Transforming the contracting process requires a change in mindset: focusing more on enabling the business

Earlier this summer, EY virtually hosted a unique set of panelists at the EY Enterprise Contracting Round Table for the Life Sciences sector. This international panel comprised leaders from some of the world’s foremost pharma companies, representing a variety of stakeholders in the enterprise contracting process (legal, procurement and technology). The discussion was framed by key insights from the 2021 Global EY Law Survey in association with Harvard Law School, which conducted interviews with more than 2,000 general counsel and leaders from procurement, commercial contracting and business development located in 22 countries, and covered a wide range of topics including legal operations and corporate governance as well as a specific part of the survey dedicated to contracting. The panel addressed the question of how companies can successfully navigate the challenges of contracting transformation. What motivates companies to pursue transformation, what should be their goals in the process, and how can they best achieve them?

The panelists concurred that driving revenue growth and supporting business operations are the priorities behind their efforts in contracting transformation. Companies have significant incentives in this area, with slow turnarounds, excessive approval processes and other challenges such as restrictive one-sided contracts posing a threat to revenue generation, as well as potentially impacting negatively on an organization’s reputation and employee morale. “Innovation is the lifeblood of our companies and our patients,” noted one participant, who worries about missing innovation opportunities through needlessly complex contract templates, which can deter small companies from engaging.

Slow‐moving processes were one of the key challenges that participants discussed. “Speed is important when you talk to people internally; speed is what they focus on, an efficient process is critical,” observed one participant. However, constructing a contract in some cases takes weeks or months, rather than days. With a proliferation of local contract templates and rules causing confusion and reducing efficiency, according to one participant, the legal function needs to ask itself, “Are we really helping the business to grow — or getting in their way?”

One approach to accelerate these processes may be segmenting contracts according to their level of risk, value, complexity and/or some other measures determined by the organization. Lower complexity, lower value and/or lower risk contracts need not be owned by the legal department. As one participant put it, “Differentiation is key; 20 years ago, we had exactly the same legal support for every contract; now we need to focus on where legal is really adding value.” Legal engagement with these relatively standard contracts may be causing unnecessary bottlenecks; as another participant framed it, companies need to “make sure we get the right review, but not over‐review it.”

Changing technologies and changing mindsets

Digital technologies can potentially help with some of these challenges, offering the potential to capture data that can reveal process bottlenecks and suggest what can be improved. One participant suggested that “making tools more user-friendly [is] where tech is going. If you pick up an iPhone you immediately know what to do, but lawyers aren’t great at thinking about that user-friendly perspective.” Some self‐service tools exist within companies, but perhaps the role of technology can be imagined more ambitiously, with one participant envisaging the future use of APIs (application interfaces) to “provide a seamless interface across multiple technologies to support the end‐to‐end process.”

However, while technology is a vital pillar of transformation, one participant emphasized that the focus is not on technology per se, but its role as “an enabler to everything else”; specifically, the opportunity it offers to provide the business with a better customer experience. In general, participants agreed that the most important transformation needed is a transformation in philosophy and outlook. As one participant described it, “The biggest thing we can do is shift mindset.” Rather than solely looking through the legal lens, the legal function needs to focus on the wider needs of the organization. Participants summarized this in the idea of the legal function being fit for purpose, taking an enterprise‐wide view and understanding where it can (and where it cannot) add value: “The legal function should focus on making pharma’s core business functions of R&D, manufacturing, distribution and sales & marketing more effective. If it doesn’t do that, the transformation has failed.”

While participants suggested that the legal function should prioritize providing the right information to the right people at the right time, improving internal communications is a two‐way process. At present, as one participant described it, legal departments “are flying blind; they don’t get feedback on how their templates are being used on the front-line.” Organizations should look to capture feedback, which could also be used to help contract algorithms evolve to meet the demands of the marketplace.

This evolution will be an open‐ended process. Participants agreed that the concept of continuous improvement is more important than any single specific end‐goal. This continuous improvement concept goes beyond the legal function as narrowly defined and reaches out to the broader business and its processes. As one participant said, “We need a holistic view, a combination of talent, resource, and technology linked to a wider stakeholder engagement. We see from this conversation it’s highly possible but right now everybody is operating from different levels of maturity.”

This greater level of linkage and collaboration may ultimately cut across company boundaries. As one participant noted, patients would benefit greatly if those designing and operating the contracting process could "work across companies in order to expedite the journey we’re all on to provide medicines," much as financial services institutions collaborate together. A single universal confidential disclosure agreement (CDA) for example, could hugely accelerate processes.

This EY round table offered a valuable forum to begin having these conversations about how to understand transformation and how to collaborate within and between companies, to achieve that goal. As one participant said, “The EY panel was a breath of fresh air. It was so refreshing speaking with people with the same perspective — normally I'm on my own in my organization trying to sell this.” We hope that by facilitating future conversations like this, EY can continue to support companies on their transformation journeys in enterprise contracting and beyond. To that end, we will hold a second round table in November 2021 to explore this topic further … stay tuned!

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The views reflected in this article are my own and do not necessarily reflect the views of the global EY organization or its member firms.