Today, I was questioned by one of my customers whether or not I was aware if tools existed on the market that could be used to manage both sell-side and buy-side contracts.
Instead of googling for examples I turned to the excellent IACCM page on CLM tools selection available here. Experts from IACCM and Capgemini examined hundreds of products and have classified them by functionality, capability, etc. what’s more the results are available for free and everyone can run his query. I found a plethora of examples which I intended to use to prove my case, and I hoped that in turn my customer could help his colleagues and finance department be more knwoledgeable on the topic.
Althought at first I found it hard to believe that what seems to be so evident to me, could in fact be a genuine interrogation from a non-initiated person, as it is the case here. And as I was sure that this recommendation alone would have any impact on the CFO’s decision, instead I decided to write about what should matter most when it comes to contract management tools to help me convincing him.
According to IACCM’s website, the definition of contract management is “…a discipline that supports commercial management through the implementation and oversight of legally enforceable performance commitments, both outbound (to the market) and inbound (from the market). It converts commercial policies and practices and technical capabilities into specific terms and conditions that are offered to or required from its suppliers, customers or business partners. Through active monitoring of performance needs and outcomes, contract management informs commercial management with regard to actual and required commitment capabilities, together with their financial and risk impact…”
I have taken the liberty to underline the words “supplier” and “customers” from the original article because this highlights that the processesused in contract management are the same, whether you are a customer or a supplier.
Through the years I started to group the various processes that form good contract management in the following core disciplines: contract authoring, financial and performance management, relationship management, compliance management. These disciplines and their underlying processes build the interactions with other departments in an organization and it doesn’t matter if it is for buy-side or sell-side contracts: they are valid in both cases! What changes however is the inputs and outputs of these processes depending if you are in the buy or the sell side.
1°) First let’s look at “Smart repository” which is the corner-stone of all good CLM tools: you certainly don’t want to end up with 2 different databases on 2 different systems…instead you want all your contracts in one single place, and provide access depending on role and function. With Smart repository (and with all well respected CLM packages) comes good analytics: do you want to run 2 sets of reports on 2 different databases next time your CFO asks you for a report? I think the answer is obvious + you don’t want to pay twice.
2°) Then “contract authoring”: you need to author contracts whether you are in the buy or sell side. This is achieved through dictionaries of clauses, pre-approved templates, alternative clauses, etc. and you only get legal involved when you need to validate deviations from standards. Having one single tool allows the legal department to be much more efficient.
3°) “Financial and performance management”: if you are in the buy side you want to validate that your invoice matches what’s written in the contract and that you pay only for what you have effectively received. The same process applies for sell side contracts: you want to invoice at the price mentioned in the contract but you also want your delivery teams to deliver according to the contract: not less not more; this is regarded as enhancing profitability and risk reduction. Here again same process J
4°)”Relationship management”: whether you are in the buy or sell side, your most complex contracts require a clear process to review where you stand in the relationship, whether you need to follow-up on customer demands, or you need to keep your supplier loyal to what they promised during the sale. Here again same process, but input and output changes according to your role.
I could go on like this all day, with every discipline and every CLM process but I hope this makes it clearer and obvious that having all contracts under one single CLM is better if you don’t want to double all your processes (and pay for 2 systems…)
Looking back a couple of years ago, the above wasn’t always easy to achieve, due to fragmentation of offerings and the fact that often CLM’s were built on top of existing ERP systems. Those CLM’s were built on the premises of transaction-based purchase of goods, not services. Research by IACCM also highlights that contract management wasn’t viewed in the context of a life-cycle. We know now that due to the ever-growing number of service contracts, the traditional CM functionalities built on top of ERP or P2P systems is simply no longer acceptable, although it is still often the sales pitch of many P2P vendors.
My conclusion, and I intend to defend this opinion with that customer, is that the final choice isn’t really on the technology alone, however organizations need to blend technology with well-defined processes with clear ownership. Organizations will have in the future to focus on data analysis, and to work on improved relationships in buy-side and in sell-side in order to achieve greater value and even greater results. This can only be done by using one single CLM for both buy and sell side contracts with powerful analytics and advanced reporting functionality driving process adherence.
Finally a recent Gartner paper on this topic indicates that more mature companies tend to combine buy and sell side CLM processes and structure. I am sure this is an aspiration too for my customer.