Contracts establish a working model for a business to reach a future desired state: They define the rules of business and how outcomes will be achieved. Yet until parties fulfill their contractual commitments, those outcomes are not ensured. As such, tracking the obligations enshrined in contracts is critical to an enterprise's understanding of whether business is proceeding as planned, and to taking proactive steps to correct course if not.
Non-compliance on obligations not only hurts performance, but also exposes businesses to substantial risks – including reputational damage, financial loss, and soured partner relationships. Therefore, the key questions that keep the CxO/senior leadership awake in the night are: Are we fulfilling all our obligations? Are we defaulting on any business, regulatory or statutory obligations?
That question is impossible to answer if obligations are not centrally managed. Yet holistic management of obligations in an enterprise is easier said than done.
A major impediment to tracking obligation fulfillment is the enterprise-wide nature of obligations themselves: One department creates a contract, but the onus to fulfill the contractual obligations is usually on another department.
This is a common scenario with providers of complex products and services such as systems integrators, transportation manufacturers and pharmaceutical companies. For example, the sales team at a systems integrator will accommodate a customer's requirements in the contract to close the deal, and it is up to the delivery department to meet those requirements and the customer services department to fulfill support-related commitments.
To tackle this challenge, companies are embracing a new approach: enterprise obligation management. This approach extracts obligations from their single source of truth (contracts) and centralizes them to improve visibility and performance.
Icertis' Obligation Management application, built on top of the Icertis Contract Management (ICM) platform, enables companies to execute this vision to drive compliance at enterprise scale, thereby building and protecting brand trust; improving business outcomes; and, most importantly, ensuring that the business is always compliant.
The ICM Obligation Management app addresses the entire lifecycle of an obligation, from extraction to fulfillment to sophisticated reporting and analytics capabilities.
To manage obligations, companies must first know they exist. The typical commercial contract contains dozens of obligations, and manually discovering and extracting these commitments is not scalable.
The ICM Obligation Management app automates obligation discovery and extraction by leveraging AI trained on millions of contracts housed on the ICM platform. The AI knows what an obligation looks like and can surface the obligation for review. Importantly, the obligation is presented within the context of the contract so reviewers can quickly identify those that are most critical to the business.
2. Obligation Ownership and Fulfillment
Next, the app allows companies to assign ownership of obligations automatically based on business rules. The app features an obligation and fulfillment workflow model to enable sophisticated compliance programs at organizations. Obligations can be assigned internally or externally and can be automatically reassigned to new owners in the case of transfers, departures, etc.
Owners get notified of obligations assigned to them and can track their progress toward fulfillment within ICM. Reminders and escalations help users stay proactive in completing their tasks. The ICM Collaboration Portal app extends all this functionality to external owners.
The ICM Obligation Management app is powerful enough to recognize contract relationships and cascade and enforce obligations across related contracts. For example, the app will surface obligations hidden in an MSA when a user creates an SOW under that MSA, thus enforcing compliance and mitigating risk.
3. Sophisticated Reporting and Analytics
Finally, the app allows companies to gain insights from across the enterprise to measure risk and compliance.
Users can either roll-up all enterprise data for global views on risk, or filter based on specific requirements. For example, a Chief Revenue Officer can apply filters to see only data on revenue- and cost-based obligations and exclude noise from the rest of the business. And the app provides data on obligation management KPIs like fulfillment rates and overdue obligations.
Customers who have leveraged the ICM Obligation Management app have seen benefits including:
- Significantly reduced risks by complying with all obligations
- Reduced costs and contract turnaround time by automating the obligation lifecycle
- Improved customer and supplier relationships
- Better outcomes in contract negotiations and renewals
- Improved recovery of financial compensation for unfulfilled counterparty obligations
In a broader sense, by proactively addressing and fulfilling obligations, companies are establishing enterprise trust by demonstrating a strong commitment to corporate governance.
To learn more about the app and how obligation management and contract management software fits into broader corporate governance goals, view our on-demand webinar with SAP: "5 Ways to Accelerate Contract Transformation (ACT) with ESG and Contract Intelligence"
And to better understand how your company can progressively improve their obligation management practices, please see Icertis' AERO Obligation Management Maturity model.
Mohit Bhonde is a senior product manager for Icertis.