The last few months have forced everyone in a company to rethink how they do business—most of all the CFO.
In a recent article published on CFO.com, David Davidson and Aneel Delawalla, managing directors at Accenture, put it this way: “We have had many conversations with CFOs since the crisis began, and we have heard many variations on the same theme: If and when we get out of this, we are going to do things differently.”
Based on their conversations, Davidson and Delawalla anticipate CFOs will shift their focus from what happened in the business to what’s happening in the business.
“Boards and management teams, along with CFOs, now see the importance of an adaptable, agile finance function that operates in near-real–time,” they write.
John Connors, former CFO at Microsoft, made a similar observation during a webcast Icertis hosted this week about the changing role of the CFO.
“If you think about the way we as CFOs have operated, you have a monthly close, a quarterly close and an annual planning process. That got up–ended quickly and everything became real–time,” Connors observed.
Obtaining real-time data requires new and innovative systems in the enterprise, and CFOs are signaling a willingness to invest in digital solutions even as cost containment emerges as a priority. In its most recent “CFO Pulse” survey, PwC found that while 81 percent of CFOs polled said they have plans to cut spending, only 11 percent plan cuts in their digital transformation budgets. CFOs’ continued interest in digital investment, PwC notes, “corresponds to findings about their plans to accelerate automation and improve the remote work experience.”
Leading with Digital Contracts
Central to these digital transformation efforts will be contract management. As Commitment Matters notes: “Far from being a cost-cutting agenda, the [PwC survey] represents a focus on customers and growth. Hence the greatest pressure is likely to fall on those in sales contracting and commercial roles...”
Commitment Matters recommends that those in contracting roles leverage the PwC data to demonstrate to their CFO’s office the importance of digitizing contract management. Meanwhile, CFOs themselves are quickly coming to understand the importance of digital contracts in their own role, given that so much of the real-time data CFOs are looking for is contained in the company’s contracts.
“Every CEO and CFO I’m aware of has had to spend an enormous amount of time with their teams to really understand: What are our rights and what are our obligations?” Connors said.
This echoes what we here at Icertis have been hearing in our own conversations with CFOs across every industry. Recent disruptions have underscored for CFOs, and the rest of the finance department, the necessity of knowing what’s in their contracts and how they can improve contract negotiations moving forward.
Specifically, market disruptions require CFO offices to:
- Identify and mitigate current business risks
- Negotiate better contracts
- Understand the big picture
Each focus area is heavily reliant on contract visibility.
Identifying and mitigating current business risks: In rapidly evolving conditions, the CFO’s office needs to quickly understand the company’s contractual rights and risks. For example, the CFO’s office may need to understand its contract rights in situations where customers canceled deliveries or where the business wants to cancel its own orders from suppliers.
Negotiating better contracts: When every dollar counts, getting visibility into the contract negotiation process is critical. CFOs who can spot trends in negotiation terms and identify key contract levers that will enable the team to win deals more quickly can provide their companies with a competitive advantage. CFOs can also identify contract terms that negatively impact short-term cash flow and ensure those terms are not used in contracts moving forward.
Understanding the big picture: With full contract visibility, the CFO can roll up data insights to report out to fellow executives and the board on risks and opportunities. Which contracts have the largest dollar value? How many contracts are set to expire at year’s end? This type of information enables the company to act more confidently as it reacts to the changes at hand.
For companies with contracts managed across disparate systems or stored on local hard drives in regional offices, this information is, at best, difficult to gather and, at worst, completely inaccessible.
Conversely, companies that have deployed enterprise contract management software have been able to quickly assess the risks and opportunities facing their business. For example, Fortune 500 professional services company Cognizant was able to use the Icertis Contract Management (ICM) platform to review all of its customer contracts to assess how their ability to serve clients could be impacted by COVID.
“Knowing that we have all our customer-facing contracts in one place and then being able to dynamically search those contracts for keywords and phrases has helped us to understand the scale of the issue, make informed decisions and ultimately help us to focus our mitigation efforts much more effectively,” said Frank Marty, Global Head of Contract Lifecycle Risk Management at Cognizant.
Previously, a manual siloed contract management was a serious limitation. Now it is a major liability. Total contract visibility is critical to reacting quickly to current and future black swan events. With a modern CLM platform, CFOs have an opportunity to vastly improve business outcomes with better control and insight into what’s happening right now in the business—not what happened last quarter.
Another insight from Accenture drives home the world CFOs now inhabit: “The CFO and the finance function will be central to operating effectively in the post-crisis environment. CFOs have been on the frontline in the crisis, and their importance will increase, not diminish.”
The same can be said of contracts.
Interested in learning more about how enterprise contract management can help CFOs drive faster recovery? Download our whitepaper today.