Planning Business Process Improvement in Contract Management

Here's a step-by-step approach to implementing a contract lifecycle management initiative in your company.

According to recent research conducted by the International Association of Commercial Contract Managers (IACCM, "Corporate Benchmarking Survey, Summer 2004"), 87 percent of contracting professionals stated that the speed of decision making and execution in contracting are sources of organizational competitive advantage. While many practitioners are bullish on the prospect of value creation in contract management, the challenge of securing wider organizational buy-in around the merits of business process transformation still remains.

Since contract lifecycle management (CLM) initiatives are not yet widespread and existing initiatives are still early in their lifecycle, building a business case for CLM requires an especially well-grounded planning methodology. While your organization's standard process for assessing business value and return on investment is a good place to start, it is unlikely to anticipate special factors associated with CLM transformation.

A better approach is to tailor your framework to the principle challenge, which involves alignment of broader corporate business imperatives to recommended change in contract management business practices, processes and tools. The planning phases you will want to leverage in building a strong CLM business case are goal-setting, scoping, project planning and technology assessment.

Goal-setting

The purpose of the goal-setting phase is to help your organization align the contract lifecycle management call-to-action with real business imperatives. In some ways, it is an outside-in exercise whereby you look outside of the contracting function at the larger organizational environment. By leveraging business drivers — those factors most directly affecting performance of your organization by presenting opportunity or risk — you can increase the priority level of a CLM initiative.

An example of a business driver that presents an opportunity is one that has the potential to markedly differentiate against competition by focusing on responsiveness to customers in an industry with historically low customer satisfaction.

Once you have determined your business drivers and begin to undertake the initial activity of goal-setting for your CLM initiative, be sure to outline your response strategies, which are approaches to addressing each opportunity or risk.

As you approach the goal-setting phase, be mindful of the common pitfalls. Understanding what they are ahead of the game reduces potential organizational resistance later in the process.

Common mistakes include anchoring the priority or materiality of an opportunity to the wrong stakeholders. For example, it is important to avoid driving the opportunity too low in the organization. This pitfall is likely to elongate decision cycles and reduce the probability of buy-in. Recognizing that the people at the top are empowered to move rapidly when there is sufficient business rationale, it is critical to have bold ambitions about the audience for your call-to-action.

At the same time, it is typically important to prepare a compelling case for your senior audience, since first impressions are lasting. Common pitfalls when approaching senior management include assuming your targeted stakeholders are choosing from only one or two possible strategies in response to the business driver, when they are actually choosing from a portfolio of strategies; the strategy your team has outlined is not a near-term priority for the target stakeholders in addressing the business driver; or the strategy outlined is not sufficiently material in its contribution to the business value to achieve the interest of target stakeholders.

Alignment of the CLM opportunity with business objectives is achieved when the call-to-action is both sufficiently material and prioritized in the eyes of the target stakeholders.

Scoping

In the scoping phase, your objective is to determine how operations would be carried out in order to implement each response strategy. Key components of this phase include a capabilities review of the people, processes and policies, as well as maturity analysis, which includes a maturity map and a risk/reward profile. In short, the scoping phase addresses the operational requirements of implementing various strategies.

A useful tool to aid the scoping phase is a Process Lifecycle diagram, which enables you to determine the sequential activities involved from conception to closeout of the contract. A Process Lifecycle diagram can help to keep you focused on key contract management processes such as contract planning, development, interaction, administration, fulfillment, leveraging, optimization and governance.

Process Maps can help you discover your company's current contracting processes by diagramming in detail the end-to-end contracting process, which tend to be unique for each company. A Policy Library ensures you document what organizational policy direction is provided based on best practices, standards or other mandates such as regulation.

A Maturity Map will assist you in determining the logical growth path in stages that can easily be managed. In setting maturity goals, it is useful to ascertain what the stages and components of solution maturity are in terms of realizing business value from contract lifecycle management solutions. For example, if contracting is "siloed" and your organization is at Level 1 in the Maturity Map, you may simply possess a system of record for contract documents and data. While Level 1 is a good place to start, an acceptable growth goal may be Level 2 whereby contracting processes are cross-functional and routed in corporate standards. Building on this particular example, Level 3 might involve a highly responsive contracting process whereby best practices can be rapidly adopted. To complete our example, Level 4 in the Maturity Map can represent a closed-loop stage in which complete reconciliation of contracts and transactions is achieved.

