Digital transformation is a hot topic located somewhere on the initial ascent of the Gartner Hype Cycle.
The term is shorthand for the way current and emerging digital technologies can enable organisations to create sophisticated and effective new approaches to the way things have typically been done, and ways of doing things that have never been done.
Such a reinvention of the existing and invention of the non-existing needs to happen organisation-wide to get the full benefits of digital transformation.
It can’t happen all at once though, but it can’t take too long either.
A measured, cumulative transformation is best achieved through a series of relatively small and focussed micro-transformations."
This approach provides agility in the face of continual change in both the problem space and the solution space, allows failure to have minimum effects with maximum learnings, and encourages continuation of the larger transformation efforts as each micro-target is achieved and the benefits delivered.
Getting the job done quickly but not rashly is crucial. Near-enough can be good enough if it gives sufficient edge and frees up time for other transformations.
This article discusses digital transformation of the Contract Management function as a trailblazer for the rest of the organisation, covering:
- Factors influencing the push for digital transformation
- Why Contract Management is an obvious target for digital transformation
- Sources of digital transformation opportunities in Contract Management
- Barriers to digital transformation
- An approach to digital transformation of Contract Management
Factors influencing the push for digital transformation
Until recent times, the advantages accruing from digital transformation had been limited for the most part to the early adopters.
Mistakes have been made. Lessons have been learned. Interest and understanding have grown. Better approaches have been formulated. Outcomes have improved. The entrepreneurs have noticed.
The effects of Covid-19 on the population and government responses to those effects combined to cause almost unprecedented disruption to trade and the global economy. And that changed everything almost overnight.
In order to remain as functional, competitive and resilient as possible, organisations worldwide rapidly adopted a very minimal digital transformation.
Initially seen as a means of staying in operation through work-from-home practices and virtual delivery of products and services, organisations have realised that these efforts have delivered more than simple survival.
It’s opened their eyes to what has long been possible but for mindset, how much further they can advance now, and how important it is to do just that.”
They’ve seen what on-the-fly improvisation can deliver when push comes to shove, and now understand how much more benefit can be obtained with a focussed strategy for digital transformation backed-up by a concerted, planned approach to achieving it.
A self-reinforcing cycle of improvement leading to improvement has accelerated the pace of digital transformation.
Opportunities to address unmet needs or minimise pain points have been recognised not only by organisations on their own behalf, but also by a growing ecosystem of third-party solution providers who recognise opportunity when they see it.
Digital transformation is about step change, not window-dressing or tinkering. Its aim is to improve the opportunities for, and deliver, long-term organisational growth. This can’t and won’t happen overnight because it involves a lot of work."
Change and its implications need to be understood, as do the barriers to keeping pace with it.
The workforce, especially at the very top, needs to be educated about the possibilities that technology can deliver. Strategies need to be formulated about how and where an organisation might reasonably commit to digital transformation, and plans prepared. Solutions need to be developed or acquired then implemented. All against a background of pretty much relentless change.
It really seems like digital transformation is not optional, a requirement for organisational longevity that once started, will need to keep happening in a lather, rinse, repeat cycle.
Why Contract Management is an obvious target for digital transformation
Contracts play a huge part in most organisations’ lives. They bring people, products and services into an organisation from its suppliers, and often send them outwards to its customers as well. The most important of these contracts, as determined by each organisation’s own criteria, need to be actively managed to facilitate achievement of their goals.
Our guide to Contract Management plans revealed a broad range of the activities that could be involved in managing a contract. Too often there’s not a great deal of technological support available for these activities in the form of modern, comprehensive and capable software with broad accessibility.
Of necessity, this means a lot of manual activities are traditionally needed to manage contracts, with the obvious implications for scale, coverage, performance and proactivity.
Manual activities of course require a workforce. That workforce may need to attend their organisation’s work site to have access to equipment, information or whatever.
Whether through pandemic, conflict, extreme weather event or other natural or man-made disaster, workforce shortages through illness or restrictions on movement and group size can affect performance of the necessary manual activities.
The manual activities would have been established for good reasons originally, mainly lack of any alternative, and be important for ongoing management of the contract.
Some of those reasons might no longer be relevant. Performance of some of those activities might be tedious and time-consuming but necessary because they provide value.
Here’s where digital transformation can come to the rescue, through the optimisation and automation of those manual activities and processes to the greatest extent possible, or their complete elimination because the desired outcomes can be obtained now through the use of technology with minimal manual effort.
