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Transforming the Global Enterprise -- A C-Level Perspective on Contract Management’s Impact to Bottom-Line Performance Across the Organization

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Transforming the Global Enterprise -- A C-Level Perspective on Contract Management’s Impact to Bottom-Line Performance Across the Organization ...

Transforming the Global Enterprise -- A C-Level Perspective on Contract Management’s Impact to Bottom-Line Performance Across the Organization

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  • 1. Transforming the Global Enterprise A C-Level Perspective on Contract Management’s Impact to Bottom-Line Performance Across the Organization A n E m p t o r i s W h i t E pA p E r Emptoris, Inc. www.emptoris.com SCWP-3/08
  • 2. the CFos to Enterprise Contract management Excellence table of perspective path Counsel’s procurement perspective: Chief perspective sales Contents perspective Executive Overview: Contract Management and Its Impact on the Global Organization ..................................................................................................3 The CFOs Perspective............................................................................................................5 How Contract Management Impacts Fiscal Management and Revenue Recognition .............................................................................5 The Sales Perspective ...........................................................................................................9 How Contract Management Can Support and Speed the Sales Process .............................9 The Chief Counsel’s Perspective.........................................................................................11 How Contract Management Software Impacts Contract Visibility, Analysis and Compliance ...................................................................................11 The Procurement Perspective ............................................................................................14 How Contract Management Furthers Global Sourcing and Procurement Excellence .............................................................................................14 The Path to Enterprise Contract Management Excellence ..............................................16 The Impact of Best-in-Class Contract Management Global 000 Usage of Contract Management Technology ................................................16 Nortel Networks Corporation – Global Contract Management Implementation ...........................................................................................20 Conclusion ...........................................................................................................................24 About Emptoris ...................................................................................................................24 Further Resources and Recommended Reports ...............................................................25 -- © 001 - 009 Emptoris, Inc.
  • 3. Executive overview: Contract management and its impact on the Global organization Contract management software is one of the most important advances in business technology since the introduction and popularization of enterprise resource planning systems in the early 1990s. Contracts are the foundation of all good business relationships, from key supplier agreements, to strategic outsourcing arrangements; from revenue-generating sales agreements and the protection of intellectual property through licensing agreements; down to lease agreements and consultant and employee agreements. Contracts and contract management play a key role in helping companies define business-to-business relationships, operational expectations and compliance standards – and many expect contract “Contract Lifecycle Management could turn management applications will become the central tool used for management out to be one of the most of internal business relationships and compliance at global companies. important new business applications of the Enterprise contract management (ECM) solutions – or contract lifecycle first decade of the 21st management (CLM) solutions as they are sometimes called – automate and century.” optimize the contract management process from creation, negotiation and Andrew Bartels, Analyst, execution through performance monitoring, analysis, and re-negotiation. Forrester Research According to a study conducted by the Economist, just one in ten corporate executives today have ready access to the information needed to make important business assessments and decisions. More than 50% of corporate executives report regular concerns about making business errors or poor decisions specifically because of a lack of real-time, relevant information. Eight out of ten corporate executives rank improved information and data as the most critical factor in improving business decisions and performance. Seven out of ten (67%) of Global 000 companies surveyed reported challenges or “struggles” in managing business risks in their contracting process according to a survey by Inside Counsel and Emptoris, in a survey conducted in September 008. The majority of CEOs and CFOs recognize that one of their biggest business challenges is the lack of visibility and ability to quickly analyze business data and information. This perhaps explains the growing investment in contract management technologies. According to Forrester Research, investments in contract management software by Global 000 companies are expanding at a rate in excess of 5% annually and companies inquiring about these technologies more than any other business or spend management solution. According to the Gartner Group information technology research firm, early adopters “have successfully proven the value of enterprise contract management applications; as a result, demand for these tools have increased.” The firm notes that growth in contract management adoption is coming in particular from companies expanding the scope of their solutions within their organizations. -- © 001 - 009 Emptoris, Inc.
