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Contracts are the lifeblood of any business, yet effective contract lifecycle management (CLM) remains one of the key challenges faced by enterprise organisations today. This blog explores how contracting excellence can transform your contracting to drive efficiency, minimise costs and maximise value for your organisation. 

The contracting problem

Contracts are touched by everyone and owned by no one. Despite an average of 26%[1] of an organisation’s workforce being involved in contracting (which can be as high as 65% in some industries), the typical CLM process is characterised by a lack of ownership by any one team.

This lack of ownership and clear end-to-end management results in a 'value gap' emerging over the lifetime of a contract, where the anticipated benefit at the start of a contract is gradually eroded over time. The average contract loses 8.6%[2] of its value from the point of contract intent all the way to contract termination which, when scaled up across your entire contract portfolio, can result in losses of millions per year.

On top of that, poor contract management often damages team morale and stakeholder relationships, with contracting teams bogged down with low value, manual workloads and unable to efficiently deliver on strategically important matters to the business.

The good news is that the contracting problem presents a substantial opportunity for organisations to both recapture value and significantly improve internal relationships through the practice of contracting excellence.

Introducing contract excellence

‘Contracting excellence’ is all about driving efficiency and effectiveness of your contract lifecycle through proactive contract management and the removal of friction from your CLM processes. 

The five key areas where friction typically occurs:

• Content – contract templates and supporting artefacts not being fit for purpose, leading to protracted negotiations and limited cross-business collaboration. 
• Process – having unclear or limited CLM processes in place, creating delays in getting contracts over the line and poor management of obligations post-signature.
• People – failure to leverage the right resources to deliver your services in the most efficient and cost-effective way.
• Services – not having a clear view of the services you perform as a contracting function, becoming a catch-all team without an established remit.
• Technology – having no tech enablement in place or tools that are not fit for purpose or being used to their full potential to drive value from your CLM processes.  

Contract excellence in action

Addressing friction points in your content, processes, people, services, and technology form the foundation of contracting excellence. 

Here are just a few examples of contract excellence best practices to help set your contracting function up for success:

Build your operating model

Build a Contracts Operating Model to create clarity over what you do, how you do it and who delivers what. This establishes clear end-to-end ownership over the lifecycle to plug any value gaps.

For example, consider whether parts of your CLM processes could be delivered more efficiently or cost-effectively outside of your core team, either by the business or an expert external third party.

Optimise your templates

Evaluate your transaction types against your contract portfolio and simplify, standardise and harmonise your template suite. This enhances business understanding and ownership over contracts, reduces Legal involvement and can significantly reduce negotiation cycle times, to close deals and enable your business to get to revenue quicker.

Focus on data

Leveraging data can provide valuable insights into trends, risks, and opportunities to enhance the overall effectiveness of your contract management. Starting from your business objectives, decide exactly what you want to report on and then identify the data you need to capture to support that, designing your system to capture what you need.

A huge proportion of your company’s value exists within its contracts. Poor contract management can lead to significant value leakage, not to mention the demotivated teams and relationships damaged by the delays and costs that poor contract management brings with it. 

By practicing contracting excellence, companies can remove friction, regain control and recapture the huge value opportunity that’s there for the taking, driving sustainable, continuous and sustainable growth for the business.

[1] According to World Commerce and Contracting (WCC)

[2] According to World Commerce and Contracting (WCC)

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