Contract and commercial management has been saved
Perspectives
Contract and commercial management
When technology meets humanity
In the wake of the pandemic and the shift to remote work, weaknesses in contracting and commercial management were on full display. This report explores how the COVID-19 pandemic has influenced contract and commercial management capabilities and processes, with a focus on the value of humans working alongside technology.
Contract and commercial management today: How we got here
2020 was a year when incremental, evolutionary change gave way to revolutionary transformation in contracting and contract life cycle management. The COVID-19 pandemic revealed to organizations the frailty of their contract management systems and processes. As markets and supply chains were thrown into confusion, contracts proved difficult to find, hard to analyze, and of little or no use in managing unfolding events. With customer and supplier data scattered across multiple applications, the absence of reliable contract life cycle management systems exposed the fragmentation of critical business information. Commercial processes, in many cases designed to ensure control and compliance, struggled to adapt and were often bypassed.
This report, a joint effort between Deloitte and World Commerce & Contracting, explores how the dramatic disruptions caused by COVID-19 are affecting companies’ contract life cycle management capabilities and processes. It unearths several interesting trends, most notably that the promise of enabling technology is finally being realized. Companies en masse are embracing the need to look at and understand how contracts are managed after signature, with a true appreciation of data’s power. Organizations are now thinking beyond the data found within the four corners of the contract itself and focusing on how it can be linked to enterprise data contained in financial, HR, procurement, and customer relationship management systems. With this new approach, the walls between those who create the contracts and those who live with them start to crumble, and meaningful, impactful business outcomes can emerge.
This report is not only a snapshot, but also a look ahead to what comes next and where newly enlightened companies should be focusing their contracting investment and resourcing energies.
What did the pandemic teach companies about contract management?
The pandemic generated awareness for the importance of contract and commercial management, along with the need for investment. Organizational integrity is not simply about compliance; it’s also about adaptability and a new blend of collaboration between technology and humanity.
The report notes that survey findings have confirmed that automation and digitization of the overall contract lifecycle management process is a growing priority. According to this report, sixty-eight percent cite medium-high urgency, with procurement groups placing a particularly strong emphasis on post-award improvement.
The shift to digitization, rather than simply automation, is important because it reflects an appreciation that a critical aspect of contract management is the need for consolidation of data and data flows. The pandemic revealed the challenges of rapidly accessing information, identifying potential risks and producing management reports. The head of digitization at a global engineering company observed, “We must stop thinking about contract management and think about contract data management.”
Measuring value clearly remains a problem for many organizations. As the chart below shows, approximately one-third of those responding to the survey indicate that they currently provide some measure of their financial value or impact on the business.
Amid outdated systems and fragmented data, how exactly can those in commercial and contract management roles demonstrate their contribution? Measures such as negotiated savings are largely discredited and risk avoidance is also hard to prove. Those in post-award roles are often better positioned, both in terms of limiting erosion and in demonstrating growth or innovation.
Groups with a wider and more integrated remit are ahead of the narrower and more specialist teams in their ability to identify business contribution—a key factor in the growth of investment and resourcing that they are experiencing.
The latest data suggests that a growing number of organizations have awakened to the importance of upgrading commercial and contract management for the management of their suppliers. It has been an emerging trend for some time, but is being accelerated as a result of the the pandemic.
For the organizations that are undertaking reevaluation, 77 percentage of respondents identified streamlining of processes as a priority. It is organizational change that offers especially interesting insights, with a strong trend toward increased consolidation and coordination of resources. For the buy side, 93 percentage of those making changes are shifting to a center-led or matrixed model for contract and commercial management. On the sell side, this drops to 55 percentage—but a higher proportion are already operating with a more consolidated approach.
Templates were originally seen as the answer to complexity, introducing control, preventing deviations, speeding transactions. In many respects, they have been successful—but at the expense of flexibility, change, and value.
New technologies, in particular artificial intelligence and machine learning, enable a fresh approach to contracting. Standards remain, but now live within tools and systems that support fallbacks, automated playbooks, and dynamic clause libraries. As the chart below shows, a high proportion of those undertaking process reevaluation have set objectives that will reduce or eliminate the use of today's templates. In the first instance, many will use these tools within the commercial and contract management teams to speed contract production and negotiation while maintaining consistency and control. Over time, this should enable increased levels of "self-service" within the business, or even directly by the customer or supplier.
What it will take to transform contract and commercial management?
The COVID-19 pandemic has placed a renewed focus on strengthening companies’ contract and commercial management capabilities.
Despite increasing advancement and adoption of technology, there’s a growing realization that it's an enabler, not a cure-all. Transforming the contracting function requires multidisciplinary talent, from knowledge engineers and technologists to process analysts and legally trained professions. And it requires a comprehensive approach that marries process standardization, automation, global delivery, alternative resource models, and continuous improcement. Without the proper investment in people, process, and even content, the best technology can offer little more than a temporary fix. If companies can equip their legal and commercial teams with new insights from data, the opportunities are much greater.
By streamlining the contracting process and the removal of bottlenecks, companies can improve speed to execution. With intelligent contract triage driving delegation to alternative resources or self-help, organizations can free up in-house attorneys’ time to work on more strategic matters, ensuring that the right resources touch the right contracts at the right time.
About the report
This report is based on a survey conducted by World Commerce & Contracting. Input came from more than 300 organizations, with data collected from a mixture of individual interviews, executive roundtable discussions groups, and an online survey. Research was conducted by World Commerce & Contracting from November 2020 to January 2021. The results represent a broad cross-industry sample, with 62% of respondents hailing from organizations with annual revenue exceeding $5 billion.
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