Is Sloppy Contract Management Costing Us All Billions?

By Howard Frear, Director of Sales and Marketing, EASY Software

Money Going Down the Drain 5857953208_a827a325c8_oHello one and all. Today, I want to start you thinking about an important area of business that doesn’t get as much attention as it deserves, but which is actually a fantastically appropriate problem for data or enterprise content management to help out in.

The area I have in mind is all the work organisations, of all sizes and shapes, incidentally, have to carry out to deal with the problem of managing contracts. That’s to say, ‘contract management,’ a relatively new term perhaps but one which I think we’re all going to see a lot more of. I also want you to start thinking about how more efficient handling of contracts can have surprisingly positive impacts on revenue and cashflow – and how handling these better as a result can really help.

That’s quite a lot to be talking about, so let’s get cracking. Where do contracts live in your organisation’s business process? Two places, basically, as there is the selling side and the buying side of contracts. There are two parties in any negotiation or business relationship – and in a business role, as you’ll appreciate, if you’re selling something, there’s a contract negotiation before you conclude the deal, then there is delivery on that and that impacts upon what you are selling to the customer in terms of revenue.

At the same time, when you are buying things, in a manufacturing or a servicing sense, then of course there is an agreement there on the other side as well. Contract management on the buy side affects sales, your cash and engagement with the customers; and on the buying side it is all about dealing with your suppliers and making sure the supply chain gets managed correctly.

All well and good so far, I’m sure you’ll agree. Well – is it? Because what we see is a disconnection between the two. Actually, we’re not alone there. Independent analysts The Aberdeeen Group have done some interesting research on contract management some of which I’d like to summarise briefly here:

    • an average of 68% of a company’s total revenue comes through formalised contracts – meaning it is the major part of most businesses, on the selling side
    • 82% of contracts of what the researchers say define as ‘best in class’ organisations – organisations striving for operational efficiency and who want to be market leaders in whatever market they are dealing with – have electronic contract management versus those that don’t. That means many are still dealing with contracts by shuffling paper
    • indeed, 51% were fully manual in terms of contract processing on both the buy and sell side of contracts, versus only 8% were fully automated.

So the situation seems to be that 51% of organisations are still dealing with all this critical side of their business either manually (paper and spreadsheets), with lots of paper contracts and associated admin sitting in a filing cabinet somewhere.

To be fair, it’s not all being done by scribes with quill pens. Contract handling is a lot more digital than it used to be; most contracts, even paper format contracts, are produced electronically, for sure. BUT they often get sent in on paper, get signed with a wet signature, get photocopied and stored in those filing cabinets more often than not, even in the most progressive organisations.

Here’s the problem, what I meant by ‘disconnect’ earlier on. If all that vital information is on paper, that is going to makes it very difficult to negotiate and manage them if it is all just sitting in a file some folder – that’s even if you might have a cell in a spreadsheet to remind you as to when those contract key dates are due.

Don’t get me wrong – I have no issue with you using Excel; it is a very powerful and useful tool. But how come – quoting Aberdeen again – an astonishing average of 9% of revenue is getting lost due to regulatory penalties, missed deadlines, lost sales, incorrect pricing, or other transactional errors. You could be talking billions here, on the global scale. Doesn’t that worry you?

Let’s finish for now with a telling war story that for me sums up many of the issues here. Someyears back, I talked to the IT manager of a well known fast food delivery company. Its CEO had gone out on a meeting to secure a very important deal – or rather, he’d gone out with a paper copy of the contract. The problem was, the other party had in front of him an electronic version that was a version higher, with different terms on. You can imagine that was an embarrassing, to say the least difficult, discussion for that poor guy, as all the terms were different, the negotiations start point was different. Let’s just say he wasn’t a massively happy camper when he got back to the office!

So this can happen to even the biggest household names. How sure are you it’s never going to happen to you?

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