enterprise contract management - an overview

Enterprise Contract Management - An Overview

Enterprise Contract Management An Overview

An Executive White Paper August 2005 Anuj Saxena, Director, ECM Solutions, Alti, Inc. C.P.M., PMP, CPIM, MCCM Alti, Inc. 2500 CityWest Blvd, Suite 300 Houston, TX 77042 Phone : 832-285-1376 (off) : 832-483-4432 (cell) Email : [email protected] Web : http://www.alti.com

: http://www.altiamerica.com

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Enterprise Contract Management - An Overview Table of Contents Executive Summary .............................................................................................................................................. 1

1. Introduction..................................................................................................................................................... 2

2. Contracts ......................................................................................................................................................... 2

2.1. Definition of Contracts ...................................................................................................................... 2

2.2. Evolution of Contracts ....................................................................................................................... 2

3. Contract Lifecycle Management.......................................................................................................................... 3

3.1. Contract Lifecycle ............................................................................................................................. 3

3.2. Current State of Contract Lifecycle Management ..................................................................................4

3.2.1. Disjointed, Decentralized, and Labor-Intensive Processes ....................................................4

3.2.2. Poor Contract Visibility .....................................................................................................4

3.2.3. Ineffective Contract Compliance Monitoring & Management ................................................4

3.3. Impact of Poor Contract Lifecycle Management....................................................................................4

3.4. Challenges Facing Today’s Contract Managers ..................................................................................... 5

3.5. Limitations of Current Contract Lifecycle Management Systems ............................................................6

4. Enterprise Contract Management.......................................................................................................................6

4.1. What is Enterprise Contract Management? ..........................................................................................8

4.2. The “Buzz” About ECM ......................................................................................................................8

4.3. Key Components of ECM ...................................................................................................................8

4.4. Benefits of ECM ............................................................................................................................. 10

4.5. ECM Market Trends.........................................................................................................................11

5. Conclusion..................................................................................................................................................... 13

References ........................................................................................................................................................ 13

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Enterprise Contract Management - An Overview Executive Summary In today’s rapidly changing and increasingly competitive global economy, bottom-line results are the focus at every level in virtually all organizations. The two core elements involved in bottom line performance—increasing revenues and decreasing costs—are influenced to a great degree by how well an organization manages its relationships with its business partners. At the heart of every business relationship is one or more contracts, the documents which memorialize and “codify” the essential elements of business transactions. Since contracts define and underpin all commercial relationships, they not only provide a platform for profitable growth of an organization, but also determine the organization’s future competitiveness in an ever-changing business and geo-economic environment. A number of factors have led to a significant rise in the importance, volume, and complexity of modern contractual agreements. These factors include the advent of global supply chains, increasing economic uncertainties, geopolitical instability, outsourcing, procurement and sales force automation, and new regulatory requirements Yet, in spite of these recent profound changes in the business environment, many organizations still manage the contracting process in a fragmented, manual, and ad-hoc manner, resulting in poor visibility into contracts, ineffective monitoring and management of contract compliance, and inadequate analysis of contract performance. The net result of such inefficient contract management is significantly higher costs, numerous revenue delays, customer dissatisfaction, overcharges, erroneous payments, performance glitches, missed savings opportunities, regulatory violations, and increased risks. It is therefore not surprising that three recent studies conducted by Aberdeen Group found that “enterprises rated Contract Management among the top business application investments prioritized for the next 24 months.”1

The heightened interest in automation of Contract Management processes has put the spotlight on Contract Lifecycle Management (CLM)—often referred to as Enterprise Contract Management (ECM)—solutions. The goal of ECM is to automate and streamline all stages in a contract’s lifecycle, enforce consistent and efficient contracting processes, institute organizational controls, gain visibility into an organization’s risks and opportunities, and ensure compliance with regulatory and financial accountability requirements. Several research firms have provided estimates as to the prospective returns resulting from implementing an ECM solution. According to AMR Research, “ECM implementations take two to three months—and achieve a 150% to 200% payback within one year.”2 Aberdeen Group has recently reported that “the ROI for an organization with $750 million in annual revenue and $200 million in annual spend from an ECM implementation is more than 3X in the first year!” While the estimates will vary by organization and by industry, it is evident that research groups and organizations agree that implementation of an ECM solution, if done correctly, can help reduce costs, maximize revenues and minimize risks for any organization. This white paper offers an overview of traditional CLM processes, a concise overview of contemporary ECM solutions, a discussion of the benefits of ECM solutions for today’s enterprise environment, and a glimpse into the future of ECM solutions in the evolving global economy.

