The business case is one of the main priorities that come up when I talk to executives about contract management. Especially the financial part of the business case: how much are we going to save? The many executives that see cost-saving as the only benefit they can get out of their procurement strategy is still outnumbering the executives that ask the right questions when it comes to managing their ecosystem. Leadership should get more understanding of what contract management actually is, what it can do and start exploring the many other benefits of contract management that transcend cost-saving.
The right questions show the added value of contract management
Yes, that starts with the right questions. For me the right questions are part of a much bigger picture, called your business ecosystem. Let us dive into some of the key elements, which I actually learned while interacting with those executives that understand that procurement has more interests than cost.
Every organization has an ultimate objective. That objective is never about money, but about a deeper purpose. Why is your organization here? What do you find important to achieve? What constraints are acceptable for your organization to work with? After the right questions, your purpose should be translated accordingly into organizational goals that are to be realized by the joint effort of the internal organization and your external partners. Don not get me wrong, contract management is not your strategy; but it is a powerful enabler of your strategy.
Unlocking your needs: from purpose to actions
How do you want to use the expertise of your contract partners? How will they fit into your innovation roadmap? How do your partners contribute to your continuous improvement? Contract management helps organizations to capture the true needs to live up to that purpose and translates that into the actual work that needs to be done. And that goes way further than just needs and actions for the business.
For example, how does your legal department look at your relations? How deeply are they incorporated into the procurement and contract management processes and are you convinced that they adhere to the same (or even higher) standards? How do you control and measure compliance? How do you quantify the risk of having others taking care of parts of the operational processes for the organization? Especially if you source output of effect based where you don’t have full control as you have in the input or time/material world?
Identify your role within your ecosystem
Having a sound vision on who you are in your total ecosystems of clients and suppliers and what role you want to play is crucial. How you want to add value in that business environment is vital for any organization. Contract management is therefore not a nice-to-have function, but a core function; the axis of operational excellence within the organization.
Linda Tonkes, my colleague and thought leader on this topic, wrote the standard methodology for successful contract management (CATS CM® version 4) and has strong ideas about the role of strategy and leadership in this initially operational area of expertise. She knows how to outline the benefits to the boardroom, transforming contracts from the passive ugly duck to the full-fledged eagle actively heading towards prosperity. This holistic view on the sum of contracts will enable you to not only oversee your ecosystem, but also drive optimal value from it. And that is what it is all about. Capture value.