EASY Contract Lifecycle Management a no-nonsense guide for sales teams
Sealing the deal How to improve customer confidence and prevent profit leakage through automated, intelligent contract management 2
Common areas of contract and management weaknesses that erode an organisation s profits Disagreement over contract scope Weaknesses in contract change management Performance failures due to over-commitment Performance issues due to disagreement over what was committed Inappropriate contract structures Disputes over pricing Issues with subcontractors Average cost to the company: profitability worth 9% of annual revenues - not counting the value of any lost business*. That could be 900,000 or 9 million, depending on the size of your organisation an awful lot to be frittering away! *Source: International Association for Contract and Commercial Management (IACCM) 1 3
Documented value Contracts are the language of business. Or rather they are the business - where sales promise becomes hard monetary value. Yet poor contract management erodes profitability - to the tune of 9% of a company s annual revenue, according to the International Association for Contract and Commercial Management (IACCM) 2. That s a huge gap for a sales team to make up, even before they factor in the cost of any lost opportunities. And 9% is just an average! Some industries and businesses are even more exposed. The higher the number of contracts, the more complex the scenario, and the more involved the terms and conditions, the more chance there is for something to fall through the cracks jeopardising hard-won sales, and repeat revenue. It isn t that companies are deliberately lax about the mechanics of contract management. Often it s just that the business has grown up doing things a certain way manual drafting, cutting and pasting, and keeping track using spreadsheets and reminder notes in account managers diaries. But the more that organisations leave contract detail to chance or habit, the less in control they are. Reliance on manual intervention creates a window for sales people to leave out important clauses, fail to update terms, or miss an upcoming renewal date. The result could be a loss of face and a loss of business a risk that isn t worth taking. 1 Poor Contract Management Costs Companies 9% - Bottom Line, IACCM, October 2012: https://www2.iaccm.com/resources/?id=6845 2 Poor Contract Management Costs Companies 9% - Bottom Line, IACCM, October 2012: https://www2.iaccm.com/resources/?id=6845 4
Taking back control Turning the situation around starts with viewing contract differently. Instead of treating them as a necessary evil, a healthier way to think of it is that a wellmanaged contract can drive growth and innovation. Sales people are naturally adept at spinning a situation in a positive way it s the same with contracts. Get them right, and they ll work for you. Manage them well, and repeat sales will take care of themselves because you ll always be one step ahead of renewals. It s about taking back control. Control is good Carelessness costs money Some companies run thousands of contracts, some of them involving complex collaboration and multiple locations around the world. Keeping track of all of the details and documentation can be an administrative nightmare, and it is wrong to assume this is solely the legal team s responsibility. In the worst cases affecting sales, teams have: Turned up to customer meetings with the wrong documents, or paperwork with outdated clauses in them Been unable to answer simple queries over the phone Failed to notice that a contract is up for renewal until the customer gets in contact to make exit arrangements, by which time the business is lost A more robust to contact management can pay dividends, helping sales teams to grow revenues, protect profits and reduce churn. The easier it is to attend to the paperwork in a foolproof, orchestrated way, the better the service to customers and the easier it is to grow sales. 5
What are other businesses doing? There are plenty of best-practice guidelines to help you improve your contract process in a way that suits your business and customer base. Every company is different, but from a sales perspective the main drivers are the same to grow revenues, in as cost-efficient and profitable a way as possible. There s a lot that can be learnt from looking sideways at competitors, or up the food chain to see how bigger players do things. After all, why reinvent the wheel if someone else has already done all the hard work? Being systematic should be the first aim. But in a way that doesn t increase the administrative workload. Sales people should be free to sell you didn t choose this career for the paperwork. The aim should be to sharpen up processes and document/information handling across the contract lifecycle, so that these are (a) more under your control, and (b) less time-consuming. Where to begin? Better contract management is mainly about process improvement. That means introducing new structure and workflow. If you re using an IT system to automate some of these processes, you ll want to be able to adapt this so it meets your particular needs. Ideally, your team should be able to adjust any settings and templates themselves (rather than have to get help from IT). One clear way to improve access across the contract lifecycle is to improve access - so that documents and their content are readily available and easily searchable for anyone with a legitimate need, at any stage in the contract lifecycle. As well as the parties that agree the details, this includes those delivering against the terms of the contract - so that they provide the best possible customer experience. 6
