World Commerce & Contracting recently released its highly anticipated "Benchmark Report, The Benefit of Focus, the Cost of Neglect," representing data from over 800 respondent organizations— making it the largest survey of commercial and contracting professionals in the world.
While the overall findings are notable, even more insightful are the findings that emerge when we drill down into specific industry findings. After all, contracting challenges, opportunities, and maturity vary significantly by industry.
In the third of a series of industry deep-dives, WorldCC examined the banking, financial services, and insurance (BFSI) sector.
Here are five big takeaways from the survey.
It's all about compliance, compliance, compliance (and that's risky)
Unsurprisingly, the results show contract managers in the BFSI space are hyper-focused on compliance. Per the survey, 85% of contract managers in BFSI said risk mitigation and management is their primary objective, with ensuring controls and compliance a strong second. This heavy focus on compliance in BFSI makes sense since contracts can be a significant source of non-compliance risk, and BFSI is heavily regulated.
Yet focusing on risk alone comes at a cost. As the report notes, many BFSI organizations don't incentivize contracting teams to seek out contract efficiencies or value levers. This could be a significant liability as the industry undergoes a major transformation with new, digital-first competitors arriving on the scene.
"For a sector undergoing such fundamental change, commercial and contracting competence need to operate at a superior level," the authors argue.
Too much time is spent on low-complexity contracts
Perhaps stemming from the hyper-focus on compliance, the survey found that contract managers at BFSI companies spend excessive time on low-complexity contracts.
On average, roughly 25% of their day is devoted to these tasks. This is a red flag for efficiency. More and more companies are turning to contract management technology to help streamline contract review, especially tasks involving standard contract language (other data shows the BFSI companies predominantly use fixed templates to maintain compliance).
"It would appear [this is] an area where there are opportunities to drive improved efficiency," the report notes.
BFSI is ahead of the pack in post-execution contract management …
In positive news, thanks to the reliance on standard templates, BFSI contract managers appear to have more time to devote to managing relationships after contracts are signed.
Respondents in the industry said that contract managers spend 14% of their time on relationship management with contracting parties versus a cross-industry average of just 4%. BFSI companies are also above average in post-signature compliance monitoring, with 45% of contract managers following up—a testament to strong relationship management.
This is a plus in the BFSI sector's favor. Too often, a significant amount of time and effort is put into crafting a contract, only to see it go all but forgotten once it is in effect.
…but has a way to go in realizing total contract value
While contract managers are ahead of the pack on post-execution contract management, that management mainly focuses on compliance. This is leaving money on the table.
The ‘compliance-first' mentality of the BFSI sector does not foster the efficiency and effectiveness needed to achieve maximum value from contracts. According to WorldCC, by focusing more on improving the performance of their contracting process, BFSI organizations could achieve cost and revenue improvements averaging 5–7% of contract value.
At large BSFI enterprises, this represents tens or even hundreds of millions of dollars.
Interest in contract management technology is at an all-time high
Interest in how technology can help maximize the value of contracts translates across industries into a range of improvement initiatives, either underway or planned. In some key areas, the BFSI sector is demonstrating leadership.
The BFSI sector has made substantial past investments in technology like ERP and procure-to-pay systems that offer minimal functionality in managing or analyzing contracts. However, nearly half (49%) of survey respondents indicated plans to invest in contract management technology over the next 12 months. Identified priorities for contract management technology include improved data flow, gaining visibility into contract data, finding and searching agreements, and supporting regulatory compliance and reporting.
As service providers, organizations in the banking, financial services, and insurance sector depend on their commercial competence and operate with contracts at the very core of their business. Given the strength of regulatory oversight, there is a fine balance between policies, terms, and practices that are creative and the need for visible compliance and reporting.
However, BFSI organizations must not fail to keep abreast of market needs and trends. A key role of any high-performing commercial and contract management group is to undertake challenges and lead change. In the BFSI sector, that appears to be happening far too little. Inflexible, risk-averse contracts constrain performance and efficiency.
By focusing on the role that contract management software can play in reforming contracting processes, the BFSI sector can emphasize achieving cost and revenue improvements across their contracts and ensuring they enjoy the maximum value of every contract.