With the evolution of cloud technology, electronics OEMs are finding that contract management is increasingly a differentiator that can improve the organization's bottom line.
Too often, the right hand doesn't know what the left hand is doing when it comes to corporate contracts. By creating a holistic approach that stretches from supply chain and procurement through legal, human resources, and IT, electronics companies can get ahead of the contract curve.
Particularly in procurement and supply chain, it's important to execute contracts correctly and efficiently, to understand what agreements have been made, and to be able to accurately measure performance and track requirements and compliance. “Velocity is key especially in procurement. There is a big push for self-service and there is a big need to make sure they can do contracts quickly,” Samir Bodas, CEO and co-founder of Icertis, a cloud-based contract lifecycle management (CLM) platform, told EBN in an interview.
Further, organizations need to make sure that the vendor contact thoroughly understands the commitment that is being made with a contract, said Bodas. Finally, it's critical to consider all contract obligations from a compliance audit and risk management perspective.
Today, the CLM market remains in its early days. “As a market, it represents $350 million today, so it's not very big at all,” Nigel Montgomery, research director at Gartner Research told EBN in an interview. “In reality, though, every organization really needs some level of CLM and so common sense says that some portion of those adopt it, it will grow.” According to Gartner, the contract lifecycle management market will grow 40% by 2017, becoming a $2.8 billion business in the U.S. “There are twice as many companies in Europe, so common sense dictates that the potential there is twice as much,” he added.
Some forward thinking tech companies are looking at leveraging CLM technology in the organization. “I'm trying to encourage companies to look at processes and think about how they are acting about their contracts,” added Gartner's Montgomery. “The truth is that a lot of companies treat contracts as a bit of paper in the good times and the rule of law in bad times. When times are good, people sign the contract and put in the drawer and never look at it. When times get hard, the terms around the deal, the money, and the deliverables get scrutinized.”
Recently, Skullcandy, which makes headphones and earphones, adopted the Icertis CLM platform to manage all their contracts, including those with suppliers and distributors, as well as business contracts such as NDAs and licensing agreements. “As a global brand, we have an extensive contract library relevant to all departments internationally,” said Oriana Kacirek, senior manager & corporate paralegal for Skullcandy in a written statement. “We wanted a robust platform to manage our process across all of our supply, vendor and license relationships.
As organizations get larger, this type of technology becomes critical. When choosing a system, organizations should put a number of things on the shopping list, including the ability to manage every contract in the organization, supreme ease of use in day-to-day work, and a clear path to deployment.
“Skullcandy is great example of a progressive and forward leaning company with respect to adopting technology and making sure they use technology and cloud in an effective fashion,” said Bodas. “The size of that company from a volume and complexity standpoint needs to seriously consider putting a system in place that supports growth.”
This deployment offers several best practices that can be informative about how to choose and implement a CLM system:
- Carefully define the problems that you are trying to solve . “Often, companies try to solve the problem that is in front of their noses, such as how to figure out where contracts are,” Montgomery explained. “However, the real value doesn't come from that visibility. Where you really gain is when you start looking at the contracts and interdependency of contracts, at clauses used with different customers and suppliers and how to hone those to be more effective for the business, to reduce cost, and to increase margin.”
- Choose a system that does what is needed. Define what capabilities are needed at the start of an implementation. Too often,organizations choose a CLM system that needs custom work to achieve their CLM goals, said Montgomery. Implementing and maintaining that type of system is costly and time consuming. Instead, organizations should look for a solution that meets its needs (and potential needs) right out of the box.
- Choose a system that offers self-service. “More and more, enterprises are thinking about letting employees do things using automation and tools,” said Bodas. This capability clears up bottlenecks in executing contracts and, by using standard terms and fallback clauses, can increase contract accuracy.
- Think of contract management as strategic rather than transactional. By corralling all contracts into a single system, workflow, governance and compliance are all handled in a single space. In addition, analytics can be applied to make better decision.
- Apply machine learning and deep analytics to get deep learning and increase efficiency. By understanding and analyzing how contracts are being executed across the entire organization, what terms and conditions are being applied, and more, organizations can make contracts more effective and intelligent.
- Get beyond simple contract storage. “Too often, during an audit, everyone scrabbles around to get the contracts so auditors can sign off and go away,” said Montgomery. “I'm encouraging auditors to scrutinize how the organizations are managing those contracts not just whether they are finding them or not.
In the end, a CLM system is likely to pay for itself in no time. “The biggest problem is that most companies don't know whether they are at contractual risk,” said Montgomery. “If that's true, it's about time you got a CLM system. Regardless of cost, these systems in comparison to the risk reduction and benefits is so trivial that most organizations shouldn't be considering not doing it.”
Instead, organizations should consider if the organization is mature enough to have consistent data and processes. “This is a journey people have got to take, and there's no excuse not to take the first steps,” said Montgomery.
Where are you on the road to CLM? Let us know in the comments section below.
— Hailey Lynne McKeefry, Editor in Chief, EBN