- The technology sector needs a mindset shift with contract management to maximize contract value and impact
- High-level executive buy-in combined with effectively trained contracts teams can help a company lead the pack in the technology sector
- Recognizing the shift toward contract management within the industry is a simple yet powerful way to help organizations master these new norms
World Commerce & Contracting recently released its highly anticipated "Benchmark Report 2021. The benefits of focus – the costs of neglect," representing data from over 600 respondent organizations—making it the largest survey of commercial and contracting professionals in the world.
While the overall findings are fascinating, even more, insightful is what we find when we drill down into specific industry survey responses. After all, contracting challenges, opportunities, and maturity vary greatly by industry.
In the first of a series of industry deep-dives, WorldCC just released a report looking specifically at the technology industry—providing sector-specific analysis and comparison with cross-sector performance and trends.
What jumps out from the report is that executives in the technology and software sector are exhibiting high levels of interest in commercial and contract management (CCM) capabilities, with priority on tools and systems, contract analytics, and overall simplification of the contracting process.
That said, the industry is playing catch-up when it comes to these capabilities. Relative to many other sectors, past investment in contract management within the technology and software sector has been low, as shown by the report's findings of the relative inefficiency of contracting within the industry.
For example, in almost 40% of organizations, it is unclear who has ultimate responsibility for contracts. Across the sector, there are an above-average amount of resources applied to low- and mid-complexity agreements. Existing contract management technology is generally rudimentary across the industry, providing little more than repositories and template management.
Tech Leaders Are Poised to Drive Improvements
The upside of this is that contract management automation and process redesign offers enormous opportunities for the sector to address long-standing inefficiencies and capture more value from their contracts.
"One of the pieces that caught my eye is that 60% of agreements are negotiated to some extent," Bernadette Bulacan, Chief Evangelist for Icertis, noted in a webinar hosted with WorldCC to discuss the findings. "It's something that busy organizations see, and we can help simplify by putting some sort of guard rail on those agreements with automation where you don't have to touch the less-complex agreements necessarily."
Additionally, the technology industry appears to be well-positioned for the future, given executive engagement in improving contract processes.
63% of respondents said a heightened level of executive focus on contract management capability played a key role in managing the challenges of the market. Relative to other sectors, this is among the highest.
"It is known that if one wants success, they need that executive sponsorship," said Tim Cummins, President, WorldCC, during the webinar.
Given the level of executive interest, it is not surprising that nearly 60% of respondents say that automation and the deployment of contracting technology is a priority for their organization. Executives increasingly understand the value of contract management software in a post-pandemic world and its ability to protect against disruption, better anticipate and manage risk, and safeguard revenue and growth.
Technology Is Only Part of the Answer
That said, as highlighted in both the report and webinar, automation is only part of the answer.
"The investment isn't just in technology," said Bernadette. "Success involves skill training, people and development, and looking at processes, too."
Effective contract management, therefore, includes improving internal processes and raising current skills and talent retention amongst employees in addition to the selection, adoption, and implementation of tools and systems or the development of a digital strategy for contracting.
The report demonstrates that the combination of technology and practical employee training could generate improvements equivalent to 5-7% of the contract value, mainly through cost reduction or avoidance, and with revenue enhancement opportunities.
Measuring the Right Contract Value Metrics
One of the greatest insights from the report arises when the industry as a whole is compared to the practices of the best-performing survey participants across the industry. For example, when it came to contracting and measuring value, the report noted a mindset disconnect between the highest-performing organizations and that of a typical respondent in the technology sector.
The highest-performing organizations consider negotiated benefits, revenue improvements and contributions, and the frequency and source of disputes and claims as the top three factors in measuring value from their contracts. Conversely, in the technology and software sector, the most common responses were less value-oriented metrics like the overall number of agreements negotiated, the average value of deals supported, and cost avoidance.
"You can see on the benchmark report that the technology sector is focused on a different mindset than what is used by high-performance organizations," said Sally Guyer, Global CEO, WorldCC. "Unfortunately, the technology sector is going to struggle based on the findings of where the mindset is currently. So, the question is: What steps should we take to bring the rest of the organization along on this journey?"
The technology and software sector is moving in the right direction when it comes to contract management and has an above-average opportunity to benefit from improved CCM performance. The strong growth in executive interest in CCM suggests an awareness of both the problems and opportunities.
Mindset barriers to developing a shared vision and creating consensus over improvement do exist within the sector. Still, the benefits of behaving like the highest-performing organizations regarding contracts are clear and substantial.
Recognizing the overall shift toward contract management within the industry is a simple yet powerful way to help organizations move forward. Action plans for change should focus on speed, adaptability, improved margins, and greater visibility into business risk as typical elements that build consensus.