  • 4. Few processes and applications can span and impact the entire global organization like contracts and contract management. From a CEO’s perspective, contracts and the contract management process have significant impact on revenue generation and recognition, spend and procurement management and savings; and risk mitigation and compliance enforcement. From the CFOs perspective contract management processes and technologies impact the sales and revenue processes; capturing and maximizing revenue; ensuring proper revenue recognition and compliance; and controlling or reducing spend or costs. From the Chief Counsel or General Counsel perspective, contract management software is instrumental to manage the more than 0,000 active contracts of a typical Global 000 company, “Contract lifecycle management helps including managing, monitoring and analyzing the creation and execution companies improve the of contracts – and enforcing compliance and managing legal risks. From the performance of their Chief Procurement Officer’s (CPOs) perspective, contract management plays a balance-sheet assets and critical role in negotiating and realizing savings from suppliers; in managing liabilities as well as their intangible assets and overall supplier performance and reducing supply chain risks and disruptions. liabilities such as brands, key customer and For the entire organization, the globally networked economy has brought supplier relationships, with it increased complexity, a growing workload, and heightened pressure and intellectual to reduce costs, drive compliance, reduce cycle times and improve decision- property, which we at making. Contracts and enterprise contract management solutions can be Forrester believe is the next frontier of software the focal point of reducing and managing these pressures, providing C- for optimizing business level executives with increased visibility, improved control and enhanced results.” capabilities to enforce compliance. Forrester Research Dozens of research and case studies reinforce these points and clearly demonstrate the impact contract management can have on the organization. One of the studies highlighted in this whitepaper, produced by the Aberdeen Group, provides detailed data on how best in class organizations in terms of contract management “clearly outperform” others with “a higher percentage of spend that is on-contract and a significantly higher percent of transactions that are compliant with contracts. Improving the amount of transactions that are compliant to contracts allows enterprises to capture a higher percentage of savings, savings that may have been negotiated in a sourcing event. Also, Best in Class companies achieved higher performance on the sell-side, having a higher percentage of sales orders and revenue recognition that is compliant with a particular contract. Given the strict regulations around this area, it is clearly a key for any Finance executive.” -- © 001 - 009 Emptoris, Inc.
  • 5. the CFos perspective How Contract Management Impacts Fiscal Management and Revenue Recognition CFOs are faced with increasing pressures from compliance to cost controls to revenue recognition. Global 000 companies are increasingly turning to ECM solutions for better contract management and fiscal management. ECM can mitigate financial risks, lead to more profitable contracts and speed revenue recognition. A fast-growing trend in fiscal management is the application of enterprise contract management (ECM) technologies. These technologies have long been used to impact the bottom-line, but are most commonly applied by Procurement organizations to help manage and reduce costs, or by Legal organizations to efficiently and effectively manage contracts, processes and corporate compliance. However, the increased regulatory requirements of Sarbanes-Oxley and accelerated drive to control costs and better manage cash flow and revenue in the midst of economic uncertainty has accelerated the usage of contract management technologies by Finance organizations. Contract management plays a critical role in fiscal management: controlling spending, mitigating financial risks, managing compliance and speeding revenue recognition. 1. Driving Compliance and Reducing Risks: From Sarbanes-Oxley, to SEC and FASB rules, the fiscal management of a Global 000 company carries with it significant compliance requirements, over and above the demands of running a fiscally tight ship. Many companies are hand-cuffed in their compliance efforts by a lack of visibility into Legal and Financial risks, and the inefficiency and limitations of their contract preparation and approvals processes. With the right technologies, companies can ensure and enforce compliance by (1) building in proper contract review and approval procedures and () by providing greater and more timely visibility into financial and legal exposures. In the study, “Contract Lifecycle Management and the CFO,” published by the independent analyst firm, the Aberdeen Group, it was found that nearly 65% of enterprises using contract lifecycle management reported immediate benefits in their visibility into and identification of financial and legal risks. With a contract management solution, companies have a library of contract templates with approved language, alternative and “fall back” clauses, to quickly produce stronger contracts in compliance with governmental regulations and internal rules and controls. Contract creation wizards can enable self-service contract creation by front-line personnel while ensuring compliance and providing top-level management final approval over any notable modifications or anomalies. -5- © 001 - 009 Emptoris, Inc.