1 “The Contract Management Solution Selection Report”, Aberdeen Group, June 2005 2 “The Compelling ROI of Contract Management”, AMR Research, February 2003

All print and electronic rights are the property of Alti, Inc. © 2005 Alti, Inc. • 1

Enterprise Contract Management - An Overview 1. Introduction Contracts are the life-blood of any organization, and in particular of the modern organization—contracts form the virtual and documentable “fabric” that binds people, customers, suppliers, and organizations into coherent working relationships whereby goods and services may be exchanged in a mutually agreeable framework. In a recent study by the Institute for Supply Management, it was determined that, “between 60% and 80% of all business-to-business transactions are governed by a formal trade agreement, with the typical Fortune 1000 company maintaining 20,000 to 40,000 active contracts at any given time.”3 Yet most organizations lack the controls and processes to manage contracts effectively. Contract management in most organizations usually involves relying on manual, disjointed and decentralized processes which results in limited visibility into contracts and their performance, missed revenue opportunities, inflated costs, diminished negotiation leverage, and poor compliance with regulations. Thus an increasing number of organizations are recognizing the importance of employing procedures and systems to holistically manage the contract lifecycle at an enterprise level. Before embarking on a discussion of how to holistically manage the contract lifecycle at an enterprise level, it will be useful to define the core element of the contract lifecycle—the “Contract” and to understand its history.

2. Contracts 2.1 Definition of Contracts Gartner Research defines Contract as “the sum of all transactions and interactions that have taken place between the parties, both before and after the award of the contract.”4 For purposes of this discussion, a contract can be considered to be a set of documents, governed and restricted by law, that clearly establish the boundaries and extent of the executing parties’ relationship, along with the rights and responsibilities, of the entities involved. For example, sales agreements, service agreements, partnership agreements, commission agreements, purchasing agreements, intellectual property agreements, warranties, loans, mortgages, leases, licenses, insurance policies, projects, etc are all different types of contracts. 2.2 Evolution of Contracts As society and commerce have developed, and as the needs of people and institutions have become increasingly more complex, contracts have developed to reflect and codify these transactions. Even during the past decade, contracts have undergone substantial transformations, in large part because of the ubiquitous use of computers, the internet, and the globalization of our economy. Add to this the increasing complexity of supply chains, outsourcing, deregulations, and ever-increasing numbers and types of competitors, and it is no wonder that the contractual agreements written a decade ago seem like simple documents compared to our current system of agreements and contracts. As if the revolution in contract structure was not enough, the very role of the Contract is changing in today’s world. A document which was primarily designed to protect parties against “worst-case scenarios” has evolved into a dynamic tool for optimizing long-term business and personal relationships.

3 Institute for Supply Management 4 “Six Keys to Better Procurement Contract Management”, Gartner Research, October 2003




3. Contract Lifecycle Management Like many organizations and documents, Contracts are “living entities”, with a birth, a maturation period, and in most cases a termination. The following sections describe the Contract lifecycle and the current state of Contract Lifecycle Management (CLM) processes. 3.1 Contract Lifecycle

Figure 1: The Contract Lifecycle The figure 1 shows a typical contract lifecycle. It comprises of the following basic stages:

• Contract Creation, including authoring the contract using standard clause templates and contract templates. • Contract Collaboration, including collaboration with legal, risk management, tax, audit, insurance, and

other groups internal to an organization, negotiations and collaborations with suppliers, customers or other business partners, document redlining and markup.

• Contract Execution, including specifying contract effective start and end dates, capturing signatures from all parties involved, and establishing a central repository of all contract information.

• Contract Administration, including proactive tracking and auditing of contract terms, pricing, rebates, service level compliance, amendments, and performance.

