Why effective and efficient contract management is extremely important for organizations in the near future
In 2018, we saw how effective contract management is changing the way contracting is done, contracts are drafted, and relationships are managed. By leveraging technology, organizations are driving and deriving meaningful intelligence from the huge stack of contracts that enter their offices on a daily basis.
We’ve seen how artificial intelligence/machine learning (AI/ML) technology has dramatically transformed organizations’ thinking process. We’ve also seen the more progressive organizations moving towards simplification of the contracting process, something that IACCM also advocates, while also talking about moving from an ERP to RRP mode.
These progressive organizations also started considering the contracting process as a relationship-building exercise with a long-term partnership objective in mind – one party is not willing to win at the cost of the other. Finally we’ve also seen how decision-making is moving from a “gut feeling” to being “data-driven.”
Before the year comes to an end and we all have a well-deserved break, let’s look at how things will shape up in 2019. Here are my predictions:
– AI/ML will thrive – while technologies that use ML and AI-enabled tools have delivered an increasing amount of intelligence from data, the accuracy has sometimes been questionable. This will certainly improve and I foresee these tools becoming a talking point within contract management. Technology and tools that aren’t AI/ML enabled will face stiff competition – they will need to develop or partner to create a compelling solution. Further, AI/ML tools will be used for managing and tracking legacy contracts, and implementing new regulations that require an in-depth contract review, e.g., IFRS 16 and the GDPR.
– Enterprise relationship planning (ERP) to relationship resource planning (RRP) – Tim Cummins, president of International Association of Contract and Commercial Management (IACCM), coined the term “ERP to RRP” in 2017. I fully agree with this philosophy. Organizations are facing the heat of inflexibility of ERP solutions, where managing non-standardized processes becomes a challenge. As we move into 2019, I see organizations talking about greater flexibility, with a greater degree of customization, and ERP to RRP should see some action.
– Integrated contract management across the organization – in 2018 and before, large organizations implemented CLM tool specific to their respective departments – procurement, legal, sales, etc. These tools often suffered tool overlap, where a user who belonged to more than one department had to use more than one tool – creating frustration among users. Enterprise-level CLM tools are now gaining popularity and organizations are also looking to move to one platform. This should see some traction in 2019.
– CLM tools as part of the supplier relationship program – while procurement tools such as Ariba will continue to form the basis for any procurement organization, chief procurement officers (CPO) are buying integrated CLM tools to manage the supplier relationship from the contracting perspective. This includes asking vendors to track and upload all obligations with evidences, SLA reports, earn backs, and meetings, etc. A contract manager will be key in managing the relationship from both sides, providing greater transparency and discipline in managing the relationship.
– Win-win deals – in typical negotiations, parties often win at the cost of the other party. However, organizations that deal with with strategic suppliers are working towards “win-win” deals where negotiations are not won at the cost of another. This will be achieved through openness and greater transparency around the negotiation.
– Contract manager as a relationship manager – the role of the contract manager across industries and geographies will grow into working more as a relationship manager and business enabler to develop innovation and bring value in the agile environment. With this, contract management roles will increase in number and will see a more streamlined function within organizations.
To summarize, 2018 has been a great year, and 2019 will carry on the legacy developed over the last couple of years. My recommendation to organizations and contract managers is to focus on the use of technology. Effective use of right technology will bring control, transparency, and provide greater insight throughout the contract lifecycle.
For traditional organizations, change management is still a challenge – but to be successful in procurement or service/product sales, effective and efficient contract management using the right technology will continue to be key.