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.
As part of the research, WorldCC dove into specific industries to better understand the unique contracting challenges and opportunities they face.
In the sixth of a series of industry deep-dives, WorldCC examined the business services, outsourcing and consulting sector (For simplicity, we will refer to all these as ‘professional services' throughout).
The benchmark report reveals that professional services has been an early adopter and significant investor in contract lifecycle management (CLM). However, while a disproportionate number of organizations in the sector ‘lead the pack' in terms of performance, many professional services organizations actually lag other sectors in the performance of their contracting process.
Leading the Pack, Staying Ahead of the Pack
Given the nature of professional services, it is easy to understand why this sector has led the pack in contract lifecycle management (CLM) investment and adoption.
The intangible nature of professional services means that a contract may often be the only tangible element of a transaction, providing it an added level of importance. To grow and to maintain margins, organizations in this sector depend on the quality of their commercial and contracting policies, practices, and resources.
The study reflects this, finding "a disproportionate number" of professional services organizations "occupy top quartile positions" in advanced CLM capability and maturity.
Yet ‘"maturity"' can be a flexible metric. Because once you've reached maturity by being state-of-the-art your peers will continue to push the envelope, forcing you to adapt and adjust or be left behind.
The question then becomes, what does the leading edge of maturity look like? The answer is deep integration with key applications, AI capabilities, and contract templating.
Manage Contracts Proactively with Deep Integration
Companies in the professional services sector are investing significantly in deep integration of CLM with other enterprise systems. The sector is "likely to show continued leadership in integration," according to the study, pulling further away from other sectors, where technology skepticism is higher.
CLM integrations allow businesses to connect their contracts with other systems such as enterprise resource planning (ERP), customer relationship management (CRM), and financial systems. These kinds of integrations can be force multipliers for the value of contracts and CLM in an organization, and allow for proactive management of contract obligations.
If, for example, a contract dictates a $1 million payment at a given date, a payment system can alert the CLM system when that contractual obligation is fulfilled or, conversely, not. Either way, companies can be assured that the intent of contracts is being realized.
Not Just Contracts. Contract Data.
Another sign of maturity in the professional services industry is their focus on not just managing contracts as single objects (e.g., PDFs in a document repository), but making efforts to structure and connect the data within them.
According to the report, investment in digital strategy and technology in this sector are "focused on being able to extract, analyze and create impact" with contract data via CLM. Top priorities for investment in new or upgraded technology cited in the report include visibility into contracts and contract data, and the ability to find and search contracts.
"A centralized AI-enhanced contract data repository gives our executives a 360-degree view of contracts enterprise-wide. We can now provide the C-suite with reports on our contract risk profile, contractual obligation compliance, and other insights that help them run and protect the business."
This could also point to an area of continued effort and innovation. New AI capabilities applied to CLM makes sense in the sector. AI technology is readily able to scan contracts at scale, find patterns, and derive insights.
Frank Marty, Global Head, Contract Lifecycle Risk Management at Cognizant, noted recently: "A centralized AI-enhanced contract data repository gives our executives a 360-degree view of contracts enterprise-wide. We can now provide the C-suite with reports on our contract risk profile, contractual obligation compliance, and other insights that help them run and protect the business."
Increase Speed and Streamline Contract Acceptance
Two areas of CLM functionality nearing a "tipping point" of growing adoption within the sector, according to the report: the ability to assemble standard contracts from templates and portfolios of agreements.
Leaders in the professional services sector are moving toward "the capability to develop agreements from clause libraries and to support business use through digitized playbooks and fallback terms," according to the report.
These CLM functions are critical steps within the sector to increase speed and streamline contract acceptance through increased ‘self-service' capability.
Articulating the Value of Better Contract Management
The biggest roadblock organizations face in continued CLM software investment is with articulating the value of better contract management. Businesses like those in the professional services sector should know better than anyone; however, if you get contracts wrong, you will waste a great deal of money.
One real-life example is that of a mid-range consultancy working for a major global software provider. This firm was doing work not realizing that their contract had not been renewed. They delivered $1 million worth of uncontracted-for services and, since the contract had lapsed, had to absorb the cost. Where there is no contract, there is no money.
Professional services sector could "achieve cost and revenue improvements averaging 5–7% of contract value" by implementing CLM
The first step to making a case for CLM, therefore, is to identify key performance indicators (KPIs) that demonstrate the revenue that is possible with the help of CLM. According to the WorldCC report, companies in the professional services sector could "achieve cost and revenue improvements averaging 5–7% of contract value" by implementing CLM. Because if you can prove that by spending $10 you can make $20, you can demonstrate that CLM isn't a budget hit but is rather a value lever.
Second, build consensus across stakeholders. Remember: contracting is a team sport. Assemble as big and broad a team as possible because when you align your stakeholders, that leads to a solution that everyone can agree on.
And finally, identify an executive sponsor. Contracting is not a side process or secondary consideration that can be handled at a low level of the organization. Contracting is core and foundational to the enterprise, so you need a champion in the executive sponsor to own it. Remember that a champion doesn't have to be an executive in Legal. Your champion could be found in Sourcing, or Finance, or Operations.
Given its dependence on contracts and contract performance, the professional services sector has a highly compelling business case for investment in CLM and for realizing the value that it represents.
Professional services have, in many respects, led the pack in contract lifecycle management (CLM) investment and adoption. However, there are organizations in the sector that are clearly lagging and where the CLM role remains largely administrative or transactional in nature.
To stay on the leading edge of CLM maturity, the sector needs to focus on extracting contract data and integrating it with key applications. Any cost associated with this technology deployment can be well justified, given the study's finding that revenue improvements averaging 5–7% of contract value can be achieved by implementing CLM.