5 Challenges in Contract Management in the Business Services Industry
Companies in the business services industry that provide ancillary services, such as marketing, consulting, staffing, security, telecommunications, Internet services, logistics and waste handling, to other players in the market, are grouped within the Industrials sector of the S&P 500. Publicly traded companies in the business services sector accounted for 3.10% of this index ‘s market capitalization in 2014.
To take a closer look at the contract management needs of companies with at least $5 million in annual revenue within this sector, Contract Logix surveyed 264 U.S. individuals who are responsible for the creation, editing, and/or management of contracts at business services companies. Let’s review what are the most pressing contract management challenges in the business services industry.
- Lack of Visibility into Scope of Contracts
When asked to rate the extent to which certain contract management issues present a challenge within their organization’s management of contracts, 66.50% of respondents put lack of visibility into scope of contracts as the most pressing issue. (Note: the percentages cited throughout this article don’t add to 100% because respondents were allowed to select multiple answers.)
Handling scope creep is one of the biggest challenges for contract managers, but it’s top of mind for those in the business services industry. In comparison, 61.95% of contract managers in the manufacturing industry cited lack of visibility into scope of contracts as a challenge. To find more about how individuals at manufacturing companies handle contract management, download the full report “Contract Management at Manufacturing Companies: Roles, Tools, Challenges, & Obstacles”.
Setting expectations for change requests, stipulating what is a new project request, and budgeting for small discrepancies are some of the strategies to handle scope creep in contract management. Given that all of the survey respondents were not using CLM software, it can be inferred that the current tools used to manage contracts aren’t providing that valuable insight into contract scope. The top three tools used by individuals to manage their contracts were email (84.10%), spreadsheets (67.80%), and paper (65.20%).
- Lack of Security
A separate poll of key IT security professionals across 19 industries, including business services, revealed that 52% of respondents believed that their organization will likely be hit by a successful cyber attack this year. Given this statistic, it’s understandable that 65.80% of respondents to Contract Logix’ survey were concerned with this issue as well.
Email isn’t a replacement for contract management software. The surveyed 84.10% of individuals using email for contract management could greatly benefit from key features of CLM software, such as the ability to create and customize secure forms to collect any type of data from third parties. Such forms render successfully on any Internet-enabled device using any operating system, providing convenience for the form recipients and speeding up contract management processes. Learn other ways to increase the security of your contracts.
- Inability to Extract Key Data from Contracts
64.3% of individuals indicated that the inability to extract key data from contracts at least somewhat challenged contract management processes at their companies. Manually browsing through email histories, checking that spreadsheets are correctly interconnected, or taking files out of a cabinet can make finding contract data very burdensome.
This third challenge in contract management in the business services industry demonstrates why contract management benefits from automation. Even the most brilliant minds at top performing organizations have suffered costly mistakes from relying on interconnected Excel spreadsheets. JP Morgan provides a clear example with the $600 million fine due to an incorrect Excel model.
- Lack of Business Rules
While lack of business rules comes as the fourth challenge in contract management in the business service industry (64.10% of respondents), this is the second area most reported to be a significant challenge by respondents. In Contract Logix’s report, 16.60% of participants cited lack of business rules as one of their most pressing issues in contract management.
When examining the relationship between the roles responsible for contract management and the challenges experienced, individuals in legal roles are the most concerned (72.97% of those in legal roles). 83.78% of those individuals in legal roles cite email as the most used tool for contract management, which could be the root of this challenge.
- Issues with Regulatory Compliance
Some industries are subject to stringent compliance requirements and business services is one of them. This is why 62.3% of respondents cited issues with regulatory compliance as a challenge in contract management processes.
Regardless of their role, more than half of respondents are concerned with regulatory compliance. Individuals in legal and contracting roles are the most concerned (67.57% and 60.00%, respectively).
Here are two resources for a deeper dive on how to address compliance issues in contract management:
To find more about how your peers at business services companies handle contract management, download the full report “Contract Management in the Business Services Industry: Roles, Tools, Challenges, & Obstacles”.
If you’re ready to take your contract management processes to the next level, schedule a demo of Contract Logix and learn why hundreds of enterprises and tens of thousands of users trust Contract Logix to securely manage more than 5 million contracts.
Image Credit: Dennis Skley