  • 6. Core Challenges of Contract A central repository, rules-based notifications and alerts help ensure Management at the Global companies have broad and immediate visibility into the contracts at Organization the heart of their revenue generation – and further allow for analysis of The lack of visibility and control risks. Complete transparency across the full contract lifecycle enables into contracts is at the heart of a number of significant issues cross-functional cooperation and accountability, and a clear audit trail within Global 000 companies, makes any deviations from standard readily apparent. including: Lack of visibility into Legal and Financial risks 2. Ensuring Proper Revenue Recognition: Contracts also play a central Un-auditable paper trails and role in revenue management, including (1) forecasting revenues; lack of compliance () ensuring proper revenue recognition; () certifying that financial Deficient or no proper approvals statements are accurate and complete; and () generally managing of key documents or decisions cash flow and the solvency of a business. Best-in-class contract Difficulty managing variations in language, law and financial management software can help ensure proper accounting of revenues values globally (and spend) in terms of accounting rules and guidelines. In a worse- Lack of spending insight and controls case scenario, poorly written contracts can lead to revenue recognition Lost profits or revenue issues and necessitate revenue restatements. opportunities With the complexity of today’s sales agreements and revenue recognition rules, particularly in industries such as such as high-tech and software with multi-element contracts, contract management solutions can help ensure the appropriate accounting of revenue, including when and how revenue is recognized, and regardless products, pricing or schedules. Using contract management automation alone, or through integration with billing or accounting software, companies gain direct visibility into and automatic alerts on schedules and milestones in contracts that impact revenue. ECM technologies also help identify which transactions are to be counted as revenue and at what given time; tag specific goods and services procured to the proper accounting code or method; and assign contracts and transactions meeting certain parameters to specific accounts or to specific personnel for review. By automating processes and improving visibility into contracts, companies create a strong foundation of internal controls over revenue practices that leads to greater integrity and accuracy of revenue data. Having a library of standard contract terms related to revenue recognition business rules allows companies to ensure best practices in revenue recognition are consistently applied. And an automated approval process allows for more efficient management and ensures review of non-standard contract terms, specifically those that would impact revenue recognition. Finally, contract management solutions offer a reliable, consistent and efficient manner to review and report on revenue aspects of contracts, allowing for more rapid insight into risks and faster resolution of potential problems. 3. Capturing and Maximizing Revenue: Another research study by Aberdeen Group among Global 000 companies found that poor contract management in the sales-to-revenue cycle results in revenue leakage, on average, between 5% and 9%. Thus, even under a conservative scenario, for a company with just over $1 billion dollars in contracted sales, revenue leakage could run between -6- © 001 - 009 Emptoris, Inc.
  • 7. Core Value Proposition for $50 million to $90 million. Capturing just half of that can add tens of Contract Management Software millions of dollars back into a company’s revenue stream. Obviously, in Enterprise contract management (ECM) today’s economic environment, revenue is especially critical. Capturing solutions can play a significant role that leakage is highly achievable. In the Aberdeen report, best-in- in helping companies relieve these pressures and more effectively manage, class companies in terms of contract management had leakage just as well as improve their visibility, control a fraction of the average company, typically around one and a half and compliance across the organization: percent. Greater Visibility Enterprise contract management Revenue leakage can occur from a range of problems, including solutions help companies attain a complete picture of all obligations sub-optimum or missed contract renewals; improper invoicing, or and commitments across the regulatory fines or penalties. Contract management solutions allow company through the following: companies to capitalize on each renewal opportunity by identifying • Centralized contracts company- wide via controlled access to a upcoming renewal candidates, notifying internal and external parties global contract repository through dynamic workflow rules, automatically generating renewal • Ability to search for contracts