By Emily Rakowski
Companies of all sizes and across all industries are making contract management initiatives a priority because contracts represent all the critical business relationships that a company maintains, and a company without awareness of those relationships is not in control of its top or bottom line. Equally important is the pressure stemming from legal and regulatory risk exposure, and with that, the need to have business information readily available in an easily auditable and reportable format.
Typically organizations have three areas of focus in evaluating and then deploying contract lifecycle management (CLM) software solutions: contract visibility, contract creation/authoring and contract performance management. Each of these contributes to the overall value and return on investment that can be expected from a CLM solution.
Think of a contract with which you were recently involved. Can you answer the following questions?
- Where is the signed contract and its related attachments?
- How many contracts does the company have with that third party? Are there redundant contracts?
- What business units and regions (countries, states) should be using this contract?
- For supplier contracts, who are alternative suppliers of the same good or service?
- When does the contract expire, and when does it need to be renewed or re-negotiated?
If you find it challenging to answer these questions, you are not alone. This lack of contract visibility plagues nearly every company that has not yet implemented a CLM solution. The benefits of maintaining an electronic contract repository and opening contract information to appropriate corporate employees are numerous.
At its basis, contract visibility allows for proactive management of business relationships. Purchasing will know when agreements will expire and can renegotiate or resource prior to expiration. They will also have visibility into how much of the company spend is covered by agreements and which categories of spend require strategic sourcing activity. Accounts payable will be able to see agreed-upon payment terms and pricing to match to invoices. Sales executives will understand what customers own, what they should up-sell and when they should engage on contracts that are approaching expiration. Customer-facing employees will know what they promised to customers and will be better able to deliver on those promises.
The capabilities needed to manage an effective contract repository include:
- An extensible solution to define and maintain appropriate contract overview data specific to the company's needs.
- A way to capture structured line-item information representing the contracted goods/services.
- Role-based access controls for appropriate contract visibility.
- Robust search capability of contract overview data as well as all contract documents and attachments.
- Strong out-of-the-box reporting, querying and alerting tools, along with dashboards to “surface” critical information according to each user's needs.
Companies typically prioritize this area first and foremost. This should especially be the case if no technology is in place to support visibility at all and contract lifecycle management is primarily paper-based.
Can you answer these questions about that same contract you thought of earlier?
- Where did the template for the contract originate?
- Did the contract utilize the latest approved legal language?
- What was the process used to create, negotiate and finalize the contract?
- For supplier agreements, did the contract contain agreed-upon terms based on an RFP process?
- Who reviewed and approved the final contract?
- What was the cycle time associated with the contract negotiation process?