Maximizing ROI from Contract Data: Tips for SMBs

Introduction

In an era where financial agility defines business success, small and medium-sized businesses (SMBs) are starting to focus on contract operations as a lever for financial optimization. The strategic management of contracts holds the potential not only to safeguard but also to elevate a business's bottom line and ability to align operations with market objectives more quickly.

But the path forward is to change your mindset on what this space is all about and get to your contract data, fast.? Let’s find the path together.

?

The Significance of ROI in Contract Operations

Return on Investment (ROI) in contract operations is a metric of paramount importance for SMBs. This section will delve into how effectively managed contracts directly correlate with an improved bottom line. A recent World Contract and Commerce Association (WCC) survey indicates that 77% of firms are reorganizing for process efficiency in operations.? However, only 40% are measuring the impact of contract and commercial management citing measurement challenges such as:

(i)????????????????? Outdated systems

(ii)??????????????? Fragmented data

(iii)?????????????? Cost savings measures are not collectively agreed to

(iv)?????????????? Risk avoidance is hard to prove

The insight? Firms must widen the lens of operations to include the massive amounts of resources, processes and efforts wrapped up in their ongoing supply agreements. The traditional manual models and tools are ineffective because they take so much effort and time to run.

But today, new tools are coming on the market and are bringing a completely new ROI, and outcome impact to these issues, elevating the discussion to the boardroom as a new capability to the internal competitive intelligence arsenal, we call it contract operations.

The mindset shift is away from terms like Procurement, Sourcing and Vendor Management. We need to be clearer about what we are after to attain these outsized impacts at scale at a regular cadence. This observation from the head of digitization at a global engineering company, “We must stop thinking about contract management and think about contract data management.”

Expert Insights on Enhancing Contract Operations

Why is contract management the new operations priority? The 2021 World Commerce and Contracting’s benchmark report establishes some powerful truths that drive this new take on the importance of contract management in this new post-COVID reality.

32% of the workforce is involved in managing contracts

40% of organizations cannot define contract ownership or who has that responsibility

60% of agreements are long-term, requiring renegotiation

Low and mid-complexity agreements are traditionally over-worked (often reactively) and undermanaged across all key data points

But what's the rumpus? Don’t the solutions sold as contract management solutions to get control of contracts solve this problem? So long as you have ost tens or even hundreds of thousands and can fund ongoing support costs? Not necessarily. ?

For example, many solutions merely digitize your workflow.

We are after automation and ease of integration, not as an afterthought but as a core capability.

If you have not started at all, it's still safe to start where most start. Excel! Here is a very basic Excel template for free that could be an ideal first step for many companies in moving forward to key aspects of their contact data journey from ContractSafe.

Other steps forward might just be using the tools you have differently with a little external help. Or training one of your staff to create more advanced tools using the MSFT Office Suite in combination with 1 powerful task-specific AI tool. Along with some basic defined processes and oversight, even the most complex relationships start to become more manageable and move from headache to asset in mere weeks. In the past, this kind of transformation was years in the making with a consulting price tag.

Focusing on contract data transforms the traditional Procurement team and transforms it into a high-performance Contract Operations capability, driving projects with minimal investments that are designed to have a direct correlation to capital returns, which can then be reinvested or used to drive further market expansion and company value.

But can such a basic Excel template and some understood processes make an actual difference? McKinsey says yes. In their deep dive study on contract management captured in Contracting for Performance, they identify basic first steps that leverage very modest tooling upgrades such as defining rules for subcontracting, defining ownership, governance teams and putting basic operations expectations such as continuous improvement into your most important contracts.

How about that, contracts designed from the outside to find their own issues, prioritize them and proactively go after solving them as a normal way of working, involving you only when necessary to ensure proper framing of the issue and as a part of an integrated delivery solution.

This capability needs to be designed into most relationships. The complexity of Cloud and software change and project delivery requires it. Most service firms are capable of working this way, but are often never asked. But when multi-year commitments are made, these sorts of investments should be table stakes.

Actionable Tips for SMBs

But what can smaller organizations do to move this new compelling opportunity forward in the same ways as larger organizations that have more scale? Start working on several key areas that are core to Contract Operations capability. Build low-code or no-code simple tools first that accelerate processes incrementally, before even thinking about end-point solutions.

Here are some suggested first steps and the levels of impact seen in the market. These are commensurate with my own working experience at smaller midsized and global firms in financial services, energy and telecommunications.

1. Regular Contract Audits: Regularly reviewing contracts can uncover hidden inefficiencies and renegotiation opportunities. Renegotiation emerged during COVID as a path to survival. But the cost is manual and often involves legal, making it expensive, even though business needs this flexibility and adaptability to change, and for operations to scale. Try automating your review process from the start, cutting down the time from 30% to 80%. This approach is also more likely to capture risks and maximize cost savings.

2. Negotiation Strategies: Effective negotiation can significantly improve contract terms, whether business and market change is driving gaps in expectations, effectively negotiating change can drive operations outcomes in favor of an SMB, even with larger suppliers. Do a self-assessment of your organization's negotiation team skill level (not just those at the table!) and determine your maturity level in this critical skill area. This takes vulnerability and a realization that this core capability should no longer be self-assessed and assumed to be in good shape because a lawyer is present or a seminar was taken 3 years ago. This is a complex set of skills that often requires a practiced continuous learning mindset. Find a good one to model your team efforts.

