When it comes to effective contract management, the centralisation of your data is a key pillar of a functioning process.
One of the biggest sources of contract risk and unnecessary spend is a lack of proper oversight across your business’s contract universe.
When you have different business units with their own processes, unclear lines of responsibility or simply no common process for storing agreements, you’re putting your business at a competitive disadvantage.
It’s therefore tempting to think that if you can pull all your contract data into one place, and have a clear view of it, that all those risks and problems will be resolved.
However, that’s not the case. Further significant steps will need to be taken in order to put your business into a position of strength with regards to its contracts.
Firstly, let’s look at some of the reasons why contract management becomes fragmented and decentralised in the first place:
- Businesses grow in size/headcount/geography, which all add complexity and can end up creating the opportunity for silos to emerge. Within silos, you get different processes being adopted and even different cultures emerging. These make it difficult to impose a rigid, centralised contract management process.
- Different compliance regulations in different areas. Linked to the first point, if a company expands into new territories they may have more or less onerous legislative and regulatory requirements. This might necessitate a more rigid set of processes than in the original territory or perhaps less so. Either way, this can lead to divergence in practices and policies, which can make it hard to adopt a system company-wide.
- People naturally want to get on with things as soon as a contract is signed. Often the process of getting a contract signed off can be lengthy and require many different parties to be involved. At the point it finally gets agreed and signed, the temptation is naturally to want to crack on with it. Having the discipline to capture all the necessary contract details into a central repository at this point is challenging and can be hard to enforce.
- People move roles or leave a business. As they do so, they can take with them crucial knowledge of contracts or the business arrangements that accompany them. If the information hasn’t been captured accurately, or in an easily-accessible place, then you start to develop holes in the overall record.
- Lack of pain. A business can have a poor contract management process, with no contract repository software, and still show growth and generate profits. Contract management is part business-optimisation and part insurance/risk-mitigation. It might be that even without close focus on maximising contract benefits and proactive management of supplier relationships and renewals, that a business can still thrive. A business may also get lucky and never suffer from poor supplier performance or experience a compliance audit. Under these circumstances, the business won’t necessarily experience enough “pain” to push them towards adopting a centralised contract management approach and other, more visible business issues might take priority.
When you look through this list, you’ll see that simply centralising your data won’t necessarily solve these issues. It’s a step in the right direction but, for example, people will still want to crack on with a contract as soon as it’s been signed, which leaves scope for processes to be ignored or delayed.
In fact, another key theme runs through these points - that of adoption. This is another pillar of effective contract management and is defined as the extent to which your contract management process is followed by people within your business.
You can work hard to centralise your data and get a perfect snapshot view of it, but if your team doesn’t have a universally-accepted process in place, the reality will immediately start to diverge from the central view that you have.
So how do you ensure your contract management process is widely adopted in your business? There are three main points
1. Make it as easy as possible
As always, if something is perceived to be difficult then you will find it hard to convince people to do it consistently.
You might choose to make it easy through the use of a dedicated contract management solution. Provided it can run automated processes, use messaging to alert people to actions or to escalate issues and store all contract agreements in an easily searchable database, you’ll be able to reduce the manual effort involved significantly.
2. Show the benefits
Often it’s not a single, large incident that prompts the adoption of a contract management system, it’s more of a slow accumulation of buy-in that tips the balance.
A missed renewal or a failed compliance audit can shine a light on a lack of process but this isn’t always going to happen.
In our article on creating a business case for contract management we advocate focusing on:
- Cost savings. Time and resource saved by having a system in place.
- Benefits realisation. Ensure people get the maximum agreed outcome from their contracts
- Business risk minimisation. Identifying risks relating to operations, regulation and reputation, and then working on effective mitigation.
By sharing a business case with your stakeholders, and potentially even wider within the business, you should be able to convince them of the benefits and therefore encourage them to use it.
3. Have reasonable contingencies in place
The process you create for managing contracts in your business will hopefully be as comprehensive as possible. In an ideal world it should work equally well for the largest of your company’s contract as it does for the smallest ones.
Realistically, this may not be possible to administer effectively, at least not to begin with. To ensure that your process works as well as it can, you may look to follow the 80/20 rule and focus on the contracts that make up the top 80% of spend.
If you can do this, then that will ensure that your effort is put towards the areas where it can have the most impact.
So, as you can see, there’s a lot more to contract management than simply centralising your data. It’s definitely a core part of the process but if you’re expecting it to solve all your contract issues on its own then you’ll be disappointed.
It’s also important to be realistic about the amount of effort it will be to get all your business contracts together for upload. Depending on the age of your company and the number of contracts it has, this can be a very significant undertaking.
In fact, at Gatekeeper, we’ve often found this to be one of the key obstacles to a company achieving success with a contract management system, which is why we invest heavily in both implementation support and our data import facilities.
We help you every step of the way, to ensure you get the right outcome for your investment.
For more information about managing contracts effectively, you can read our related articles: