This lack of alignment can lead to a range of problems. Siloed attempts at change can be prone to failure because they are missing input from other critical functions. Such efforts may consume valuable time, squander budget and fail to address root problems. Lack of alignment can also impact the morale of key talent and erode their willingness to engage in future change initiatives. Most worryingly, it can hinder efforts to create an enterprise-wide strategy for contracting.
Knowing which parties are responsible for driving change is critical. Organizations should also identify which function is responsible for each stage in the contracting process. Alignment on ownership can define who is responsible for optimization and what other stakeholders need to be included in change initiatives. “One strategy used by leading organizations is to create a centralized function to manage contracts,” says Thorkildsen. “That centralized function can be internally or externally managed. Regardless of who manages it, the key is to have a single function that is accountable and operates under consistent processes, measured and monitored through the tools and KPIs they bring to enable the process.”
2. Drive standardization and consistency
Ninety-nine percent of organizations report that they have some defined contracting processes for preparing, reviewing and approving contracts. Seventy-five percent of organizations report their contracting professionals follow their official process “all the time.”
Yet, a closer look at the data suggests most organizations’ processes may not stand up to scrutiny. Only 31% of organizations require contracting staff to use a pre-approved template most of the time and a mere 25% have pre-approved fallback terms. As noted above, 49% say they lack a defined process for storing contracts after execution and only 22% say they systematically track contractual obligations. This all suggests that current processes have significant gaps or are too rigid to work in practice. It also possibly explains why organizations face challenges in measuring and managing adherence to contracting policy.
Any organization looking to enhance risk management or affect change must take care to ensure that processes and tools are robust, applied consistently and supported with plans for ongoing improvements – all without being unduly complex. Handled correctly, the creation of templates, clause libraries and rules can enable contract and commercial managers to adjust their approach to suit different contracts within clearly stated parameters.
Organizations face two primary challenges in creating more robust contracting processes. The first is a shortage of in-house skills around process management. The second is related to ownership. Different departments may touch the contract at various stages of its lifecycle, each in its own silo. A lack of alignment among the parties complicates process optimization.
“If you can get legal, procurement, finance and the other relevant stakeholders around the table to agree on positions for all of the concepts in the contract template and clause library, you've essentially created an enterprise-wide consensus for the contract,” says Thorkildsen. “Organizations are increasingly beginning these conversations by identifying who the owner of each part of the contract should be. Once ownership is clearly defined, policy and robust processes can be put in place to confirm the goals of those stakeholders are being met.”
3. Focus on the right technology challenges
While most organizations claim to have a formal contracting technology strategy in place, there appears to be a significant gap between those strategies and effective execution.
Most organizations have invested in one or more technologies to aid the contracting process. Looking more closely, approval-to-sign technology, such as E-signature tools, are used extensively by many organizations. However, technology that can extract, compare and analyze data from contracts is leveraged far less. This may be due to the fact that 87% of organizations report they face challenges with contracting technology. To remedy this situation, organizations should begin by taking a closer look at the particular barriers facing their contracting teams.