Contract creation It s useful to have a template library so you can streamline contract creation and make negotiation easier. It will help ensure that the most current contract version, and pre-approved alternative clauses, are readily available when you need to create a new contract, and enable quick and easy modifications (eg in the event of regulatory or market changes). You ll also need an easy way to handle custom agreements (typically the source of highest risk yet the best opportunity for reward). Next, automate the review and approval process, reducing cycle times and creating a useful audit trail. Build in visibility to the contract pipeline, so those who needs to can find out at a glance what stage a sales contract is at, when revenues will be recognised and when the contract is up for renewal. This data might be visible on a dashboard, in a spreadsheet, or written on a sticky note it s the access to the information that s important. Managing the contract If a contract goes astray or can t be accessed readily, it isn t worth the paper it s written on. Conservative estimates suggest that at least 10% of all hard-copy contracts across all industries are lost or misfiled 3. Storing them electronically in a system linked to intelligent workflow removes that risk, and makes it easy for the right document to be pulled up first time at the point of need by anyone authorised to view it (eg via a simple web interface look for a system that supports this). It s a good idea to choose a system that supports a full text search enabling people to quickly locate contracts and specific paragraphs or sections within them which contain particular terms or variances. Systems should be adequately protected though, so they cannot be accessed inappropriately. 3 Faulkner Information Services research estimates that 10% of signed copied of all executed contracts are lost, 2003. http://www.faulkner.com 7
Avoid penalties, maximise repeat sales opportunities Contracts are full of dates effective dates, renewal dates, and milestone and deliverable dates. Best practice involves systematically managing these deadlines, with automatic prompts and reminders to those responsible for the performance (not solely the contract negotiator). Contract dates should support and drive performance. Avoiding penalties for late performance clearly contributes to the bottom line. Billing customers on time for recurring charges and renewals enhances cash flow, while being aware of impending renewals means sales teams can up their game and present an appealing new offer at just the right time. Aim for a single, comprehensive view of the customer Understanding the overall business relationship with a customer or indeed other supply partners is becoming increasingly important. It is not unusual for a large multinational company to have multiple and very different contracts with another company. A single company might simultaneously be a partner, vendor, competitor or distributor as well as a customer! Knowing everything that is happening with that organisation, and being able to access that data in a timely manner, can make a big difference in managing that relationship. At a granular level this may be something as simple as verifying that payment terms are comparable across a multifaceted relationship. On a larger scale it can be useful to know the total value of a business relationship to make better decisions on a specific transaction. Measure & report metrics that matter You may have a gut feeling that business is being done more efficiently, but it s important to be able to measure this in tangible terms. Measure what matters most to you. Beyond individual deal metrics, that might be volume of deals, frequency and nature of claims, or discounts applied. A system that supports detailed analysis, and performance metrics that change over time, allows for your business to grow with your process. 8
Make change easy So how can you improve contact management without everyday disrupting business - and in a way that delivers visible improvements quickly? Choose simplicity - don t buy functionality you won t use. It ll lengthen the rollout and add unnecessary cost. Be holistic - choose a system with end-to-end contract management capabilities and visibility. Use a system that lets you set up reminders and prompts, and drill down into terms and conditions to check for potential sources of risk/ambiguity. Look for good analytical and reporting capabilities - to help you track performance, and monitor how your budget is being spent, extracting this information as needed. Go at a pace users can cope with. A modular contract management solution (whether you run this internally or access it via the cloud) will let you make improvements gradually. Harness technology to break down barriers, not create them. Make this a positive change that users will embrace. Stay flexible so if processes change, or users still want to pull details into spreadsheets, it s no big deal. Integrate your contact management system with existing business systems (eg ERP and CRM), to save data re-entry, increase visibility and smooth processes even further. 9
Act smarter, be better How you engage with customers as a business is a major source of differentiation, especially today where reputations can be damaged so quickly by poor reviews online. Effective contract management enables you to be the best you can be. As John Mancini, respected leader of the AIIM global community of information professionals, noted at a recent conference, Uber has become the biggest taxi company despite not having any cars. Similarly, Airbnb has become the most disruptive accommodation provider without owning any property. Their value, then, is all tied up in their contracts. Without them, they d be nothing. So it pays to get them right, and run them well. And in this digital age it makes sense to do that electronically. 10
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