Contract Management is one of those key organisational functions that provide services to the entire organisation.”
The arrival rate of new contracts will pretty much always exceed the departure rate in a successful organisation.
This means more and more contracts will need active management but getting more and more people to do so is not viable.
The application of technology wherever it is available, affordable and practical can go a long way to easing the workload. Consider the following high-level activities that typically have a large manual component:
- Regulatory obligations management:
- Review of which regulatory regimes from what countries apply to a new contract
- Extraction of obligation specifics from the regulations
- Discovery of changes to known regulatory obligations
- Assessment of all contracts subject to changed regulatory obligations
- Development and implementation of agreed contract and process amendments to deal with those changed obligations
- Supplier performance management:
- Collection of service delivery performance data for the measurement period
- Calculation of supplier key performance indicators
- Validation of supplier-provided performance numbers
- Assessment of supplier financial viability.
It’s clear that a lot of time and effort will be required to deliver the outcomes of just these two activities, from the initial set-up of processes and establishment of the necessary data sources, to the calendarising of individual process steps, right through to the preparation of the reporting of any required information.
Fairly obviously, complete automation of many such activities won’t be possible, but anything that can be automated will pay dividends. Also, third parties may be able to deliver some of the required outcomes in full or in part as a readily consumed digital service.
In this sense, Contract Management is ripe for a digital transformation. It’s not so much a case of doing more with less but doing more with more from the capability viewpoint.
Sources of digital transformation opportunities in Contract Management
The history of technological development is littered with uncountable cases of solutions looking for a problem. Some of these solutions were ahead of their time, a lot were just plain crude, a few had promise but were too poorly marketed to get any following.
That situation still persists today, but it’s several orders of magnitude larger due to the level of availability and adoption of technology. This means that there are more gems out there, but now they’re a lot easier to find and assess, although implementation can still be a challenge.
For Contract Management, the opportunities for digital transformation are broad and focus on three specific areas.
1. Contract Management system features
In common with most software, a Contract Management system will be regularly upgraded to increase its functionality and enhance its capabilities. The key intention of these upgrades is to provide an ever-improving experience for the system’s users, by allowing more things to be done with less manual effort. These capabilities can include:
- AI capability for contract data discovery, analysis and classification
- Automation of processes via workflow and Robotic Process Automation
- Centralised contract documents repository
- Contract template and clause libraries
- Electronic signatures
- Key date alerting
- Online contract negotiation
- Self-service facilities for suppliers and system users
2. System integration
Many software systems contain the capability to communicate with other systems for the purpose of transferring data from one to the other. For instance, a Contract Management system could request a Financial system to provide it with details of the level of spend associated with a specific supplier over a particular time period.
This sort of system integration eliminates the need for manual querying of the Financial system and subsequent manual input of the retrieved data into the Contract Management system.
The organisation’s Contract Management system should be able to integrate with:
- Other software the organisation uses, like:
- Financial system
- Risk management system
- Supplier management system
- Customer management system
- Enterprise resource planning system
- Third-party services provided as an external platform or a direct data feed, such as:
- AI services, like clause detection, contract analysis and obligation discovery
- Regulations tracking, showing changes to regulations applying to a contract
- Supplier risk advice, showing financial situation and operational concerns
- Supply chain transparency, showing details of a supplier’s suppliers.
3. Mergers, acquisitions, investments, partnerships
Today, there are many start-ups and well-established firms providing innovative ways of digitally transforming various aspects of a particular problem space, delivered as a product or service.
Creativity is booming in these kinds of firms as the interest level in what they’re achieving and the potential that’s being unlocked ratchets up.
Some organisations have taken advantage of the availability of these transformative capabilities by merging with the firms of most interest, acquiring or investing in them, or establishing some kind of partnership or other business arrangement with them.
These activities help to ensure early access to the new capabilities, provide influence over the direction of their evolution, and can present some excellent growth opportunities for the outlay. They won’t all be winners though, and success can never be guaranteed.
These options are likely to have limited general appeal, but they are available if needed.
Barriers to digital transformation
It’s a familiar and unpleasant scenario: dropping everything to thwart a competitor or satisfy a new demand from a customer or regulator.
Digital transformation promises to ease that unpleasantness somewhat through a boost in agility via increased capability."
Still, it can be a hard sell for many. That can be due to any combination of shortfalls in the following areas in respect of digital transformation:
History has shown that a hard survival-related lesson is often needed to shine a focus on the potential, if not actual, consequences of such shortfalls in respect of many new-fangled things.