contracts, and initiating processes in other enterprise systems. across a variety of parameters The result is higher renewal rates, higher revenue through stricter • Consolidated views of prevailing language and terms, even as enforcement of pricing terms, and lower contract renewal and contracts are amended administration costs. Better Management and Control Enterprise contract management A contract management solution also allows companies to monitor solutions help companies gain greater customer (and supplier) performance against commitments and control over contracts and achieve conduct timely audits, performance checks, and reviews so that the improved corporate governance and cost control. value of contracts is maximized. [On the buy-side, as discussed later • Enforce corporate standards for in this whitepaper, companies capture more savings opportunities by language, terms, and pricing ensuring that they obtain the discounts and rebates they’ve earned.] though business workflows and approvals • Ensure that any variations of Finally, contract management solution allows companies to structure standard contract language are more profitable deals by leveraging information from all historical routed to the appropriate person or organization for approvals contracts and from other enterprise solutions to give an edge in the negotiation of contracts. This also improves contract quality by  Improved Compliance Enforcement enabling professionals across functional areas to collaboratively Finally, ECM solutions link strategic operations to tactical develop contracts, and giving senior management clear dashboard systems furthering compliance: visibility into key contracts and key terms. • Drive day-to-day operations based on commitments with suppliers, customers, and partners 4. Speeding Sales and Revenue Recognition: An additional benefit of • Improve efficiency of audits, the application of contract management technologies is speeding the and lower internal and external sales and revenue recognition processes. audit costs The process of managing deals from initial sales proposal through contract creation, negotiation, and acceptance, typically involves numerous resources across an organization. In most organizations, Sales Operations, Field Sales, Finance, Legal, and Consulting are involved in the sales process. Coordinating the process across all resources, while ensuring that deals contain only accurate and beneficial terms can be time consuming and challenging. -7- © 001 - 009 Emptoris, Inc.
  • 8. “Getting better control According to one study, each day a contract is delayed in the sales cycle over contract production at a Global 000 company results in an estimated reduction in $88,000 to and management is the bottom line of the company through both time-costs and lost revenue. becoming an imperative Situations vary by industry and contract, but a delay of a week could cost in large enterprises. Our the business close to a half-million dollars. research shows that early adopters are getting “Companies using contract management solutions to enforce systematic real benefits in three key areas. First, they are and efficient procedures for creating, executing, and managing corporate seeing real bottom-line contracts have been able to cut process cycles in half, reduce contract savings through better administration costs, improve contract compliance 50% to 55%, diminish compliance with contract risk, and increase revenues and profits,” said Aberdeen Group. prices. Second, they are seeing improvements in Bottom-line impact, and speeding that bottom line impact, is what the productivity and quality in application of technology to contract management is really all about. the procurement and sales administration teams. And One medical technology company with whom Emptoris worked saw a third, the management reduction in time spent creating, negotiating, and approving contracts by teams feel much more in roughly 60%. The Aberdeen report found similar successes, with best-in- control of their business through controlled class companies applying ECM technologies taking just 0 days to go from workflow and access rules contract creation and negotiation to approvals, compared to more than 0 on contract approval.” days on average for Global 000 companies in general. – Andy Kyte, Vice President of Research, A technology service company with whom Emptoris works shared that Gartner Group they halved the time required to close contracts using enterprise contract management technology, which they commented “enables us to accelerate revenue each quarter. We could bring forward tens of millions next year, and ever greater revenue numbers in future years.” Whether it is speeding sales and revenue processes; capturing and maximizing revenue; or ensuring proper revenue recognition and compliance to revenue recognition rules, enterprise contract management technologies can play a significant role in driving both compliance and a bottom-line impact. -8- © 001 - 009 Emptoris, Inc.
