“Let’s sign the contract, put it in a drawer and never look at it again,” is something you often hear at the negotiation table when one party wants to close a thorny issue or make the point that contract performance is all about the “relationship.” With all due respect to the “relationship,” it seems strange to invest months in the procurement cycle, weeks in negotiation, substantial funds to hire counsel and advisors, and risk internal credibility on something that is intended to sit in a drawer. And who in 2014 really uses drawers or cabinets anyway? It only stands to reason that if a company is going to invest so much time and energy into a business case for a purchase or portfolio of purchases, shouldn’t it also invest time and effort to ensure the proper performance (or receipt of the proper benefits) from those purchases is delivered?
As more companies question this old way of looking at contracts, more are also realizing the benefits of proper contract and commercial management of their contractual relationships. A 2012 independent study by the International Association for Contract & Commercial Management (“IACCM”) shows that adept contract development and management can improve profitability within a company by up to nine (9%) percent of the annual revenue. That is a staggering number when you realize that most CFOs would be happy with a simple 3% improvement in the current economy.
Looking at industry best practices, one can quickly see that a few themes are common amongst the companies doing contract management, namely visibility and control. The first lever is to simply have a grasp on what is in the “drawer” that so many are willing to ignore. Just as proper analytics can give the CFO insight on the big data in financial numbers, good contract retention can give the CPO views on the vendor portfolio terms, the General Counsel a perspective on the risks and actual contractual standards in play, and the CFO an assessment of actual contracted cash flow and a contractually supported forecast. A deeper study of document retention will incorporate an understanding of obligation and compliance management. Typical IT contracts can place anywhere from 100 to 1000 unique obligations on vendors; therefore, absolute clarity on scope of purchase will prevent unexpected surprise changes affecting spend or risk. Put another way, by simply breaking down and organizing the information, companies can really see and know what they purchased or promised to perform.
But visibility is only half of the story. Visibility provides knowledge, but true power comes when that visibility is then applied to one’s organization or service provider as a means to exercise control. This is why Capgemini not only recommends world-class technology to enable visibility, but also ensures its Contract Compliance and Optimization (CCO)_solutions are staffed with muscle by way of Rightshore professionals with legal, commercial and operational backgrounds to take action and correct mistakes, hold parties (internally and externally) accountable and keep the business case intact. Once a company sees the light and makes the decision to open the drawer and look inside, it has to take the next step and make something happen. Those that do this are enjoying at least some part of that 9% improvement in revenue.