Contracts & Legal: Why more companies are looking to centres of excellence or outsourcing

The world is a complicated place and maybe just throwing bodies at something isn’t the answer

As many of you may know, I have been doing this for a long time now and I am reluctant to boast. However, in this case, and for purposes of framing my argument a few paragraphs down, I feel that I must. I am really good at making breakfast for my sons. There, I said it. Whether it’s a lazy Sunday in the summer or quick one on a Monday morning before I have to catch a plane, train, or something else to somewhere else, I have gotten really good at this. I now know how to make pancakes and waffles from scratch and my egg game is legendary. Despite these gastronomic feats, I realise that even I have my limitations. I am giving a white glove service. But if I had to do this for, let’s say 10 people or more, there would be a very large bowl of scrambled eggs and a self-service toast station available at best. I would have to sacrifice the customised, bespoke service that I provide for my children and furthermore, I’d be bad at it. I know how to cook for two, maybe four if my wife and I feel like indulging. I don’t know how to prep for 10 or more in an efficient way, without doubling or tripling my effort or getting more help. But do you know who is good at servicing lots of people – restaurants! It’s almost as if they were built for it. They have waiters to take the order, bus people to set the table and clean it, and proper cooks or chefs to make the food. And if we follow Escoffier, as we certainly must, there would be different cooks in the brigade, at different stations, working as a team to deliver one united meal.

Now, the story I shared above will hopefully ring true and familiar. But moreover, hopefully it makes sense. One person doing something in a bespoke manner is not scalable. But if we break the activities down, providing the right skills at each stage, then we are on to something. The skill of the wait staff is much different than the skills of the flat grill cook or the bus person. And although one individual can do all those jobs for 2-4, they can’t do it for 20-40, at least not well. Having only a series of utility players who can do a little bit of everything for everyone, just leads to multiplication of work in a linear fashion as opposed to specialities. Maybe 2-4 bus persons can clean and set tables for those 40, and perhaps only a few waiters are needed and even fewer cooks. I am not breaking new ground here, but just demonstrating (or reminding) that this works in real life. And yet, the traditional way to tackle more volume in contracting is to throw more lawyers at it. This is despite the fact that there is a realisation that intake, first level review, negotiation, escalation and signature all require different skills and levels of support. No one wants the head chef as their waiter or their waiter as their head chef, and yet for contracts – objects that carry a lot more economic value than a nice night out – many companies do just that. I cannot tell you how many “human triage” systems I have run into (and continue to run into) in my career.

I digress. More and more companies are coming to the understanding that “throwing bodies” at something doesn’t work or doesn’t work the way they want it to. It results in morale issues, quality issues, speed issues and economic issues. So, what is the solution? Be more restaurant. Look at all the steps in making a good dining-out experience and realise that there are lots of different skills and people needed. Now look at contracting and do the same. I’ll draw another parallel. We used to have to call a restaurant to make a reservation, but now most diners use web tools or other “front doors” to allow for online reservations, even highlighting food allergies or special requests. This technology is also available for contracting. The companies who are taking this seriously are looking to break down the contracting process, understand what skills are needed where and staff to that model. This naturally flows into creating a centre of excellence (virtual or otherwise). And companies which realise that most high-volume or repetitive contracts are the same without notable impact from local law, are looking to do this in centralised locations. Again – contracting is a democratic activity; lawyers don’t have a monopoly on this. If someone tells you otherwise, they most likely are a lawyer, charge by the hour, and have very nice pens and stationery. Now – as stated in many of my blogs – I don’t dislike lawyers. I am one and some of my best friends are lawyers. But I go back to my statement before – you don’t need lawyers everywhere. Use them where they are needed.

Everything I have written above applies equally to outsourcing versus a centre of excellence, and perhaps more so. The answer ought to be to break the process down, use the right skills at the right process point, automate where you can and centralise where it makes sense. Some companies have the time and desire to do it themselves. Others take a different path and choose to get a service provider to do this for them or to them. I have written a number of pieces on why it’s good or needed to choose a broader version of this outsourcing and ask a company to run an “operate” play. But to summarise and simplify: the world is complicated, focus your energies on the most complicated, business critical issues, as there are sensible offerings or solutions to handle everything else in a professionalised manner. If you are a bank, life sciences or energy company – do that. I doubt your corporate bylaws say, “focus on great delivery of indirect procurement contracting”.

Let’s now tie this up into a nice classic three-point answer as to why companies are looking to centres of excellence or outsourcing in this space:

• Scaling an outcome requires breaking the activities down into component parts
• The component parts, when analysed, require different skills
• Therefore, a group of people (or centre or provider) composed of different skills doing the right activities at the right place in the process allows for better scaling.

Not quite a full tautology, but hopefully close enough to answer the exam question. In my next piece, I will write more about the economic outcomes of these models, which are also compelling. But going back to the start, my bespoke approach to my children works and is worth the effort for whom it is applied to. But basic run-of-the mill contracting that is low risk and an everyday thing done at volume does not require three Michelin stars worth of effort.