  • 9. the sales perspective How Contract Management Can Support and Speed the Sales Process By automating the sales contracting process, enabling both internal and external collaboration and, creating a more structured approach to contracting, contract management solutions can help companies accelerate the sales process, as well as negotiate and create stronger contracts. Because sales contracts dictate virtually every aspect of a business relationship, including payment terms, service levels, and pricing, they play a critical role not only in the sales process but across the broader organization as well. As any Sales Executive will attest, the process of managing deals from initial sales proposal through contract creation, negotiation, and acceptance is complex and often involves input or approvals from a host of departments, from Sales to Finance to Professional Services to Legal, among others. Some typical challenges that Sales organizations can encounter during the process include (1) verifying deals contain accurate and competitive product, pricing, and terms; () ensuring proper review and approvals of sales agreements; and () coordinating the sales process across different departments within the enterprise and externally. A survey by Inside Counsel and Emptoris found that close to 80% of Global 000 companies see a need for significantly improving their sales contracting processes with 9% seeking to better define processes and 8% looking to begin fully automating the sales contracting process. According to the survey, the case for improving and automating sales contracting processes is clear, with close to half (8%) of all Sales, Legal and Contracting professionals at Global 000 companies seeing an opportunity for significantly reducing contract processing cycle times with contract management software and close to one-third (0%) seeing opportunity for mitigating sales contract risks. “Sales staff negotiated contracts on a one-off basis and then forwarded them indiscriminately for internal and external approval. Before long, multiple drafts with edits marked in page margins were circulating. Our lawyers couldn’t even be sure that they were reviewing a current version.” By lengthening cycle times and fostering uncertainty, these inefficient processes impeded the closing of deals, increased costs, and reduced revenue.” – General Counsel for a Fortune 1000 technology company. Contract management can play a critical role in improving and speeding the sales process by: 1. Speeding the Sales Process: Delays in sales contracting often causes deals and revenue to slip. There is “perpetual frustration” among Sales Executives with the perception that internal Legal and Financial hurdles stand in the way of closing business. Effective sales contract management ensures the legal strength and compliance of a contract – while empowering Sales professionals to close deals quickly and easily. This is achieved not only through the efficiency that automation of the process brings, but also via the collaboration that can take place in contracts automation. In the current economic environment, the need to streamline and speed the sales contracting process is evenmore imperative. -9- © 001 - 009 Emptoris, Inc.
  • 10. 2. Improving Deal Quality: Before the sales contracting process even begins, contract management solutions have the capability to improve sales opportunity quality by enabling professionals across functional areas to collaboratively develop a comprehensive knowledge base from which Requests for Information (RFI) and Proposal (RFP) templates are maintained and developed. The solution can house templates that contain appropriate product, pricing, and value information that can be quickly assembled and provided to prospective customers. The solutions can even set up internal process for RFP input, reviews and approvals. 3. Managing Renewals and Revenue Opportunities: As contracts near “Virtually all the the end of their term, companies have an opportunity to ensure that their references checked for customers remain customers. Contract management software provides the this Gartner MarketScope business insight companies need to plan for upcoming renewals, negotiate indicated that they new business terms, and take advantage of additional selling opportunities. were pleased with their Companies utilizing contract management technologies (best-in-class) investment in contract management software …. achieve close to 60% annual contract renewal rate versus just % on the overall impact and ROI average for the one-third of Global 000 companies performing at the of these tools has been bottom of the contract management spectrum. good.” – Gartner MarketScope 4. Managing Customer Relationships: Dynamic business relationships for Contract Management Research often result in countless contract amendments, which challenge Report companies’ ability to manage their constantly changing obligations effectively. Throughout the customer lifecycle, a contract management solution consolidates multiple amendments to each contract to provide a single view of contractual relationships so that companies can understand and meet their obligations to their customers. In addition, proper visibility into contract deliverables and the ability to manage commitments made to customers are a key to ensuring contract terms are enforced and customer satisfaction is maintained. Contract management applications can link daily operations to companies’ contracts, and proactively notify professionals of upcoming commitments and related dates. - 10 - © 001 - 009 Emptoris, Inc.
