Three Essential Capabilities of Contract Management and How to Achieve Them
It’s not difficult to make the case that efficient contract management should be a high priority for any enterprise. The argument can be made in many ways, but the conclusion is always the same — contract management has a significant impact on the bottom line. Done well, it can help propel an enterprise’s revenue growth and increase margins. Done poorly, it can sap resources and erode profit.
There’s also evidence throughout the business world of the vital assistance that enterprises can get from contract management software in executing the critical contract management functions. By ensuring contract compliance, consolidating data, speeding approval processes, facilitating collaboration, and providing performance monitoring, contract management software allows enterprises to achieve the contract management goals toward which they should be striving.
In “The Case for Contract Management: Why You Should Get Started Today,” Emily Rakowski, senior director of procurement solutions marketing at SAP, does an excellent job of explaining why this emphasis on contract management is necessary, as well as why automation of the process is the best solution. She makes her point by breaking contract management into three components and discussing how contract management automation can enable an enterprise’s success in each area.
1. Contract Visibility
Rakowski challenges her readers to ask themselves if they can locate all their contracts, or even determine how many contracts they have. She wonders if they can identify redundant contracts, keep track of expiration and renewal dates, and determine which business units should be using which contracts. She calls the ability to track and monitor contracts throughout their lifecycle “contract visibility,” and she is dead-on in stressing its importance.
“Customer visibility allows employees to proactively manage business relationships,” she succinctly and correctly states.
Purchasing, sales, management, accounting, supply chain management, and other key areas of an enterprise can all gain valuable customer-relationship direction from knowing exactly where a contract is in its lifecycle, as well as by being able to quickly research a contract for its history, terms and conditions, and relationship to other contracts.
2. Contract Creation/Authoring
Contract performance will inevitably suffer for enterprises without a consistent, systematic process for creating and authoring contracts. Mistakes can be too easily made. “Rogue” deals can be entered into. Contracts that don’t meet corporate guidelines — or even worse, regulatory or legal guidelines — can have a devastating impact on an enterprise.
But, as Rakowski points out, “a well-implemented, automated contract authoring process can address these issues, as well as decrease legal and regulatory risk, provide a clear audit trail, and enable faster time to value, especially when based on supplier solicitation activities.”
3. Contract Performance Management
Many enterprises fail to effectively use the immense store of data they have in their contracts. With contract management software, contract data is automatically centralized, processed, and analyzed, resulting in always-up-to-date business intelligence that can lead to identification of market opportunities, greater negotiating leverage, more-astute development of long-term contracting strategy, and a host of other planning and operational benefits.
Conversely, inattention to contract data will invariably result in costly missed opportunities and unwise decisions. As Rakowski puts it: “If you don’t measure and monitor your contracts’ performance, you cannot know whether you’re actually realizing their benefits.”
By considering the areas in which contract management is essential, and then exploring how automation can improve performance in each area, most enterprises will easily be able to make an ROI justification for contract management system, whether on-site or in the cloud.