How Ubiquity Undermines Our Understanding Of Contract Management
“Contract management is the process of managing contract creation, execution, and analysis to maximize operational and financial performance at an organization, all while reducing financial risk.” – Business News Daily, July 2013
Being asked to write an article on contract management reminded me of the time that a Kennedy family insider asked me to write a book on the famous family. Of course, and in a been there, done that shrugging I politely declined indicating that there is nothing new that I could add to a subject with which so many are already so familiar. In short, I did not feel that I had an angle that would shed new and meaningful light on the Kennedys.
When it comes to contract management, this same level of ubiquity is also the case. Next to cost savings and risk management and other similar procurement related jargon, contract management is well the equivalent of saying hello. Reading the above Business News Daily excerpt pretty well tells you everything you need to know about the subject.
But should you stop reading at this point?
More Than Auto-Renewals And Savings
The greatest challenge with familiarity – at least when it comes to contract management isn’t that it breeds contempt, but a degree of arrogant apathy. Anyone who has been in procurement for even the shortest time knows that contract management is an integral part of the overall procurement process.
Everyone already knows that managing contracts is essential to ensure ongoing compliance with terms and the fulfillment of obligations on the part of all stakeholders, especially suppliers.
End of story, roll credits.
But is that all there is to contract management in the emerging digital age?
“Like everything in our professional lives, business contracts are changing and being transformed by digitalization. And like many other technology advances, this transformation is enriching the role of legal, finance, procurement, and sales operations in designing, preparing, negotiating, and managing contracts.”– D!gital List Magazine, January 2018
In the above D!gital List article reference is made to research from the International Association for Contract and Commercial Management (IACCM) highlighting the fact that “technology is changing the way people interact with contracts,” in areas such as “commercial innovation, business judgment, and behavioral economics.”
What is even more interesting is the assertion by IACCM that “contracts will be less about cost in the future and more about relationships.” This last point is somewhat surprising because, in the traditional sense, contracts were little more than legislative tools to hold suppliers’ feet to the proverbial fire when they screwed up. This pre-existing mindset is hardly relational and more about enforcement than building rapport and mutual understanding.
In this context, it can be difficult to reimagine contract management. But that is what the IACCM research is suggesting with the association’s findings that you should no longer view contract management as an “administrative task.”
A New Vision for Contract Management
So how should you view contract management in the digital age?
To start, you should no longer look at your procurement management tool or tools as simply being a repository for storing contracts. Nor should they be reduced to a compliance and enforcement mechanism. Instead, your contract management solution should be a dynamic resource that according to the D!gital List article “orchestrates change” make sense of “market volatility,” drive “performance- and outcome-based agreements” while integrating processes “across the enterprise and beyond.” At least this is what the most innovative companies do.
It is hard to argue with this new vision of contract management.
That said, recognizing a new vision and acting on it are two entirely different things.
When it comes to an organization’s digitization of its supply chain – including contract management, a McKinsey survey found that despite a recognition of the potential impact that digital reinvention will have on the growth of revenues and profits, only 2 percent of the surveyed companies report that the supply chain is part of their “forward-looking digital strategies.”
Given the above findings from the McKinsey survey, transforming contract management from a static repository to dynamic resource seems like a long and arduous process.
In this regard, contract management technology perhaps like never before, can facilitate the realization of the new vision.
Clearing The Way
Earlier I had mentioned how innovative companies use their contract management solution has a dynamic tool. Beyond broadly painted brushstrokes, what exactly does a dynamic tool do?
Based on market intelligence, the new contract management tools should do everything from building strategic relationships and greater collaboration, improve supplier performance (still has to be in there), standardize processes and approvals, strengthen compliance and reduce risk, and generally automate all phases of the contract management process.
It is against this expanded metrics of measurement that your organization must compare and analyze today’s contract management solutions. By doing so, your contract management practice will make the transition from a passive/aggressive enforcement tool to one which will empower and enrich the role of legal, finance, procurement, and sales within your collective enterprise.
Jon Hansen is an expert in all areas of Supply Chain Management and Procurement. He is the owner of Procurement Insights and as a lecturer/speaker he is also a business radio talk show host. He writes blog posts for SynerTrade North America, to share the best practices and knowledge around Digital Procurement.