  • 11. the Chief Counsel’s perspective How Contract Management Software Impacts Contract Visibility, Analysis and Compliance The average Fortune 1000 company maintains between 0,000 to 0,000 active contracts according to the Institute for Supply management, and the number and complexity of these contracts is expanding everyday. According to a study by Emptoris and Inside Counsel, these contracts are managed using manual processes or with very limited technologies. As contracts are the foundation of a business, such a “file and forget” approach results in limited control over and visibility into contracts, and: Deficient contract approvals processes Unauditable contract paper trails Poor contract and exposure analysis Risk of non-compliance, increased legal and financial risk Lost savings, profit and revenue opportunities Contract management software allows companies to gain greater control and visibility over their contracting processes and contracts, resulting in reduced risks, stronger agreements and more effective contracting and compliance. Best-in-class contract management solutions typically span every stage of the contract lifecycle, from proposal and contract creation, negotiation, obligations management, and compliance enforcement, through contract amendment, renewal, and ongoing analysis. A survey by Emptoris and Inside Counsel found that achieving greater spend visibility with a central, electronic contract repository was the primary reason companies were investing in contract management technologies, followed by a desire to gain greater control over contracts for compliance reasons. Thus, from the perspective of the Chief Counsel and Legal department within an organization, a few of the core reasons for implementing contract management technologies are as follows: 1. Providing in-depth, instant contract visibility: Contract management solutions enable a company to attain a complete view into all its obligations and commitments, as well as commitments to the company, across the global organization. At the heart of this visibility is a contract repository which provides a complete, current view of all contracts, as well as supporting documentation, amendments and sub-agreements. Best-in-class solutions allow for a single view of prevailing language and terms, even as contracts are amended over time. Contract templates and authoring tools, exception notifications and automation of approvals processes allow for the creation of stronger agreements and ensure compliance of agreements to both internal policies and external rules and regulations. Technologies typically allow for a library of approved terms and conditions, alerts and approval requirements for agreements modified from standard, and visibility into contract process bottlenecks. - 11 - © 001 - 009 Emptoris, Inc.
  • 12. With enterprise contract management, companies can instantly access information about contracts and contract terms, as well as analyze contracts across specific categories, departments or enterprise-wide to determine trends, analyze exposures and risks, or gain insight into opportunities for savings or to increase revenue. 2. Minimizing risks and ensuring compliance: From Sarbanes-Oxley, SEC and FASB rules to internal policies and controls, managing compliance at a global corporation with it significant requirements and significant challenges. The majority of companies are limited in their compliance efforts by a significant lack of visibility into risks, and the inefficiency and limitations of their contract processes. With the right technologies, companies can ensure and enforce compliance with (a) automation of contract reviews and approvals procedures and (b) by providing more timely, detailed visibility into exposures and risks. Contract management solutions enable improved risk assessment and compliance by (a) providing instant and more in-depth visibility to contracts and obligations; (b) by providing tools to analyze contracts and identify risks; and (c) by linking contracts and the contract management solution to strategic operational and tactical systems and actions. In addition, contract management solutions strengthen a company’s audit capabilities and reduce audit and compliance time and costs. As many contracts are managed by exception, material events, such as delivery dates, contract renewals, supplier obligations, commitment levels, and pricing revisions are not readily evident. Best-in-class contract management technologies provide configurable event triggers based on pre-defined parameters that are configurable for each contract. Predictive notification of when key events are supposed to happen guarantees a contract is actively managed and essential deadlines and deliverables are not missed. With tight integration to enterprise systems, such as SAP®, contract management can ensure that financial systems are inline with contract terms and conditions. Best-in-class enterprise contract management solutions typically offer integrations to operational systems and solutions such as Oracle, PeopleSoft, Seibel, JD Edwards, Salesforce. com and SAP. Supply and contract management solution suite providers, such as Emptoris, have pre-built integrations with spend, sourcing, supplier performance management and compliance solutions. Contract management solutions also speed and ease the audit process, ensuring successful audits the first time, every time. The solutions eliminate searching through mountains of paper and file cabinets – and make contracts, amendments and associated documents instantly presentable. Locating and analyzing a category of contracts could take weeks in a manual audit process. The same task can take just minutes with automated contract management. Contract management also adds a proof of controls in effect at a company. - 1 - © 001 - 009 Emptoris, Inc.