3. Leveraging Technology: Implementing contract management technology is starting to have a predictable impact across the highly manual process of contract review, drafting and post signature/PO management. Here is a simple ROI Calculator that you can use to determine what might be achievable within your function or firm.? Value often extends from cost savings to operations control, insight and visibility, supporting compliance (operations commitments expected) as a large driver of each firm's ROI profile.

What this does NOT mean is grabbing the first ERP that wows in a demo capable of DIGITIZING the workflow. You may find yourself with a lot of manual, data entry points to maintain keep the digital machine moving. But information may be hard to get out, adding rigidity to a process that all of the sudden becomes very expensive to change and perhaps impossible to integrate.

Solutions are starting to be applied to contract data management objectives that are more powerful and truly offer the real-time data insights required for the data and process integration objectives in play in this unique operating challenge. Dig deep on the requirements and story that can lead you safely forward. Run a process to evaluate firms based on deep process discussions and real-world tests on the key capability drivers before moving down this path.

4. Training and Development: Investing in staff training for contract management can yield significant returns and is often necessary to get value from tool, process and policy changes. The contract management actors usually comprise a much larger group than is typically known. Map these teams and invest in appropriate training to broaden the lens on risk identification and the ability to develop opportunities and claim value, and drive the ROI for investments forward.

For instance, are your delivery managers trained on how to read contracct or an SLA report and respond in a predictable effective way to improve performance gaps? Do you have a toolkit to enable your business vendor managers to lead a continuous improvement program across all of your largest suppliers? How are you measuring these efforts?

These skills are neither intuitive nor easily picked up by all, at least not initially. A coach might be a good bet to support the team on this journey and come back from time to time to assess growth, and to define next steps.?

The ROI from baseline should always drive decisions and changes as it is easy for the team to start churning data because of old practices or because legal said so etc. Challenge the system. Break old habits. Kill practices that seem slow or cumbersome and force a new way of thinking, both within your team and the suppliers you deal with. If you don’t have this resource within your team, rent one or get one to move the effort forward and develop a complementary mindset shift for your broader team.

Case Studies and Success Stories

So what is the payoff for such a significant undertaking? Hard to say. Your own deal structures are unique to your firm, as are your processes and people that manage them. But what McKinsey’s earlier cited study talked about was that less than 30% of firms are investing in this area. This is surprising when firms report yield 30% to 50% cost savings on a project basis and 9% to 12%?or more impact on firm revenues year over year from even basic capabilities after investing in contract operations.

So if you need some inspiration, I’ve assembled some small case study reports that you can start applying to your own assessment of how large this opportunity could be for you.? First assemble some broad KPI facts about your current contracted operations landscape.

• How long does it take you to do a contract from written request to PO?
• Do your contracts take what feels like a lot of time to manage but you can’t tell if things are getting better?
• Are you able to change a contract to meet business changes? If so how long does it take?
• Has the market for resources changed for your solutions recently?? How well did your relationships fair?
• Are you getting the best people or do you feel the A team was switched out long ago?
• Do you rely on your suppliers as key business partners and solution co-developers or are you constantly at odds over pricing and constraints?
• What are some of the timeframes associated with getting up to speed on a contract you have not seen close up in a year?
• Can all of the pieces of your top 10 relationships be pulled easily pulled together to make dicisions. Elements like performance, supplier health and key data points on personnel and spend etc. Does it take minutes? Or does it take days. Weeks?? Black hole?

?

Now compare your answers to these anecdotes from firms choosing to do this an entirely different way, focusing on contract data to drive Contract Operations.

Here is a list of 30 cast studies focusing on automation that are a fair reflection of Contract Management solutions impact on the activity of contract operations generally.?

You will find intransigent high-cost processes being reduced to mere minutes. Recurring high costs reversing to predictable levels and fractions of what was before consuming significant capital. Supplier relationships that were once a mystery, consuming endless leadership bandwidth with no common understanding that are now, much more transparent and utilized to solve business problems.

This is another list of 16 case studies specific to contract management solutions that were captured by Contractbook. Any 3rd party suppliers you are talking to should be able to share this kind of content upon asking, but know that they are reflecting a specific type of use case and set of pain points that their solution is designed to solve.

The takeaway? Have your story documented well as the drivers of your business case. Stay with the most flexible solutions early in your journey. Then, choose where you want, no, where you NEED to have operations transformation, then choose an experienced leader to take you forward.

If you need to chat about how to lead such a project, give me a call.? I’d be happy to help. Or keep reading, Our Newsletter will be diving deep into this area and get really granular this year about how to move forward.

In Conclusion

Recent technology has only now made managing relationships across disparate data sets possible. At the same time, complexity in multi-year relationships, especially in the complex world of IT, demands an agile, data insight-driven approach to managing complex supply and revenue-generating relationships.

Older models focusing on Excel jockeys and PPT are a fair starting point. But to impact your firm's capability, you are going to need small integratable (my spell checks says not a word but I’m keeping it!), changeable engines of data across an evolving set of domains that are designed for speed and elegance to drive effective decision making.

You also need a measurement and ROI-driven culture to chart your path forward.? Some solutions you are not ready for and others were not made for you but the sellers may not tell you that. But the good news is that low-complexity and low-cost tools are getting powerful and ready for most small firms for the first time.

There has never a better playground for today's newest automation tools to add competitive firm value and agility. So go for it in 2024!

?