• Contract Analysis, including enforcing spending against budgets, balancing orders between preferred suppliers to optimize usage and returns, assigning resources for the optimal management of the most


profitable products and customers. Also term analysis of contract performance and attributes to determine future sales, budgeting, sourcing, supplier management, and risk strategies.5

3.2 Current State of Contract Lifecycle Management 3.2.1 Disjointed, Decentralized, and Labor-Intensive Processes In today’s rapidly evolving business world, the sheer volume, diversity and complexity of an organization’s contracts offer a daunting challenge to managers. Oftentimes, procedures for monitoring, updating and managing contracts are fragmented, lacking much-needed continuity. The process of contract management itself is highly labor intensive, requiring frequent drafting, review, negotiation and approval, processes that are fraught with the constant risk of data entry errors and miscommunications. It is no wonder that the typical “lifecycle” of some contracts is prohibitively longer than can be reasonably tolerated by many managers, a problem made more complex by the ever-increasing number of “stakeholders” in the contracting process, each with a vested interest in the efficient execution of the contractual relationships in question. 3.2.2 Poor Contract Visibility Compounding the problem of today’s contract lifecycle management is the fact that contractual documents must often be “visible” across an enterprise—up, down and throughout the organization, with different levels of categorization, security and clearance. In the business cycle—from legal and compliance, to operations and procurement—contracts are the guidelines by which essential corporate activities are initiated, managed, and monitored. Historically, the issue of “visibility” was simple: Contracts were held in a central repository, usually in hard copy or microfiche. “Viewing” of a contract involved the physical act of going to the repository, using relatively primitive “search” techniques, and making needed notation for future use. While this is still the modus operandi for many organizations today, some organizations have progressed to a stage where this is no longer the case for most contracts—there is no longer a “central repository” in a physical sense, but instead a “virtual” set of files and archives, which can be accessed (either legitimately or otherwise) from both within and outside the organization. Clearly, the issue of contract visibility is a paradoxical one, requiring constant management and monitoring of access and protection while insuring accuracy of data and retention of file integrity. At one and the same time, an enterprise’s contracts must be “locked down” while being subject to revision and modification. 3.2.3 Ineffective Contract Compliance Monitoring & Management Compliance with contractual terms and conditions lies at the heart of the benefits an organization derives from a contractual relationship. Rarely would the “other party” to a contract be expected to “over-comply” with (for example) payment terms, benchmarks, etc. The very fact that there is an inherent tendency for the other party to fail to comply speaks to the absolute necessity for compliance monitoring systems to be in place and efficiently managed. Unfortunately, in many companies, such systems are not in place, leading to what might be best referred to as “Rear-view mirror” reporting and compliance review. Such “after-the-fact” measures—often little more than rote procedures and excessive reliance upon spreadsheets—can often lead to weaker enforcement of contract terms and conditions, and insufficient mandates regarding ongoing or future compliance. 3.3 Impact of Poor Contract Lifecycle Management The “short story” about inefficient contract lifecycle management is that 1). It costs money, and 2). It increases risk. The three major consequences of poor contract management are in the areas of increased operational costs, reduced revenues, and complications associated with audits. 5 “Contract Optimization: A Recession-Proof Strategy for Maximizing Performance and Minimizing Risks”, Aberdeen Group, May 2003


Enterprise Contract Management - An Overview Researchers at Aberdeen Group estimate that a $1 billion organization with annual purchases totaling $500 million, of which $400 million is under contract, loses $18 million every year due to lack of proper supplier contract management. A company with sub-optimal contract processes will spend additional time, effort, and expense in manually managing their supplier contracts, costing another $12 million annually.6

Bottom Line: “If you are not in control of your contracts, you are

not in control of your business” Understandably, the problems associated with access and maintenance of an organization’s contracts can have a direct impact upon the quality of the contractual relationship—leading to execution of sub-optimal contracts. Such contracts represent less than the best interests of the organization, and arise not so much because of poor negotiating ability on the part of the organization’s representatives, but primarily because of inefficiencies in the contract management system and the underlying business processes. Sub-optimal contracts can also arise due to:

• Inadvertent deferral to less favorable terms (due to inefficient monitoring of stop-loss provisions, provision dates, etc.)

• Inefficient monitoring of compliance (due in part to lack of adequate “visibility”), and • Failure to ensure adequate standards of performance and goal benchmarks

Examples of the negative consequences of inefficient contract management include the following (with ranges and data from recent industry studies):

• “Maverick” (unsupervised) spending by buyers. Some studies estimate that this activity occurs in 17% - 27% of purchases.