Project Planning

Project planning as it relates to building a case for your CLM initiative will help to increase the probability of an initiative that meets its objectives related to cost, time and scope. It involves five key components that demonstrate best practices in project planning: staffing and coordination, business case and executive sponsorship, budgeting, change management, and technology evaluation.

Staffing and Coordination
Nothing is more important to project planning for contract lifecycle management initiatives than proper staffing and coordination. The first step is to map the business value to respective stakeholders, and then develop a cross-functional project plan. The cross-functional plan for the project should include a steering committee as well as accountability and incentives for its members. In addition, it should be executive-driven.

In mapping the business value to each stakeholder, assign primary roles and secondary roles to the processes you outlined earlier. An example of job functions with primary roles in a buy-side CLM initiative might be sourcing, procurement or vendor management roles. Secondary roles might include finance, legal and IT administration.

Business Case and Executive Sponsorship
Building a business for CLM and obtaining executive sponsorship ensures that the initiative and final solution are aligned with corporate methodologies and based on real organizational business scenarios. A useful way to perform the exercise is to create a CLM value hierarchy for each business process you believe can be improved. In this exercise, you will attempt to tie a measure of improvement in the contracting process to key performance indicators (KPIs) that the organization has prioritized.

For example, if the organization is tracking customer satisfaction rates, to what extent is reduced cycle time of negotiations and contracting a related contribution toward this objective? Continue with this exercise and tabulate the process improvements related to contract management that drive improved corporate-level KPIs. This value hierarchy is likely to be compelling if you can identify one-half dozen process improvement opportunities, tiering upward to multiple KPIs.

Budgeting
In the budgeting phase, determine how much of the budget to consume over different periods of time. In most cases, spending incrementally in phases is the best approach, since it allows you to balance rewards with risk. In today's economic environment, quick and near-term wins will ensure additional budget allocations can be garnered in the future.

Change Management
Change management is the approach taken to manage the people-side of change. Business process transformation initiatives that fail to plan for the human side often go awry. As you build a business case for the CLM initiative, systematically address the people-side of change. The approach should focus on education of the value proposition to end users, selection of technology that minimizes change and extensive training. According to recent work by Booz Allen Hamilton, "this demands as much data collection and analysis, planning, and implementation discipline as does a redesign of strategy, systems, or processes" ("10 Principles of Change Management," by John Jones, DeAnne Aguirre and Matthew Calderone, strategy+design magazine, Booz Allen Hamilton, April 14, 2004).

Technology Evaluation
In the project planning phase, be sure to perform an in-depth requirements analysis whereby you map your business processes to CLM technology capabilities. Once that's complete, evaluate each product or solution thoroughly to make sure the technology and service provider is a fit from the perspective of business process support. Some CLM service providers deliver services to scope out the initiative. If your organization is large, taking advantage of these services could save time, mitigate risk and increase the CLM initiative's time-to-value.

Technology Assessment

In the technology assessment phase of building the CLM business case, it is useful to break out the evaluation of competing technologies into six main categories. Key areas to assess are the class of the solution, business process focus, approach, architecture, integration and the technology itself.

In terms of the class of the solution, determine whether it is an extension solution such as those offered by enterprise resource planning (ERP), procurement, or sales automation vendors; whether it is a "lite" vs. enterprise solution; or whether it is a best-of-breed solution.

As you evaluate the business process focus of the technology, determine whether it is more focused on pre-execution, post-execution or some of both. Most organizations will begin with the pre-execution aspects of contract management — a logical starting point.

As you look at the solution's overriding approach, consider how well it manages the desktop- or MS Word-based aspects of the contracting process. Another example would be to evaluate whether you need a solution to support a structured data vs. unstructured data contract management approach. Usually, there's a trade off between the two.

As you assess the technology architecture, determine what degree of flexibility the solution has, if any. If your organization is growing or you expect to expand the CLM solution across the enterprise at a later time, a scalable, flexible solution that can expand with the company's CLM needs is essential.

When evaluating the technology solution's integration capabilities consider the integration framework underlying the products, and involve a technology specialist within your organization with this exercise.

Lastly, assess the technology itself against your prevailing standards for systems.

Implementing a CLM solution will require business process transformation in order to create value for your organization. Since CLM initiatives are not yet widespread and existing initiatives are still early in their lifecycle, building a business case for CLM requires a good planning methodology. Good planning for CLM will ensure alignment of business objectives with your end solution. In short, the planning factors you will need to incorporate in building your CLM business case are goal-setting, scoping, project planning, and technology assessment.

About the Author: Atif Rafiq is the president and CEO of Covigna.

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