Creating a Competitive Edge for Firms
Imagine being able to state with certainty the firm’s corporate position on contract terms and negotiation strategy, structure contracts quickly, and have immediate access to the firm’s contracts from anywhere, at any time.
This is possible, and necessary in our business world, where turning data into information for decision making provides a competitive edge during business negotiations. Faster is replacing bigger as the competitive edge in business, and having a strong Enterprise Contract Management strategy is one way to do business faster and more efficiently.
Remember that the contract is for the divorce, not the marriage. What is agreed to during the deal or “dating” phase when both parties are amiable and cooperative will drive the outcome of any future disputes, or termination of the relationship. Having an outline of the approach and what is acceptable to the firm will ensure that corporate strategy and policies and, ultimately, the risk appetite, whether stated or inferred, are aligned with the contract.
Below are three pillars of a strong enterprise contract management strategy.
1: The corporate risk acceptance or appetite regarding contracts. What are the most important components of these contracts? Is price or cost the overall driver, or the ability to terminate without penalty or indemnification protection a priority? Are there ownership rights that are important for trade secrets or competitive advantage? There’s no right or wrong answer here; the company response is driven by the corporate strategy. In addition, understanding where relationships are transactional or partnerships should drive the amount of time spent on negotiations with suppliers/ vendors.
2: Templates for major types of contracts. It’s important to establish templates for services, software, consulting, etc. Templates will reduce the time to structure contracts and manage risk. Reviewing the firm’s existing contracts or using online examples enables efficient template development. Work with subject matter experts in Legal, IT, and Corporate Communications to align the template with corporate strategy and policies. Even with smaller companies, where the supplier/ vendor contract paper will likely be used, having standard language to negotiate from is important. Any material exceptions to the standard can be escalated and discussed prior to signing a deal, which means no surprises if the relationship goes south.
3: Secure access to supplier/ vendor contracts. This is an essential component of enterprise contract management. There are a number of excellent cloud-based contract management systems (CMS) solutions, from simple to complex. The minimum requirements for a CMS should include individual contract profiles with information for searching and analysis.
• Company name
• Contract title and description
• Contract value
• Effective date
• Term type (fixed or auto renew)
• Current expiration date
• Contract owner and department or business line and
• Pdf copies of the contract document.
Functionality that allows alerts for upcoming expiration or renewals is also critical for managing contracts. This enables the firm to ensure that contractual obligations are known, understood and managed appropriately. The cloud-based solution provides secure, authenticated access from any computer at any time, enabling self-service for contract documents.
Finally, a strong staff to structure and negotiate these contracts is an excellent investment for risk management and cost savings or containment. These can be contracts attorneys or sourcing/ contracts professionals trained to execute on the three key points above. In addition, a strong CMS administrator will ensure that contracts are readily accessible and up to date for each of the contract relationships.
Enterprise contract management creates a competitive edge for firms that invest in the establishment of an intentional contracting strategy, standard templates, a contract management system, and a staff of experts to structure, negotiate and manage these contracts.