• Overcharging by suppliers (deliberate or inadvertent). In some studies, 10% of transactions involved price discrepancies.

• Unwanted/Unnecessary automatic renewal of products and services. Studies indicate that 10% of contracts renew automatically.

• Inability to verify if payments and deliverables are accurate and timely. • Inability to analyze “actual” against “planned” or “contracted” spending. • Inability to track Accounts Payable. This includes inability to enforce discounts and dealing with time

consuming and complex rebate calculations. • Inability to monitory effectiveness of contract management in terms of cycle time and contract “quality”

(e.g., deliverables against plan, profitability, competitiveness). • Lack of insight into supplier performance vis-à-vis contractual obligations. • Inability to enforce supplier contract performance, or to enforce consequences for policy and regulatory

violations. • Significant losses in time and resources due to inefficient contract authoring, editing, negotiating, and

monitoring. 3.4 Challenges Facing Today’s Contract Managers The challenges facing today’s corporate contract managers are myriad and far-reaching. They span a spectrum of needs and resource demands that can no longer be addressed with yesterday’s technologies. A contract manager must create a system that answers the following questions:

• Is the organization’s contract repository state-of-the art and secure? • Does the repository permit adequate levels of visibility, security and communication?

6 “Contract Management is the Next Step in Smart Supply Strategy”, Purchasing Magazine, July 2004



• Does the “search engine” enable efficient retrieval of core data (e.g., terms, pricing, dates)? • Can data from disparate contracts be accessed, extracted, and integrated for multi-contract analysis? • Are automated systems in place to track and validate compliance with payments, terms and conditions? • Are notification systems in place to ensure that my organization is in compliance with the contract(s), and

that it is meeting its obligations, review/report dates, renewals, price review dates, and termination opportunities?

• Is adequate data routinely made available to organization management to ensure internal compliance with contract terms and conditions, including enforcement measures and Service Level Agreement (“SLA”) compliance?

• What is the cost of the relationship with a particular supplier—that is, the sum of all the resources spent on all of the contracts with that supplier in a given period?

In addition, such a system should permit the manager to substantiate and state clearly:

• What routine reports are in place to provide individual and consolidated contract performance monitoring? • How do I, as a Contract Manger, ensure that I am aware of new developments and technologies that might

further improve my organization’s contract management system? 3.5 Limitations of Current Contract Lifecycle Management Systems So far, this paper has sought to make a compelling case for the negative consequences of inefficient CLM. To better understand the root cause of inefficient CLM, it is important to grasp the limitations of current CLM procedures and systems. While some organizations do use a rudimentary home-grown IT system for accomplishing some tasks in the entire contract lifecycle, the reality for most organizations is that this area has not been the focus of IT applications. Thus the primary limitations of current CLM procedures and systems are:

• Lack of visibility into contracts: The vast majority of organizations—80% by some estimates—report having difficulties even locating their contracts, much less enabling ready visibility and access

• Lack of support during all stages of the contract lifecycle: In most organizations, the contract

management process is broken. Much of the interaction regarding contract evolution is conducted manually, with multiple parties involved in the process. The net result is a breakdown in the coordination, negotiation, creation, handling and execution of contracts. During these processes, multiple conflicting versions often are created and circulated for approval. Finally, when contracts are executed, most organizations file them away as “hard copy” in one or more physical file repositories. The end result of this antiquated process is a system of manually transmitted, fragmented, and error-prone stages in what might otherwise be an efficient contract management operation. Companies planning on moving away from this ineffective model would benefit from automating their contract management processes and integrating functions across various departments—such as Legal, Sales and Customer Service—and similar levels within the enterprise that interact with customers and other business partners in different ways.

• Lack of centralized contract management controls: This perpetuates disjointed business processes,

leading to “swivel-chair” attempts at integration, lacking continuity and control.

• Lack of multi-business unit functionality: It is not uncommon to have multiple ERP solutions or multiple instances of an ERP across a given enterprise. Contracts must be centralized within and across the enterprise, regardless of the technical landscape, to fully achieve success.



• Lack of capabilities to monitor contract compliance and performance: Compliance challenges arise due to lack of visibility into contract terms, infrequency of compliance monitoring, and inability to gather and analyze transactional data from different systems such as the ERP, SRM, and CRM applications.

