No Panacea
Saavy CEOs are constantly looking for tools and methodologies than can make their organizations more efficient, that help reduce costs and drive incremental revenue. In this age of widespread business automation, many vendors purport to offer their solutions as a panacea, a salve to solve the most nagging enterprise problems. If CEOs have learned anything over the last 2 decades, it is that often the most appealing solutions can be a nightmare to implement, and it is rare that the hoped for results are ever achieved without the requisite pound of flesh. This is true in most instances. Interestingly, some well-behaved Contract Life-Cycle Management (CLM) solutions can deliver impressive results without the requisite pain.
Broad-Based Benefits
When looking to eliminate inefficiencies and business process problems, the best approach is never to try to solve a big problem all at once (see ERP), but rather to identify small achievable goals and accomplish them one at a time. What do they say? ‘”How do you eat an elephant?” Ans. “One bite at a time.” Also important to achieve sustainable benefit with executive support (an executive visibility and support is essential) is to identify a problem whose solution will both directly and indirectly help multiple functional stakeholders across an organization. This assures that even if one area has problems ramping up, others can bring immediate value. The management of contracts is one area which is often overlooked that can provide efficiencies and a plethora of benefits across the enterprise.
CEOs benefit from better compliance, risk assessment and oversight. CFOs benefit from complete revenue source recognition and better contract revenue disruption understanding. General Counsels benefit from better contract compliance, better approval visibility and a more strictly controlled contracts process, CIOs benefit from reduced/leveraged staffing requirements and lowered capital equipment requirements. Contract managers benefit from having an ability to know where all contracts are located, they can access them instantly, receive reminders for all events and milestones and can instantly respond to executive requests for reports, data and status.
Islands of Opportunity
In a vast sea of challenges, Contract Life-Cycle Management (CLM), can deliver islands of opportunity across the enterprise.
Navigating the Islands?
Cost Savings
In an age of global competitiveness, companies are constantly challenged to do more with less and to do it at less cost. So let me ask you. If it takes 20 people, each earning $50,000 a year to manage your contracts, and with a CLM in place, only 12 people can manage the same number of contracts and do it more efficiently, with far fewer errors, no missed dates and no lost opportunities, is that a better situation? I suppose it depends, but it likely is a much better situation. Why? The reorganization in this example has freed up $400,000 in salary (not including benefits). Assuming those 20 people were managing 2400 contracts, comprehensive CLM solutions are certainly available under $50K, creating a $350,000 plus annual cost savings.
How about procurement? Enterprise spending has a sufficiently high visibility within most enterprises and companies want to have costs both understood and under complete control. Without a comprehensive CLM solution it can be difficult to monitor contract compliance, supplier compliance, supplier performance and supplier risk. And what about the dreaded self-renewing contract that keeps on generating costs whether the products or services continue to be required or not. Without CLM, the renewal of self-renewing contracts happens all the time. With CLM it should only happen because that is what is desired.
Improved Efficiency
Without an enforced, structured contract approval methodology, contract approvals take days and weeks, sometimes months, longer to negotiate and approve than they would otherwise take with the use of a comprehensive CLM solution. Without the process imposed by a CLM solution, emails get lost, documents are changed without knowledge, approvals are ignored and time is expended validating the stage that a negotiation or contract is last at. The inefficiency and hours lost as the result of non-CLM approval processes is staggering, creating lost opportunities and poor manpower utilization.
Another area of inefficiency that results from not having a CLM with internal deep document search capabilities is the bane of most contract administrators. It’s an old story, repeated often. Something happens and the CEO or CFO wants an across the board assessment of enterprise-wide contract exposure in the form of a report. Without deep document search, and certainly without a central repository with contract meta data, this begins a sleepless marathon of manual searching that can take many hours or many days. At its conclusion, the requestor is left with a disclaimer, i.e. “these are the instances we found. We think we found all of them.” Using a CLM with deep internal document search capabilities you have the assurance that all instances were discovered immediately and liability can be reliably assessed with the knowledge that some missed instance will not rear its ugly head at some later time. Not only does CLM deep internal document search save man-hours and man-weeks of effort, but it helps executives make meaningful, confident risk assessments, that allow them to better protect the enterprise and its shareholders.
Improved Contract Yields.
Here is but one of many examples. The benefit of long contracts (5-15 years) is they provide revenue stability over long periods of time. The disadvantage of long-terms contracts is that they are long-term and are voluminous and complex, with every possible contingency spelled out in legalese in an effort to protect against any major future contingency. The very nature of voluminous, complex long-term contracts makes them challenging to manage. Such contracts generally provide many opportunities to raise prices for any number of reasons, often related to cost recovery.
Such things as changes in the cost basis of materials, performance incentives, reliability incentives, delivery incentives, penalties, changes in regulations, etc. generally permit a supplier to raises prices. Unfortunately what happens is business managers come and go. Over time, neither supplier nor customer knows where increased charges can be assessed. And because the supplier manager is consumed with day-to-day operational challenges, contracts are only looked at infrequently and the opportunity to assess price increases is frequently missed. With a comprehensive, well-behaved CLM solution, supplier managers and customers stay abreast of contract issues so that opportunities to raises prices are recognized and understood by both parties. Whether viewed as creating a higher revenue or a reduced cost basis, CLM solutions have the potential to consistently increased contract yields.
Caveat Emptor
If your enterprise, large or small, depends on properly executed and managed contracts as the foundation of your business, you would be wise to learn more about how well-behaved Contact Life-Cycle Management solutions can create enormous value. Of course there is a caveat. “Buyer Beware”. Not all CLM solutions are created equal, are well-behaved, or are easy to learn or to adapt to your business processes. You may already have such a system. If is complex, not being used, or only used minimally, do not expect to receive the benefits described. And good luck to you in your quest to achieve improved business efficiencies and enterprise saving. Carpe Diem!
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