Management Skills and Successful Contract Management – Part 1

Automation should be considered an absolute necessity in contract management. Without it, an enterprise will be hard-pressed to efficiently manage its contracts to maximize cost savings and revenue opportunities.

But automation doesn’t work in a vacuum, and it’s not an instant panacea. To realize the many benefits of automation, an enterprise also must have contract managers who know how to utilize the software and possess certain critical skills.

A recent article on the website of the International Association for Contract and Commercial Management (IACCM), “The Competencies a Contract Manager Needs: A Process Perspective,” examines the skills that contract managers need to maximize the value of contract management software. The article breaks the necessary skills down into five areas, each focused on a specific stage of the contract management process.

Outcome-Based Contracting Requires Contract Management

Outcome-based contracts are becoming increasingly popular in B2B contracting, and their use is likely to continue growing—making the adoption of enterprise contract management software even more imperative than it already has been.

An outcome-based service contract doesn’t require a customer to pay until a specific outcome, as defined in the contract, is achieved by the service provider. Rather than billing for activities and tasks, the provider bills based on the results. The CEO of Novartis recently told The Wall Street Journal that he considers this approach to contracting to be the wave of the future.

Contract Management Ethics

The National Contract Management Association’s code of ethics calls for professionals in the contract management industry to “continuously improve” their “professional knowledge and job performance in the field of contract management.”

The NCMA considers it unethical for professionals involved with contract management to accept the status quo and fail to take advantage of advances in the field that enable improved contract performance.  It’s essentially the same ethical concept that requires attorneys to represent their clients “zealously”—contract management professionals owe it to their employers to do their upmost to maximize return on investment for each contract.

In today’s contracting environment, that obligation entails the use of a digital contract management system, which allows contract management professionals to meet the NCMA’s ethical guidelines and virtually always increases contract ROI. Consider the following specific requirements of the NCMA code and how contract management software helps contract management professionals fulfill both the letter and the spirit of those requirements.

Contract Management Software Leads to Procurement Cost Savings

Enterprises are increasingly recognizing the immense potential of technology to lower the costs of procurement processes, particularly contract management.

A survey by SAP and the Procurement Leaders Network—conducted during the height of the global recession—found that almost 40 percent of responding enterprises increased their focus on technology in order to achieve procurement cost savings during the tough economic times.

The Rise of the Supertemp

Harvard Business Review recently published an article, “The Rise of the Supertemp,” which focuses on the rise of an emerging class of high-skill professional workers who choose to work as independent contractors rather than traditional “permanent” employees.

The traditional employment model exists in large part because it has been cheaper for enterprises to keep talent in-house than to constantly hire it on the open market. But technological advances have lowered the cost of using skilled temporary workers, while technology has also played a role in the increasing desire among valuable professionals to work for themselves, resulting in enough supertemps to meet the growing demand.

“Today technology makes it easy to plug in, the corporate social contract guaranteeing job security and plush benefits is dead or dying, and 80-hour weeks are all too common in high-powered full-time jobs,” explains the HBR article, by Jody Greenstone Miller and Matt Miller.

Importance of Automated Contract Discovery in Contract Management

Automated contract management can enable companies to expand revenue from contracts, increase productivity, and reduce legal costs. But highly efficient contract management can’t be achieved without first knowing what contracts a company has.

It mays seem that an enterprise would, as a matter of course, know all of its contracts. But most enterprises don’t. Organizations that undertake a contract discovery process are often shocked to find out the actual number.

Enforcing Compliance in SaaS Environments with Contract Management Software

As the use of the SaaS delivery model continues to proliferate, enterprises moving to cloud solutions are discovering how vital it is to pay close attention to the contract terms of their SaaS vendors.

Before signing a SaaS vendor contract, enterprises should internally clarify the needs and objectives that they intend for that SaaS to help them meet. Then they can search the market for a vendor who offers specific contract terms that allow for those needs and objectives to be met. Or failing to find such a vendor, they can try to negotiate the terms they want with a vendor who otherwise appeals to them.

But even after an enterprise has secured the best contract terms it can, the challenge of SaaS implementation is long from over. To achieve the full potential of SaaS, enterprises need to have a contract management system for their vendor contracts.

“Once an organization has done all the hard work of negotiating suitable contract terms and conditions, it can be easy to sit back and think that their job is done. Unfortunately, that’s when the real work begins,” Thomas Trappler, UCLA’s director of software licensing and SaaS contracting instructor, recently told CIO.com.

What to Consider When Negotiating SaaS Contracts

The market for software-as-a-service (SaaS) continues to grow rapidly, with global spending expected to rise 17.9 percent in 2012, to $14.5 billion, and to reach $22.1 billion by 2015, according to the market research firm, Gartner.

Increased awareness of how SaaS works, growth in related technology (e.g. platform-as-a-service), and the low upfront licensing and capital costs are driving this increase, said Gartner’s research director, Susan Mertz.

But as many enterprises transition to SaaS, they’re often unsure of how to find and negotiate service contract terms that best suit their business needs. Many enterprises don’t adequately review the contract terms of the SaaS vendors they are considering, and even more never try to change the terms in their favor.

In a July 2012 article on CIO.com, Thomas Trappler, director of software licensing at UCLA and SaaS contracting instructor at the school, urges enterprises to be more aggressive in seeking terms that will provide the most benefit.

Aligning Contract Management with Sales Processes

A recent study by the Aberdeen Group found that, on average, respondents’ revenue that involves contracts is projected to rise from 56 percent to 68 percent within the next two years. Aberdeen points out that this increase can result in a competitive advantage for enterprises that focus on growing contract sales and making the contracting process more efficient.

“In an economy where product margins continue to dry up, best-in-class service organizations are finding that warranties and service contracts can be a fruitful avenue to drive increased revenue streams,” concludes Aberdeen analysts Aly Pinder Jr. and Sumair Dutta.

Yet many enterprises are not positioned to maximize contract revenue because they do not have a contract management system that aligns contract management with the sales process. This failure of integration leads to bottlenecks and missed opportunities that hamper revenue growth.

The Role of Training in Contract Management Processes

Implementing contract management software leads to numerous benefits, such as shortened contract life cycles, negotiation support, lower processing and legal costs, increased revenue collection, and protection against expensive mistakes. Spurred by the increased availability and affordability of software-as-a-service (SaaS) providers of contract management software, enlightened companies are hastening to take advantage of these many advantages.

But before these benefits can be realized, enterprises must properly train staff and plan the execution, including integration with existing internal or cloud-based systems. Haste in this step will make successful implementation more difficult and lengthy in the long run.