• Lack of capabilities to ensure and enforce compliance with local, national, and global regulations

• Lack of reporting capabilities

Recognizing the importance of contracts, and being disappointed by the capabilities of current CLM systems, organizations are increasingly adopting a new breed of software solutions—commonly referred to as Enterprise Contract Management (ECM) solutions. These solutions aim to automate the entire contract lifecycle and offer the following capabilities:

• Content and document management capabilities, including access control, workflow, change management, audit trail, and version management.

• Collaborative contract development capabilities that provide support for contract development process and

workflow.

• Contract configuration capabilities, including clause template library, wizard functionality to automatically create contract framework based on a user’s responses to a set of questions related to the contract.

• Resource planning capabilities, including capability to plan, schedule, and control all tasks associated to a

contract, capability to track actual time and cost incurred in managing a contract.

• Capability to reconcile terms and conditions, including capability to negotiate online or via email with trading partners.

• Performance and compliance management capabilities, including capability to monitor and report on

performance of contracting partner against the contract, track compliance against terms negotiated as part of the contract.

• Comprehensive integration capabilities, including integration to transactional systems such as ERP, SRM,

CRM, BW, Document Management etc on an enterprise-wide basis. The next section provides a further detailed description of ECM solutions—their key components, benefits, and ECM market trends.



4. Enterprise Contract Management 4.1 What is Enterprise Contract Management? Many industry and research experts use the terms Contract Lifecycle Management and Enterprise Contract Management interchangeably. For the purposes of this paper, ECM may be defined as enterprise-wide software plus professional services that together give an organization the best practices and technology to effectively and efficiently manage its worldwide contractual agreements. 4.2 The “Buzz” About ECM Today’s business environment is one of constant change and risk. Gone are the halcyon eras of clear-cut dominance, cost-is-no-object, and straight-line economics. We now face an instantaneous global challenge on a daily basis, where paradigm shifts and “the edge of the envelope” are the norm. Cost efficiency is no longer a luxury—it lies at the very heart of survival in today’s business “jungle”. It is not surprising, given the critical role contracts play in a business’s success, that ECM should be thrust into the forefront of many senior managers’ agendas, and be brought under increasing scrutiny at all levels. Managers, Directors and Shareholders want to know:

• How many active contracts do we have? Where is the final signed copy of the contracts located? • Which contracts are about to expire? Which contracts need to be reviewed for renewal/termination and

when? • How much of our spending is “off-contracts”? How much money could we save by decreasing our “off-

contract” spending? • How are the suppliers performing against our contracts? Are suppliers over-charging my organization? • Are we capturing all revenue against our sales contracts accurately? Are we capturing all rebates and

discounts in our supply contracts accurately? • Can costs be further reduced to increase revenues without placing my organization at undue risk? • Is there an opportunity to consolidate my organization’s contracts across jurisdictions, geographies, and

languages? • Is my organization maximizing the foreign currency exchange implications of its global business? • What is the impact of the current economic environment upon my organization’s contractual obligations? • What effect will events such as 9/11, the War in Iraq, and China have upon my organization’s ability to

meets its contractual obligations and remain competitive? • What financial and operating risks is my organization accepting due to its contracts? • How is my organization managing its contracts in the increasingly regulatory environment dictated by

Sarbanes Oxley, or industry specific regulations such as HIPAA, Gramm-Leach-Bliley Act, and Code of Federal Regulations 21 Part 11 etc? Is my organization in compliance with all applicable local/national/global regulations?

• Will my organization survive a rigorous audit vis-à-vis its contract management program? • What would need to occur if our contracting business partners undergo a merger, are sold, or are

consolidated? What is the level of exposure to risk of my organization in such situations? 4.3 Key Components of ECM Up to this point in our paper, we have attempted to make a case that contract lifecycle management is at the core of an organization’s long-term success and profitability, and that the tools by which contracts are managed have evolved less rapidly than today’s contracts themselves. We have identified the limitations with “yesterday’s”


Enterprise Contract Management - An Overview approach to contract management, and we have alluded to the rise in popularity and use of “ECM”—we have even given it a definition and a series of valuable functions. This brings us to a very important question:

What are the key components of an effective ECM application? This question really seeks to identify the “tools in the ECM toolbox”—to describe the component “working parts” and their specific functions and inter-relationships. By way of introduction, an effective ECM application must contain the following components:

• Pre-Contract Activities o Efficient system for requesting “pre-contract” information, bids, proposals, contact information,

etc. o System for merging of e-sourcing tools with conventional contract management tools.

