Improving Contract Processes Through Innovation
SSON: When we were together at the SSON America’s conference, IACCM presented a new trend in shared services for the sales and contracting lifecycle. This is a very exciting new area for our association and we would be interested in getting a quick refresh about these concepts and the progress IACCM is making within your membership.
Suzanne Watson; Thank you and yes this is an exciting area for us too. I think in today’s market environment timing is perfect for concepts that will yield demonstrable business contribution. Internal organizations are more positive about collaborating to drive efficiencies and improve performance. Through the IACCM we’re work with our membership to introduce innovation and a different perspective to improving their contracting processes. We’re helping them to become more relevant to the business. To sum it up, we work with industry leaders, academic experts and top providers to the contracts world – and then we take that market knowledge to map solutions for our member’s specific situations. Another advantage is that we don’t have the weight of internal politics and hindrances that sometimes block companies to progress with transformation that is sorely needed. When we work with our membership one area that becomes obvious very quickly is that there is a lot of duplication and inefficiencies within the contracting process. Efficiencies like shared services are a natural progression of our work.
SSON: Ok – I understand that you have a good vantage point to help companies to solve their business problems, but can you tell me specifically about shared services.
SW: When we are working with our membership we find that there is commonality in the contracting process, especially between Legal, Commercial Contracts, and Strategic Sourcing or Subcontracts. Each of these functions follow similar processes and have resources that are experts in contract development, negotiation, award and management. They are supported by an infrastructure of administrative activities and automation. Processes, roles and responsibilities, and expertise overlap and vary from company to company. This is further exacerbated by the fact that some of these functions are small and considered specialist, so the workflow is generally based upon urgency versus an optimized right focus and resource level assigned to the right task. It’s a very inefficient and expensive operating model. To make matters worse, these resources are generally supporting the sales process. If you’ve ever worked in the field as part of a deal team, you know the difficult in efficiently and consistently proactively managing this area due to customer priorities.
SSON: Thanks for that and yes this is why I think a shared services or outsourcing model hasn’t historically worked for this area. But you appear to have broken through this barrier. How have you done this? How does your model work?
SW: Each of these functions, Legal, Contracts and Sourcing, provides what I call market differentiating and non-market differentiating services or core vs. non-core. Non-core are primarily infrastructure supporting and they enable the core services. Some examples of non-core services may be management of contract templates, obligations, negotiation playbooks. Non-core services are important, but how the company measures a function’s value contribution is really based upon the core contributions such as deal architecting, customer negotiations, risk mitigation.
During our work these non-core activities quickly become evident as quite often they divert a disproportionate amount of focus from the higher value core activities and the processes are not optimized. The shared services concept becomes obvious. Let me provide you an example. Contract Repositories. A contract repository for Purchasing, Contracts and Legal can easily be a shared service. Legal maintain contracts, Commercial Management maintain contracts for obligation management and Purchasing maintain subcontracts. Many companies maintain three or more repositories and these repositories are all managed and controlled differently and by different functions. Again this could be performed much more economically and under a much stronger governance structure, and I believe the consistency of service to the business would also be improved.
SSON: The functions you talk about, Legal, Contracts, and Sourcing are all powerful parts of an organization. How do you get them to work together to take full advantage of a model like this?
SW: First of all, we simply have to remember that in today’s economic climate, if this model was implemented there would be significant operational cost savings, not to mention the double benefit of improved controls. I used the example of contracts repository but there is a whole set of other activities that would equally apply. If nothing else, this is a much more sensible way to make significant cost savings versus year-by-year headcount reductions, one cut-at-a-time. Secondly, the clean-up to the operations is significant. If you take a business unit’s point of view, they prefer a single-stop to find information about their contracts, major suppliers, and customers. The single repository example and the consistency in which it is delivered is a much more appealing approach to the user community.
SSON: You spoke about a single example, contract repository. Can you widen that discussion to tell us about a more holistic shared services approach for a given company?
SW: Sure, let me tell you about a typical engagement. Generally speaking, our members contact us to help them optimize their contracting process. During our work, it often becomes clear that a shared services model would provide significant value. Our IACCM consultants have led global commercial management organizations for Fortune 100 companies in the past so their operational experience is key to helping to determine the right solution. As each member’s organization structure and go to market model is different we assess and identify the opportunities for shared efficiencies and other benefits such as sales force enablement, improved governance, automation, across the contracting process. We also consider incorporating Partners into the contracting process if further benefit can be achieved as well as offshoring and outsourcing solutions. At this point we have an opportunity assessment workshop where the member, IACCM, and possibly a strategic partner meet for a 2 day workshop to identify and assess the potential shared services, determine the probable operational improvement and cost savings, and define a top level project plan. The deliverable is a roadmap of what services are best candidates for shared services and a proposed long range plan. Cost savings have exceeded our expectations and our members have taken the opportunity to remodel their own internal contracting processes at the same time. We’re pleased with our success.
SSON: Ok but I am still curious as to what parts of the contracting service your members are considering for a shared services model?
SW: Examples would be revamping their contracts into modular services agreements, templates for proposals and contracts, playbooks and checklists for non-standard proposals, negotiations, and contracts, risk analysis of contracts, contract redlining and review, contract obligation administration and escalation – which is a pretty high interest area for us now, contracting help desk for field guidance and advice, and then other services that other parts of the organization have tacked on because of their awareness of the opportunity; other services like employment contracts, litigation and immigration work, facilities contracting and the list goes on. The point is, you have to select a Partner who you can grow with, one that provides services and has the higher end expertise, versus what has historically been happening in the contracting space with offshoring because it does not look at the entire contracting process and is not cross-functional.
SSON: As you said previously, this requires quite a lot of collaboration between functions that historically have been fairly territorial. How do you break through those barriers to get this collaboration going?
SW: The first issue I resolve is that I don’t believe these organizations should be consolidated. I believe there are expertise and focus within each discipline which is valued within the business. But I segregate core versus non-core activities. The activities we consider for shared services are the non-core activities. Simply put, the company will not remember them in history because of a contract repository. However, a contract repository is critical to the efficiency of a field negotiator or delivery team. So let’s identify and limit our work to the non-core activities. Second, this model allows a company to refocus their internal resources on the higher value contribution, revenue generating and customer and supplier facing initiatives. Third, this program provides a long range vision to efficiencies, staff repurposing, aggressive cost reduction and market innovation – not to mention the drive towards controlled enablement. It’s too compelling of a model to ignore.