This is the third post in our Integrated Contracts series.
|5 approaches to integrated contract management|
A recent Ford Focus commercial positions that “and” is always better than “or” -- a rule that neatly applies to an organization’s integrated contracting solution. At a high level, an integrated contract management approach that combines contracting and revenue monitoring can improve a company’s contracting, reporting, and data accuracy while cutting costs through operational efficiencies.
Although an integrated revenue and contract management solution offers the best value, not all companies know how to develop an all-encompassing management tool. That’s where an Integrated Contracting Maturity Model can help.
The Integrated Contracting Maturity Model
The Integrated Contracting Maturity Model allows companies to assess their current business processes, requirements, systems capabilities, and gaps, and then effectively define where they fall on the model’s continuum to better devise a plan to advance to the ultimate, transformative level. The maturity model helps organizations visualize and map the positive opportunities afforded by an integrated solution. Here are the five levels of contracting maturity:
Level 1 -- Reactive
Organizations at the primary reactive level are using manual or, at best, semi-automated office tools to manage contracting and revenue processes. They manage and produce contracts and supporting documents uniquely, relying on cut and paste to add common terms into updates and manually reviewing documents. Redlining might be completed via easy-to-override track changes, and then shared via email without automated workflow or version control. In this low-level scenario, each document lives in a silo. Without the advantage of a central repository and templates library, productivity and accuracy are impacted. Because reactive organizations repetitively search for company-approved standard terms, they can’t ensure that the latest terms are accurately or consistently applied to documents.
Level 2 -- Proactive
As a company grows, its contracting needs grow, too. Companies at this level now must consider and coordinate contracting functions across multiple sites and improve control of proprietary information. These organizations will want more advanced functionality, including a centralized repository for all documents, automated workflows with role-based permission for access and approvals, and reporting capabilities to better manage workloads and measure performance.
With these added capabilities, companies can expect an increase of 5 to 10 percent in productivity gains, as well as improved authoring using standardized terms and faster contracting cycles for reviews and approvals.
Level 3 -- Operational
The goal now is to implement measures to gain consistency of best practices that help to reduce costs and risks. Companies at the operational level might use their legal teams to lead contracting, helping to minimize company risk and exposure to costly rogue contracts, non-standard contracting errors, or non-compliance.
These companies seek more sophisticated solutions for managing amends, milestones, and related sub-contracts. By integrating word processing applications for improved authoring and a single-source library of templates and clauses, companies can better manage more complex contracting requirements, such as managing hierarchies between master contracts and statements of work or change orders.
At this level, companies are beginning to realize the full potential of integrated contracting solutions, with productivity gains of 10 to 20 percent for authoring and management. Moreover, revenue increases as use of standard terms often result in better outcomes.
Level 4 -- Alignment
With an eye on continuous process improvements, companies at this phase are ready to align their best contracting practices with management of pricing incentives and calculations. They need solutions that help construct and automate multi-tier pricing agreements while incorporating other features to support best price calculations and compliance reporting. Taking advantage of mobile technology can facilitate workflows and approvals with remote access to contracting tasks.
Companies can gain a competitive advantage with negotiation portals, which can help complete analyses on recent contracts with customers by considering: Did the previous contract live up to expectations? How did expected revenue compare to expected value? With this information, organizations are armed with actionable data to conduct winning negotiations.
At this high-performance level, companies can realize returns of 10 to 20 percent for contracting and authoring. Moreover, with these added contracting capabilities, companies now set the foundation for operational excellence, gaining the ability to allocate resources most effectively and to comply with industry regulations.
Level 5 -- Transformative
At this stage, companies want to drive a comprehensive, end-to-end solution that promotes operational efficiencies but also gives insight into performance, helping to make better decisions and uncover opportunities for added savings or process improvements.
Enterprise-wide functionality will deliver streamlined and seamless performance. A single, standards-based IT platform will promote accurate data transfers across departments and other ERP systems. Analytics focused on contracting performance help organizations peel back the layers to uncover empirical impacts and model future contracting scenarios to leverage improved terms. New features can support forecasting functions and help manage accruals, avoiding painful financial impacts, such as cash flow issues or restatement of earnings.
Fully integrated contacting systems initiate a transformative, end-to-end contracting environment that lends itself to driving business value through:
- Increased revenue with accurate contracting terms and conditions
- Insight into optimizing renewals
- Automated compliance management and reporting
- Operational efficiencies, accuracy, and scalability
For more information, check out the Revitas e-book, “Moving from Reactive to Transformative: The Value of Integrated Contracting.”