• Contract Creation

o Templates which meet pre-defined legal, strategic and compliance criteria at the clause level. o Custom templates for authoring specific contract types. o Rules to produce contractual framework (e.g., Assisted Contract Authoring functionality). o Capability to amend and tailor contracts. o Capability to use vendor paper and legacy contracts.

• Contract Collaboration

o Multi-party participation in contract review and refinement—online, email, fax, etc. o Efficient editing components—grammar/spelling, terminology, syntax, definitions. o Internal reconciliation cross-check for terms and conditions, conflicts, etc. o Rules of approval and monitoring o Failsafe Authorization and Execution system with cross-checks

• Performance and Compliance Management

o Clause templates and contract templates enable regulatory compliance which is achieved by adhering to direct requirements set forth by the local, state, Federal, or global regulatory bodies.

o Event management and automated user notifications and alerts enable contractual compliance which is achieved by adhering to all deliverables, terms, conditions, commitments, and timing as defined in the contract.

o Standard business processes implemented using an ECM solution enable procedural or operational compliance which is achieved by adhering to established processes, rules, and business best practices as defined by an organization, such as price or discount approvals

• Content and Document Management

o Secure system for content and document access, workflow monitoring, dynamic management of change in resource allocation, reliable audit trail

o System for managing drafts, versions and revisions, including tracking “redline” and logging versions for later review and revision

o Content and subject search capability o Document relational database manager and linking capability

• Event Management & User Notifications

o Auto-calendar for pre-determined events (renewals, reports, reviews, etc.) o Calendar and notification system for unplanned events (compliance “trigger”, audit, etc.)



• Business Intelligence/Reporting

o Highly-secure executive “dashboard”, status reports, forecasts, metrics, queries, and ad-hoc reports.

o System for distributing business intelligence to appropriate levels of management and tracking access.

• Integration with a variety of applications, such as:

o e-Sourcing, Enterprise Spend Management, or Supplier Relationship Management (SRM) applications

o Customer Relationship Management (CRM) o Enterprise Resource Planning (ERP) o Data Warehouse system o Legacy applications o Document Management o Asset Management o Intranet/Employee Portals o Supplier/Customer Portals o EAI tools o Single Sign-On applications

With the above components of a fully-installed ECM Application—and with proper training—an organization is well on its way to optimizing the value of its contractual relationships for the long term. 4.4 Benefits of ECM According to Andy Kyte, Vice President of Research at Gartner Research, “Getting better control over contract production and management is becoming an imperative in large enterprises. Our research shows that early adopters are getting real benefits in three key areas. First, they are seeing real bottom-line savings through better compliance with contract prices. Second, they are seeing improvements in productivity and quality in the procurement and sales administration teams. Finally, the management teams feel much more in control of their business through controlled workflow and access rules on contract approval.” Based on a recent comprehensive research, the Aberdeen Group has quantified the positive impact that contract management automation can have on revenues, costs, compliance, and operations. These are shown in Table 1 on next page. The benefits of a state-of-the-art automated ECM System to an organization are numerous, ranging from increasing revenues, to decreasing costs and reducing risks. Moreover, an organization with a well-tuned and high-performance ECM System will be highly competitive in both pre-negotiation and post execution contractual dealings with other parties. According to AMR Research, “Automating purchasing contracts delivers significant ROI… Companies are implementing targeted projects in two to three months that deliver a 150% to 200% payback within a year.”7

7 “The Compelling ROI of Contract Management”, AMR Research, Feb 2003



Table 1: Benefits of Contract Management Automation8

Improvement Area Performance Impact

Compliance Management Improve compliance by 55%

Rebate/Discount Management Improve 25% - 30%

Material/Service Costs Reduce 2% - 7%

Contract Renewal Rates Improve 25%

Revenues Improve 1% - 2%

Evergreen Contracts Eliminate auto-renewal terms

Contracting Cycles Cut contracting cycles in half

Procedures and Terms Standardize processes and terms to mitigate risks, ensure proper approvals, enforce policies

