As with all business functions, contract managers don't want just to create value for their organizations; they want to be able to measure and demonstrate it. But how? What key performance indicators (KPIs) do organizations most commonly look at to gauge the efficacy of their contract management and reveal areas for improvement—and decide whether to invest further in this critical function?
World Commerce & Contracting (WorldCC) has provided guidance to these questions—criteria all contract professionals need to focus on, and the steps they need to take to optimize their contract performance. WorldCC's Benchmark Report 2021, "The Benefits of Focus—The Costs of Neglect," is the most comprehensive examination yet of the issues that have challenged contract practitioners in recent years. The study—the world's largest, to which more than 650 global organizations representing 300,000 contracting professionals contributed—outlines the crucial KPIs that these participating organizations have identified as most important in meeting these challenges.
What immediately stands out about the result is the maturity of contract metrics now being tracked and reported against by high-performing contract teams. It was not that long ago that simplistic measurements like the number of contracts processed or contracts active in the market were the only metrics being widely tracked. This data was useful but failed to capture the impact contracts have on the wider business; more so, it was not actionable by the business. Ironically, the lack of data demonstrating contract impact often led to a lack of investment in the kind of contract capabilities necessary to gather better data!
Thankfully, this paradox is evolving and going away. The report shows more advanced KPIs being measured across the board, but with the most pronounced advancements shown by those companies that WorldCC considers "high-performing" based on their measured outcomes.
The report shows that these high-performing teams are "equipped to drive continuous improvement – they are three times more likely to be leading or initiating changes to policies, practices, or contract terms." They're gaining these leadership roles by gathering the data they need to demonstrate value to the company that extends well beyond contracts – and they're using technology to measure it.
WorldCC found the top five measurements captured by higher-performing teams included:
- Negotiated benefits
- Revenue improvements/contribution
- Frequency and source of disputes/claims
- Cycle times to manage changes or disputes
- Performance benchmarks with similar groups of other corporations
This stands in "stark contrast" to the survey respondents as a whole, who were more likely to continue to count more basic things like "number of contracts negotiated" as a significant KPI.
WorldCC uncovered that there was an especially strong correlation between successful contract teams and risk management measurements.
According to the report, "Higher-performing groups are … more than twice as likely to gather and use data that contributes to the management of risk." This includes things like portfolio risk analysis and contract leakage analysis.
So that's what they’re measuring. The next question is how these teams are capturing these measurements. The factors are many, from centralizing contract management capabilities in an organization to better contract hand-off procedures. But the most common thread is contract management technology.
When comparing higher-performing teams with the field, the higher-performing teams are 37% more likely to put a greater focus on integrated (digital) data flows across the contracting lifecycle, and up to 50% more likely to have invested in automation and analytics of contract obligation management, clause library management, and overall contract portfolios.
Of course, these teams are the exception, not the rule. Contract management as a dedicated practice, and the technology that supports it, is still fairly novel. That means wherever you are in your contract management maturity journey, you can get ahead of the game by working with your stakeholders to consider ways you can improve contracting outcomes. What contract KPIs are you measuring today? What would you like to measure in the future? By taking a crawl, walk, run approach to contract management excellence, your team too can soon be gathering and optimizing contracting data that drive the business forward.
You can access the full WorldCC Benchmark Report here.