weaknesses in contract and commercial management. Many are distracted by endless internal debate over who owns what, who is to blame for poor performance, complaints that senior management doesn’t care or that staff lack the authority to make change happen. Plus, of course, there’s always the ‘we are too busy’ excuse to fall back on.

IACCM research consistently points to the sub-optimal results, the missed opportunities. But more important, it offers answers and indicates how improvements can be made. Capability assessments, skills profiling, benchmarks, training, analytical frameworks – the answers are available and some are benefitting. But it could be many more.

it was (I think) a McKinsey report that once observed the leaders and long-term survivors in any industry represent only about 15% of the total. That certainly seems true in the field of CCM. But maybe 2020 will be different ….  I hope so.

 

2 Comments
  1. John Jorgensen permalink

    Hi Tim
    I thought IACCM research identified value leakage significantly higher than 2.5%? If my memory serves me right, nearer 7-9% of bottom line performance?
    If we are at 2.5% and CxO is looking for World Class RoI from that function, it doesnt sound right?

  2. Hi John
    indeed – but you make a start and drive steady improvement. For example, there are often limits to what you can do with existing contracts, so much of the benefit is coming from new agreements and projects

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