Documentation and Reporting Cut reporting cycles from days to minutes

Contract Analysis Analyze and maximize performance

Administrative Costs Reduce 25% - 30%

Through effective implementation of an ECM System, an organization’s management can be well-positioned to negotiate the best terms of a contract, and can be confident that all services or products sold will be invoiced and collected in a timely manner, including penalties and charges for delinquent payment. Overpayments can be virtually eliminated with an automated ECM system, and full advantage can be taken of global pricing and discount opportunities. Unnecessary renewals of contracts can be eliminated, duplicate purchases and reorders can be minimized, and penalties for non-compliance can be avoided. Since all contractual agreements involve risk, an essential benefit of an ECM system is to provide assurance to the organization that contractual terms are being complied with, and that the organization is not placing itself, or its employees, at undue risk of litigation or expense. Moreover, the organization can be assured that its compliance with governmental regulations and those of other oversight agencies is being managed with the highest possible level of care. The last, but not the least, area where ECM applications are of tangible benefit to an organization is in the area of operational efficiency and effectiveness. Improved visibility and access to contracts will increase the speed and accuracy of ongoing management, allowing for business processes to be implemented, and modified in concert with the execution of the contractual terms and conditions. The net effect of this visibility is to simplify and streamline the communications process among and between all parties involved, from monitoring supplier compliance to ensuring that SCM, SRM, ERP and other transactional systems are synchronized with current contractual information. Accounts payable verification of invoices in an accurate and timely manner will accelerate cash flow, reduce borrowing needs, and ensure full receipt before payments are issued. Operational access and control across regions, jurisdictions, and geo-economic borders will be enhanced, improving communications among stakeholders from internal staff and management to customers and suppliers. 4.5 ECM Market Trends Until about two-three years ago, ECM was little more than a document management process to automate the workflow associated with contract creation, collaboration, execution, administration, and analysis. However, recent issues of corporate scrutiny, accountability, and governance, driven by local, national, and global regulations and 8 “The Contract Management Solution Selection Report”, Aberdeen Group, June 2005


Enterprise Contract Management - An Overview general shareholder concerns have forced organizations to improve their skills and techniques in ECM. The document-centric approach to contract management has evolved to include the analysis of risk and the performance of contract execution. ECM is emerging as an organizational discipline and is enabled by a new generation of systems designed to meet such ends from vendors such as Action, Accruent, Ariba, A.T. Kearney, B2eMarkets, Blueridge, Comergent, Contiki, Covigna, Determine, diCarta, Diligent, Documentum, Ecteon, Emptoris, Frictionless, Global eProcure, Hummingbird, I-many, Interwoven, Ketera, Memba, Nextance, Oracle, Procuri, SAP, Upside, and WorkplaceIQ - among others. The key trends in ECM are:

• Demand for ECM solutions: Corporate interest and demand for ECM solutions is on the rise and will continue to be so for the next few years. The Aberdeen Group predicts ECM revenues to grow 27% in 2005, up from 23% in 2004. Also, considering macro-economic, regulatory, and application trends, it has been projected that contract revenues for this market sector will maintain year-over-year growth rates above 20% through 2008.

• Shift in ECM implementations by contract type: Most ECM implementations in the past were focused on

streamlining contracting processes on the buy-side. The success of these projects has generated interest in application of these solutions to streamline the lifecycle of other contract types such as sales contracts, intellectual property rights, etc. Therefore, more non-procurement driven ECM implementations are being initiated.

• Shift in ECM implementations by delivery method: In the past, most of the organizations chose to install

ECM solutions on premise. However, as more organizations realize the benefits of hosted delivery models (i.e. faster implementation, lower license fees, lower maintenance costs, flexible pricing models, higher security, and system performance), a greater percentage of future ECM implementations will be hosted solutions.

