With this final piece, we’ll examine the nature of contracts and how businesses can leverage them to build trust.
Contracts and Trust: A Direct Line
A contract is a set of promises companies make to each other—and nothing builds trust like a promise kept.
It’s no coincidence, then, that adopting technology and processes to ensure contract obligation fulfillment emerged as one of the top strategies for building trust in relationships , according to the Economist survey.
For example, since 2000, IKEA has had a code of conduct known as IWAY that applies to all partners in its value chain—from raw materials suppliers to manufacturing plants to transportation services. The IWAY code layouts out minimum standards of practice for those companies in partnership with IKEA and ensures supplier and partner alignment with IKEA’s values of responsible sourcing and a more sustainable value chain.
To ensure compliance, IKEA’s contracts with suppliers lay out a range of audits and spot-checks that IKEA can conduct (or have third parties run on their behalf). These contract clauses are mandatory for all suppliers and service providers that wish to work with IKEA. These contractually enforceable terms lay out IKEA’s clear expectations of their partners regarding environmental, social, and working conditions and animal welfare.
While IKEA focuses on ethical issues, similar efforts can be made around commercial commitments. Cognizant, a Fortune 500 professional services provider, has digitized the contractual obligations it’s made to clients across the world. Now it can track how it’s doing against those contract obligations and report performance out.
Frank Marty, Global Head of Contract Lifecycle & Risk Management, says: “We wanted a system that empowered the individuals who interact with our customers to improve the delivery of our services. That was our guiding principle.” Today, Cognizant boasts obligation fulfillment of over 95%.
In sum, contractual obligation management is a way for all parties to be in complete alignment, understanding and agreeing to the values and expectations of the other upfront. This transparency itself builds trust. The Economist Impact report found that 83% of those surveyed felt setting contractual terms at the outset of an agreement created trust between business partners. And 89% said it was important that their business partners share their organization’s values.
However, unlike IKEA and Cognizant, most companies have yet to fully embrace the power of contracts to codify their values and ensure that business partners are behaving in a fashion compatible with those stated goals and values.
For example, while 69% of respondents agreed that contracts could be powerful tools in enforcing obligations around environmental, social, and governance (ESG) efforts, only a third have done so.
This gulf between belief and action could be bridged by concrete steps like hiring dedicated ESG compliance staff or investing in new technology to fulfill contractual obligations.
How Contract Intelligence Can Help
This lag in adopting new technology is not for lack of awareness of its benefits. As noted above, The Economist Impact report found that “adopting new technology to facilitate data and information sharing, increasing the evaluation and monitoring of business partners, and adopting new technology to facilitate contractual obligation fulfillment” were the most popular trust-building practices employed by the businesses surveyed.
Yet, for many companies, leveraging contract language in core business operations can seem “easier said than done.” For many organizations, contracts remain static even as the world around them digitizes. It leaves the critical business information, such as obligations, locked in dense legal language.
The good news is that advances in AI are making it much easier for companies to extract contract data, structure it, then connect it to operational systems (like ERP). At Icertis, we call this “contract intelligence.”
The benefits of contract intelligence are many—the insights, automation, and contract creation capabilities it delivers help companies drive revenue, reduce costs, ensure compliance, and eliminate risk. But as the Economist data above suggests, one of the most important benefits it delivers is more trust in relationships.
With contract intelligence, companies gain a global view of all their contractual obligations, so they can fulfill them, thereby driving trust.
Icertis delivers on this vision with the Icertis Contract Intelligence (ICI) platform . Our AI has been trained on millions of contracts managed on the ICI platform, enabling companies to identify obligations at scale, then manage them like they would any other enterprise task. With ICI, companies can make the right commitments in their contracts and fully realize them in the real world.
Icertis Remains a Leader in the Q1 2021 Forrester Wave
Icertis has again been recognized as a Leader in the Forrester Wave: Contract Lifecycle Management For All Contracts Q1 2021 report. This is the second consecutive Wave report to recognize Icertis as a Leader. Read the report and learn more about the impact of CLM and why Icertis has been named a Leader.