How to balance multiple stakeholders whilst transforming contracting

Nurturing and sustaining contract relationships are critical to achieving long-term value.

How to balance multiple stakeholders whilst transforming contracting

For companies across the UK, the contracting process lies at the heart of their ability to operate and build business relationships. Yet, as evidenced by our newly published global survey, many organisations believe it’s a process that’s in urgent need of transformation – an imperative intensified by the impacts of the pandemic. To transform contracting, UK organisations must tackle three key issues.  

1. Who: which of the multiple stakeholders involved in contracting will take the lead in transforming it? How do you create contracting centres of excellence?
2. Why: what are the issues with the current ways of contracting, and what is the rationale for change?
3. What: to deliver transformation, what specific strategy and actions need to be applied?

By answering these three questions, businesses can reinvent their contracting to create an efficient, transparent and effective process fit for the post-COVID world. To support leaders in answering these questions, we draw on EY’s legal department survey which, in early 2021, surveyed 170 in-house legal professionals based in the UK. Key findings show that:

• Almost half of UK respondents report a focus on operational transformation of their contracts over the next two years.
• Whilst 72% of UK businesses say they have a formalised contracting technology strategy, a staggering 83% continue to face challenges with the technology.
• Pivoting from intent to successful execution requires a collaborative decision-making process characterised by committed leadership and addressing the capability gaps.

For all companies, interdependencies with customers, employees, suppliers, contractors, financiers and governments are finalised through a contract. These relationships are held, contracted, documented, finalised and operationalised through a variety of functions that include contracting professionals from procurement, finance, legal, commercial contracting and business development. Nurturing and sustaining these relationships are critical to achieving long-term value and successful reinvention of contracting requires focusing on the following four key building blocks.  

Balancing multiple viewpoints of cross-functional stakeholders

Procurement, commercial and sales teams help to identify and define a company’s business relationships. These teams then agree the rules of operations, quality, cost and performance. Legal and contract managers have always played an important role in the final input of contracts, balancing considerations of commerciality, compliance and risk. IT and legal operations – with their focus on digitisation and digital access to contracts – also have a role in contract management.

Yet despite the involvement of these diverse stakeholders, EY research shows that very few CEOs and general counsel are very confident in their ability to identify, measure and manage complex risk. When we asked people in various functions who leads their business’s contracting process, they were split almost equally between their own department (at 45%) and another one (53%) – with just 2% saying it’s a shared responsibility. 

Ownership of the contracting process is unclear

Drilling down to the functional level, we find that people in procurement are most likely to think their function plays the lead role in the contracting process, and contract managers the least likely.

Views vary across different functions over who plays the lead role in contracting

Operational transformation of contracting

The operating environment for contracting teams has been challenged by the COVID-19 pandemic through supply chain disruptions, work-life balance issues and the need to manage contractual obligations through a dynamic environment. These factors have intensified the pressure to transform contracting. However, as organisations look to respond, many lack the ability to map current ways of working. For example, 69% don’t follow a contracting playbook or guidance document, and 49% lack a defined process for storing executed contracts.

In industries where maximising growth is a priority, findings from business development professionals in the UK show that inefficiencies in contracting create problems including slower revenue recognition, lost business and lower morale.

Views on contracting process impacts

Also, whilst most organisations do have defined processes for preparing, reviewing and approving contracts, there are still many challenges around complexity and inconsistency. For example:

• In contract creation, 71% of organisations don’t require contracting staff to use preapproved contracts all the time.
• In contract negotiation and redlining, 75% of organisations don’t have preapproved fallback terms.
• In contract storage and retrieval, 90% of contracting professionals say they face challenges trying to locate contracts.

The key to overcoming these challenges is to simplify the contracting process and boost transparency by driving standardisation and consistency end-to-end. This involves building clear ownership of the contracting process to secure support from people skilled in process improvement and identifying opportunities for standardisation and automation throughout.

Pivoting to transformation

As UK companies consider their plans for transforming contracting, they’re adopting a variety of approaches, including tactical solutions and consideration of co-sourcing or outsourcing.

How organisations are changing the way contracting is handled

But what barriers stand in the way? UK companies in our study highlight four key hurdles:

• 62% of respondents said changing people’s way of working
• 41% of respondents note that they felt there was an inability to hire the right talent - particularly talent with technology and process management skills
• 29% of respondents mentioned that previous attempts at change fell short of expectations
• 21% of respondents said competing priorities take focus which resulted in a lack of time

It’s significant that the top challenges around contracting technology cited by respondents are “too much time spent identifying the right technology” and “technology doesn’t do what we need it to do”. With an abundance of technologies available, the reality is that successful transformation is less about what specific tools an organisation uses – and more about but how it uses them and what to achieve. Organisations should consider the transformation outcomes and the investment case with a focus on change management, adoption, talent and a process mindset, before setting out to identifying the optimal technology solution.

Giving the right work to the right people

Many contracting teams are managing very large volumes of contracts – up to 80 a day in some cases – and processing a complex contract costs an average of £35,000 and takes 288 hours of work. This heavy workload puts a severe strain both on the process and on the diverse array of talent involved.

A further issue is that this talent is currently not being applied in the most efficient or effective way: almost two-thirds of contracting professionals have regular contact with low-value contracts, and 91% of organisations cite challenges managing high volumes of low-complexity contracts, which can take time away from more important tasks. Also, giving skilled personnel large numbers of low-level, low-complexity contracts to work on can damage their morale. This may help to explain why 96% of respondents face challenges with contracting talent, and 37% cite staff retention difficulties.

The solution is to give the right work to the right people. Companies can engage and retain key contracting talent by using a range of operational models and external resources to optimise their workloads. Many are already doing this: almost four in five (78%) large companies on our study are using contracting centres of excellence, and 46% are considering co-sourcing parts of the contracting function to a third party. By using the right resource for each task, organisations can reduce risk, increase efficiency, cut costs and improve morale. To achieve these benefits, firms are using various types of external provider – notably law firms and the Big Four.

Mapping out the transformation journey

In summary, our UK research findings suggest that contracting teams should focus on four foundational building blocks for any successful transformation of the contracting process.

1. Work out how to balance multiple stakeholders’ viewpoints – and decide who will play the lead role.
2. Drive operational transformation by implementing standardisation and consistency end-to-end
3. Pinpoint the organisational and technology challenges and focus in on them.
4. Give the right work to the right people to boost effectiveness, efficiency and talent retention.

As with any transformation, the key to getting ahead in reinventing contracting is getting started. If your organisation hasn’t yet begun, you should recognise the need to focus on contracting and start putting the key building blocks in place. If you’re already underway, it may be about establishing clear ownership, be that in the legal, sales or procurement function, or elsewhere. Whilst it’s a shared journey, someone must be in the driving-seat. And the time to decide who that will be? It’s today.