• ECM vendors versus ERP, SCM, SRM, CRM, and Content Management vendors:

o ECM vendors such as diCarta, Nextance, I-many, Upside, Determine etc. primarily focus on

ECM. As they continue to demonstrate success and profitability due to increased corporate interest and demand, they are attracting other software vendors—such as ERP, SCM, SRM/CRM, and Content Management vendors—to the ECM space. The ERP vendors (such as SAP and Oracle) and SCM vendors (such as i2) have traditionally lagged well behind in contract authoring and collaboration related functions, but they are in a good position to provide better functionality for compliance management as they usually own an organization’s transactional data. These vendors are trying to play catch-up with ECM vendors in terms of contract authoring and collaboration functionality. The SRM/CRM vendors (such as FreeMarkets, Frictionless, Procuri, Emptoris, B2eMarkets etc) are attempting to extend their eRFx authoring capabilities into contract management. And finally, Content Management vendors (such as EMC Documentum, FileNet, Interwoven, Vignette etc) are beginning to build on their current content management and workflow capabilities into contract management.

o ECM vendors are broadening their offering to support more types of contracts and design

industry-specific solutions. In the past, most of the ECM vendors specialized in managing a particular type of contract. For example, I-many specialized in sell-side contracts, Determine in buy-side contracts, Accruent in real estate contracts, etc. However, as these ECM vendors feel the pressure from other software vendors, they are being forced to broaden their offerings to manage all types of contracts on an enterprise level.



• Vendor Consolidation and Price discounting will occur: While the ECM market stays hot, it will continue to attract many new vendors and new solutions. Consolidation will occur in the ECM vendor space due to stiff market competition. This is already occurring, for example, Procuri—a strategic sourcing vendor—acquired CMSI—an ECM vendor, earlier this year. New market entrants and new hosted and “On Demand” delivery models will force price depreciation and further consolidation in the ECM market.9

5. Conclusion Contracts are the life-blood of any organization, and in particular of the modern organization. They define and underpin all commercial relationships thereby providing a platform for profitable growth of an organization. Despite their importance, most organizations lack the necessary controls, processes, and infrastructure needed to manage contracts at every stage of their lifecycle. As a result, businesses lose billions of dollars every year due to contract leakage, sub-optimal contract terms, unredeemed rebates, slow contract cycle times, renegade contracting processes, and missed savings opportunities. Organizations can overcome these challenges by adopting ECM solutions that provide a central repository for contracts, automate all stages of the contract lifecycle, and provide tools to effectively monitor and analyze contract compliance and performance. ECM solutions—when properly deployed—will result in an inclusive role for all involved, reducing costs, increasing revenues, diminishing financial and legal risk, improving working relationship, averting misunderstandings, and insuring that essential actions and resource allocations occur as needed.

References 1. “Contract Management is the Next Step in Smart Supply Strategy”, Purchasing Magazine, July 2004 2. “Contract Optimization: A Recession-Proof Strategy for Maximizing Performance and Minimizing Risks”,

Aberdeen Group, May 2003 3. “Six Keys to Better Procurement Contract Management”, Gartner Research, October 2003 4. “The Compelling ROI of Contract Management”, AMR Research, Feb 2003 5. “The Contract Management Solution Selection Report”, Aberdeen Group, June 2005

9 “The Contract Management Solution Selection Report”, Aberdeen Group, June 2005


Enterprise Contract Management - An Overview Author Profile Anuj Saxena is the Director of Enterprise Contract Management (ECM) Solutions at Alti, Inc. – a Management Consulting firm leading multiple ECM Solution implementations in US and Europe. Prior to joining Alti, Mr. Saxena worked for several large consulting firms such as PricewaterhouseCoopers Consulting, IBM Business Consulting Services, and Deloitte Consulting as a Consulting Manager and Senior Consultant. His domain expertise includes Supply Chain Management, Materials Management, Sales & Distribution, and Enterprise Asset Management. He received a Masters Degree in Information Systems & Decision Sciences and another Masters Degree in Industrial & Manufacturing Systems Engineering from Louisiana State University and has authored several journal and conference articles on Project Management, Procurement, and Plant Maintenance.

Look for These Other White Papers on ECM from Anuj Saxena

• ECM: What Every Chief Procurement Officer Should Know • ECM: Paving the Path to Sustained Compliance • Contract Management Maturity Model: A Roadmap for Implementing Best-In-Class ECM System • Developing a Business Case for ECM Solution Implementation • Championing an ECM initiative • Implementing ECM using the Six Sigma Approach • Integrating ECM Solutions with other Enterprise Solutions • Key Success Factors for ECM Implementations


enterprise contract management - an overview

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