WCC

Perspectives

Boosting ROI across the contract management lifecycle

How contract excellence increases contract value

Contracts enable an organization’s performance, but their management is infrequently an investment priority. With data from more than 1,200 organizations, our ROI of Contract Excellence survey report explores a range of contracting metrics—and offers a framework for demonstrating and increasing ROI across the contract management lifecycle.

What does the ROI of Contract Excellence report reveal?

In conducting our research, we discovered that average contract value erosion is 8.6%, with the best performers operating at a little over 3% and the worst at more than 20%. This report explains the factors that impact these results and outlines the steps needed for improvement—highlighting areas in the contract management lifecycle where changes can improve ROI.

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Why does contract value erosion occur?

For most organizations, the activities that support their contracting lifecycle are fragmented. They are conducted by multiple people, typically using multiple systems, resulting in no single point of data or analysis. The result? Organizations have little insight into the costs that are incurred or the value that is won or lost.

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Processes (complexity)

To achieve excellence, an organization must understand the mix within its portfolio of contracts and have the visibility to analyze the degree of complexity associated with its management.

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Portfolio segmentation
Contracts are not created equal
Portfolio segmentation underpins contract excellence and is a pre-requisite to any sustained improvement.

Case in point: The combined cost of contracting and value loss represents a relatively low 2-4% of revenue in the average consumer goods company. This rises to 15%+ percent in sectors engaged in high-value capital projects.

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Clarity of contracting lifecycle
Without visibility, it’s guesswork
The disconnect across a contracting lifecycle’s elements results in considerable inefficiency, avoidable delays, and poorly informed and reactive decisions. Improvement depends on insight and analysis.

Case in point: 48% of respondents who have invested in their contracting process cite ‘better contract data visibility and management’ as a key benefit.

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    Elements (capability)

    Excellence hinges on investing in the capabilities needed to perform on business and contractual intent—across people, processes, systems, and organizational values.

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    Skills and experience
    Contracting is a team sport
    High-performing organizations have a clear understanding of the skills and knowledge required to develop and manage their contracts portfolio. They undertake regular assessments of those skills and where they are best deployed.

    Case in point: Of those making investments in the contracting process, 40% have up-skilled existing resources and 28% have brought in new resources or skills.

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    Organizational structure
    Minimal friction, maximum results
    Contracting excellence is achieved through an enterprise-level capability and its goal should be to minimize the points where delay and costs are incurred.

    Case in point: 14% of respondents have introduced a shared service center; 10% are making increased use of outsourcing support; and 23% are achieving greater business independence through empowerment and self-service initiatives.

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    Digital Strategy
    Maturity is a multiplier
    The maturity of the organization’s digital strategy in relation to contracting is a multiplier to its people, skills, and technology capabilities. A digital strategy can be used to align data, information, and communication flows both within the organization and across organizational boundaries.

    Case in point: Today, 48% of organizations indicated that they have seen benefits around better contract data visibility and management.

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    Tools and technology
    Systems support capabilities
    When developing the contracting process, the availability of underlying tools and systems operates as a critical element of capability delivery.

    Case in point: Research in large organizations shows that contract-related data on average sits in 24 different systems. The emergence of integration tools and platform technologies creates the opportunity for integrated data flows, which then drive both efficiency and performance.

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    Simplification
    Streamlining is essential
    Simplifying contracts can improve communication and reduce cycle times and operational workload. However, while simplifying contracts is on the agenda of many organizations, it is with highly variable scope and urgency across different sectors.

    Case in point: Over 50% of organizations have neither carried out, nor plan any contract simplification initiatives.

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    About the report

    In 2014, World Commerce & Contracting (then named IACCM) conducted research that indicated average value erosion of 9.2% of contract value. While there were wide variations between sectors and acceptance that some erosion is unavoidable, these findings indicated tremendous potential for improvement.

    In 2022, WorldCC collaborated with Deloitte to update its research. Drawing on data from more than 1,200 organizations, it sought to discover whether investments since that time—especially advances in technology—had driven significant progress.

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    As used in this document, "Deloitte" means Deloitte Tax LLP, a subsidiary of eloitte LLP. Please see www.deloitte.com/us/about for a detailed description of our legal structure. Certain services may not be available to attest clients under the rules and regulations of public accounting. The Deloitte US firms do not provide legal advice. This article contains general information only and eloitte is not, by means of this article, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this article.

    Learn more about Deloitte’s Legal Business Services

    The rapidly changing business landscape has intensified pressure on legal departments to increase efficiencies and deliver greater value to the business. Deloitte’s Legal Business Services helps clients modernize their legal departments, freeing the core legal team to focus on strategic priorities, enhance the speed and quality of issue identification, and use data to drive faster, more informed decision-making.

    *The Deloitte US firms do not practice law or provide legal advice

    Get in touch

    Mark Ross

    Principal and Co-Leader

    Deloitte Tax LLP

    markross@deloitte.com

    +1 213 392 0248

    Derek Howell

    Senior Manager

    Deloitte Tax LLP

    derhowell@deloitte.com

    +1 206 716 6411
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