All deficiencies need to be adequately addressed as a precondition for successful digital transformation. The proof of this must be visible and credible, no weasel words.
An approach to digital transformation of Contract Management
Any digital transformation needs to be closely planned, following the overall strategy developed by the organisation.
A very high-level overview of the types of activity that could be involved in the digital transformation of the Contract Management functions include:
- Identify key Contract Management stakeholders
- Document all Contract Management processes if not already done
- Separate manual and automated process elements
- Discover all known process issues and performance statistics
- Propose useful new process elements
- Map the transformation journey from current state to desired state
- Assign importance rankings to all existing and proposed process elements
- Review how manual process elements could be automated or discarded
- Determine if a reviewed manual process could be further optimised
- Assess how automated process elements could be improved
- Evaluate process performance metrics and targets
- Review training needs for key Contract Management stakeholders
- Collate all the process improvement mechanisms proposed
- Investigate if third-party solutions exist for such mechanisms
- Discover if any such solutions are already in use and accessible
- Determine system integration requirements
- Trial any accessible solutions where practical
- Obtain demonstrations of unused, inaccessible or untestable solutions
- Determine fit of solutions with requirements
- Evaluate the need for external assistance
- Review candidates for provision of external assistance
- Engage any external assistance organisation
- Identify all preferred solutions
- Assign a solution to each process element
- Propose any changes to process performance metrics and targets
- Identify preferred providers of external assistance
- Highlight and prioritise quick wins
- Develop a solution implementation plan with timings and costs
- Create a change management plan
- Obtain approval of recommendations
- Adjust solution implementation plan and other matters as necessary
- Initiate the change management plan
- Train key Contract Management stakeholders
- Obtain, install and test each approved solution according to the plan
- Train key people in installation, configuration and use of each solution
- Roll-out each solution and commence process measurements
- Note all issues and lessons learned for subsequent solution rollouts.
Quick wins are valuable and provide experience and encouragement to delve deeper into the possibilities space.
It’s long been known that a crisis can trigger a transformation in organisations as they struggle to deal with the immediate fall-out, get back on their feet, put measures in place so they won’t get caught out again in the same way at a minimum, and generally take the opportunity to tidy up a lot of those irritations that never seem to get to the top of the priorities list.
The crisis has effectively induced a form of evolution in action.
Today there’s no shortage of crisis situations. It’s a fact of life that this is probably how things are going to be from now on.
Organisations are really obliged to do what needs to be done in order to increase their readiness for and their ability to get through whatever comes their way. Dithering is not an option.
The most outstanding differences between past and present crises are the options that have been made available by the massive and continual advances in technology and the shocking simultaneity of today’s crises.”
Taking advantage of those options, or digital transformation, is allowing receptive organisations to evolve much more quickly than has ever been possible, in all fields across the board.
This rapid evolution is necessary in times of massive change and disruption, times like these. The truism ‘adapt or die’ is still relevant, applicable equally to organic and inorganic entities.
Speed of transformation is important. It’s like the old joke about two people being chased by a lion: you don’t have to outrun the lion, just the other guy. It’s the same in business.
The biggest benefits of digital transformation will be realised by the innovators, the early-adopters and the fast-followers. They will have the best opportunity to not only disrupt to their advantage the areas they operate in, but also place their competition behind the eight ball.
It makes good sense to get ahead, quickly, and stay there rather than merely keep up, but it’s a nonsense to think that there are no consequences to be faced from falling behind.
Consider the cowboy riding last in a posse. He spends all his time chewing dust, can’t see where he’s going or when the guys up ahead have made a sudden turn or stop to avoid danger.
Today’s equivalent is the technological laggard, and just like the posse’s tail-end Charlie when the dust settles, they might find themselves alone in the wilderness, unhorsed and hurting.
Trialling digital transformation on the organisation’s Contract Management function is a good way to get started."
Both the function and the organisation can benefit from the testing and refinement of the organisation’s digital transformation strategy, and there’s lots of innovation occurring in the Contract Management space that can change the game internally in terms of agility, adaptability and speed.
So, it seems like a good idea to undertake a digital transformation of Contract Management as soon as it’s practical and possible. Not because it’s the latest shiny thing to do, but for the sake of the organisation, its employees and owners, its customers and suppliers.
The technologies are out there, just waiting to be used against issues that have always caused problems, especially during tumultuous times.
If you would like more information about how to develop your approach to the digital transformation of contract management, or how Gatekeeper can assist with those activities, then contact us today.