relational contracting: the promise and the pitfalls
TRANSCRIPT
Relational Contracting: The Promise and the Pitfalls IACCM and Revitas, April 21, 2015
Today’s Presenters
Tim Cummins Chief Executive Officer IACCM
Matt Patel Product Manager, Contract Lifecycle Management Revitas
The Environment and Today’s Organization
Traditional approaches to supplier selection, negotiation and contract management are not able to deal with today's dynamic, performance-based business environment. Integrating 'the contract' with 'the relationship' is one important step for improved results.
- Too reactive to change
- Too focused on ‘rules’
- Too adversarial
Contracts are increasingly a framework for business operations
The Environment and Today’s Organization
Drivers for Change
• Customers demanding greater commitment to outputs and outcomes; growing focus on ‘value
• Growing concerns about sustainability and compliance
• Increased uncertainty, volatility – leading to more frequent renegotiation and amendment
Contracts need improved approaches to ‘obligation management’ Focus on governance and performance management Requires embedding ‘relationship management’ into contract
• Shared objectives
• Communications
• Performance management
• Joint working
• Improvement / innovation
• Problem solving
Growing Integration Between Contract Parties
Results of the Relational Approach
Early results suggest contract failure rates cut by 50%
Common law countries especially impacted
Results of the Relational Approach
Partly influenced by Civil law jurisdictions (intent vs strict interpretation) Recent judgments emphasize increased role of ‘good faith’ Practitioners indicate greater levels of success when using relational approach Changes focus of negotiations, alters approach to post-award management
The challenges (intense information exchange, high monitoring costs, need to define clear roles and responsibilities, shared control)
The benefits (more mature long-term relationship, greater focus on goals, alignment of interests, more intense dialogue, creativity)
Results of the Relational Approach
Typically, outcome-based contracts allow us to…
1 2 3 4 5 6 7
better grasp the expected goals.
align project partner interests with our own interests.
avoid costs.
adequately distribute risks among the project partners.
be more flexible in choosing our inputs.
come up with creative solutions when conditions change.
concentrate on the task instead of monitoring our project partners' behaviour.
develop a more mature long-term relationship with the project partner.
reduce both impact and likelihood of risk to acceptable levels.
"blame" the project partner for any problems that occur.
engage in a more intense dialogue
Selling Side
Buying Side
N=116/128
Results of the Relational Approach
Factors that determine when to use relational approach
Business significance
Time (duration
of contract)
Extent of uncertainty
In Summary
Sources of uncertainty
In Summary
Unclear objective, uncertain capabilities, unpredictable conditions
Clarity can only be achieved during execution
Objectives likely to change
Shifts in strategy, new technology, market pressures, funding
Potential for interference
Regulation, geopolitics, M&A
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Contact: www.iaccm.com [email protected] +1 (203) 431 8741 Americas / Worldwide +44 1202 553657 Europe / Middle East / Africa
Capture Automate Analyze
Invest for Success
• Capture, store and produce all the artifacts of the negotiation
– Content: spreadsheets, documents, images, diagrams, calendars, etc.
– Data: agreement data such as customer data, product data, pricing data
“Success typically requires a level of investment in appropriate skills, processes and supporting tools or systems*”
*Source: IACCM Outcomes Based Study Report, 2015
Analyze
Automate Capture
Invest for Success
• Automate the end to end lifecycle – from provision of appropriate content, to workflows, to obligation management, to expiry or renewal
“Success typically requires a level of investment in appropriate skills, processes and supporting tools or systems*”
*Source: IACCM Outcomes Based Study Report, 2015
Capture Automate
Analyze
Invest for Success
• Access and analyze all content and data that is captured, to provide a fact basis for determining output, performance and contract compliance
“Success typically requires a level of investment in appropriate skills, processes and supporting tools or systems*”
*Source: IACCM Outcomes Based Study Report, 2015
Evolving Perspective
“The big change is…a shift to defined outputs, rather than inputs *”
*Source: IACCM Outcomes Based Study Report, 2015
Defining Outcomes and KPIs
Milestone Management
• Use data from production applications as objective ‘source of record’ for contract outcomes & KPIs – such as CRM and ERP data
• Automate management of milestones and performance obligations
• Capture proof of performance in audit logs
• When integrated with application data ‘sources of record,’ CLM systems can provide a lens into contract effectiveness
• Leverage analytics to assess contract performance, make decisions
– Which clauses are most often changed?
– Are my contracts driving the desired outcomes?
– What are the commonalities among ‘high-performing’ contracts?
Analyzing Contract Effectiveness
*Source: IACCM Outcomes Based Study Report, 2015
“Another critical area is the quality of the data
and how this can be verified*”
Managing Contract Relationships
Use Visual Relationships to depict hierarchies across related contracts
Master Services
Agreement
Statement
of Work
Change
Order
• Manage multi-level relationship hierarchies
• Support Master/Sub agreements, RFx-to-Contract, and other complex relationship types
Managing Global and Multiparty Agreements
Leverage multi-divisional, multi-language and multicurrency capabilities to:
• Deploy local contract templates, business terms, workflows, security, language and currency for each geo or business unit
• Support complex teaming agreements with prime and subcontractors
• Maintain corporate visibility and control, from a single, global CLM solution
End to End Contract Lifecycle Management
Achieve maximum value and optimize your contracting lifecycle
ANALYZE MODEL EXPLORE VISUALIZE REPORT
ANALYTICS
PARTNERS PROGRAMS PRODUCTS WORKFLOW SECURITY INTEGRATION MDM
REQUEST AUTHOR NEGOTIATE APPROVE
MANAGE EVALUATE RENEW VALIDATE
PRE-SIGNATURE
POST-EXECUTION CRM/CPQ ERP
• Risked losing deals because of slower response to RFPs
• Homegrown system not scalable to meet business needs
• Unable to meet internal and external audit requirements
• Lacked effective obligation and milestone management and reporting
Manufacturer of precision aviation equipment speeds RFP response times, increases contract compliance and improves auditability
Revitas Contract Lifecycle Management
• Automated parsing of RFP clauses
• Automated workflows
• Performance obligation and milestone management
• Reporting and analytics
• Accelerated RFP responses and improved win rates
• Automated and streamlined critical contract workflows
• Improved management of complex contract relationships and hierarchies using ‘visual relationships’ functionality
• Provide positive proof of compliance for audits, by leveraging robust reporting and analytics capabilities
• Reduced redundancy in data entry
Problem Solution Result
Revitas in Action
Why Revitas for Contract Lifecycle Management?
• For contract-intensive organizations, only Revitas helps to
– Achieve maximum value
– Optimize contract lifecycle processes
– Enable global contracting
– Provide actionable intelligence
• Because only Revitas delivers
– Enterprise-class solutions that tailor contract management to suit the needs of the business
– A secured cloud platform that seamlessly scales to manage the industry’s highest volumes of contracts, users and trading partners, and that integrates with any CRM or ERP system
– 25+ years experience managing complex contracting in industries such as high tech, manufacturing, consumer goods, pharmaceuticals and government contracting