  • 13. 3. Gaining greater control over contracts: Through proper oversight and control of contract processes, companies can create stronger contracts that minimize risk and better enforce corporate standards, specifically for contract approvals and contract language and terms. With authoring and negotiation tools, best-in-class contract management solutions allow professionals to work in Microsoft Word to create contracts from pre-approved clause and term libraries, and enforce pre-determined templates, language, terms and approvals. Control over primary and alternate clause usage reduces the opportunity for frontline field or other non- contract management personnel to create rogue contracts that do not conform to company business and legal standards. Deviations to approved templates and terms can be flagged and contract approvals rerouted for appropriate legal or management review. With contract management solutions, corporate and Legal Executives can establish defined, finite control over who can create, modify and approve contractual agreements. This control allows for creation of stronger contracts and reduction of risk associated with undesirable terms and conditions. Legal can also accelerate its review and approval of contracts without sacrificing quality, specifically by routing contracts for certain levels of Legal review based on certain conditions or exceptions. One major biotech company uses such technology to automatically receive and rout contract requests for less strategic matters to paralegals, bypassing attorney involvement, thereby alleviating the demand on attorney time by more than 5%. 4. Creating stronger contracts: Finally, contract management solutions allow for the creation of stronger contracts, not only by enforcing compliance to approved policy, terms and language, but also by leveraging the intelligence and analysis of contracts across the organization. The more a company improves its ability to manage and optimize business terms, the more it can transform contracting into a strategic competence. Leading contract management solutions provide functionality, such as workflow, alerts and reporting, that help proactively review contracts; and executive dashboards and custom reports can be created to generate operational information for continuous improvement. The solutions also allow for stronger contracting processes and negotiating. Having detailed supplier, customer or partner performance information linked to contracts allows for more advantageous negotiations when renewing a contract. With contract management solutions analysis capabilities, Legal and Contracting Professionals can better measure cycle times and evaluate productivity; assess contract risk levels across the organization and amend or eliminate sub-optimal contracts. - 1 - © 001 - 009 Emptoris, Inc.
  • 14. the procurement perspective How Contract Management Furthers Global Sourcing and Procurement Excellence There are few processes that can more immediately and significantly impact a company’s procurement and supply management operations than contract management. With contracts at the heart of every strategic business-to-business relationship, they are critical to not only supply management, but also supplier performance management. The efficiency and savings realized in the application of purchasing automation and sourcing solutions can be enhanced with effective contract management. Procurement or supplier contract management plays a pivotal role in a company’s fiscal and operational health, whether it’s enforcing negotiated pricing, realizing quantity discounts or ensuring quality standards and associated penalties and discounts, or enforcing contract compliance. One of the big areas of loss for companies is in supplier non-compliance to existing contracts. Standardizing a company’s procurement contract operations becomes even more essential in a recessionary environment. Technology can play an important role in helping companies link contract terms to spending and thus reduce leakage – and in linking contracts to supplier performance to track commitments versus actual performance metrics. Contract management impacts procurement operations through the following: 1. Realizing Sourced and Negotiated Savings: Companies have invested in sourcing solutions and sourcing teams that work hard to source and negotiate favorable terms and pricing with suppliers, yet too often those terms are not accurately recorded in contracts or maverick spending diminishes the value of those savings. Contract management solutions enable companies to collaboratively create, negotiate, and approve contracts, both internally and externally, resulting in stronger contracts and higher realization of negotiated savings. Further, contract management software can integrate sourcing data into a contract repository and provide powerful support for newly sourced deals. Further, an Aberdeen study found that companies that employ contract management solutions (best- in-class) achieve, on average, 68% of spend on-contract versus just 8% of on-contract spend for the bottom third of Global 000 companies. 2. Enforcing Supplier Compliance: Contract management solutions can enable Procurement Professionals to gain proper visibility relative to the terms as executed in their supplier contracts. Using pre-built integrations to leading solutions such as Oracle, PeopleSoft, JD Edwards, and SAP, companies ensure better supplier compliance to those terms. 3. Supplier Relationship Management: Using contract management analysis tools or through integration with supplier and spend management solutions, company’s gain added visibility into supplier performance. With solutions, such as those offered by Emptoris, companies can see historical supplier performance trends, receive supplier performance alerts, and analyze spending relative to the contract all within the contract application. Companies increasingly need to quickly amend - 1 - © 001 - 009 Emptoris, Inc.
  • 15. contractual relationships because of regulatory pressures, changing business conditions, and strategic decisions which impact many of their supplier contracts. All this provides companies greater agility in managing their exiting external relationships and agreements. 4. Analyzing and Improving Supplier Contracts: Having detailed supplier performance information linked to contracts allows for more advantageous supplier negotiations. With a contract management solutions analysis capabilities, procurement professionals can better measure cycle times and evaluate productivity; assess contract risk levels across the supplier base, and eliminate sub-optimal contracts; as well as conduct contract audits, identify key business trends in spending and purchasing operations. 5. Driving Operational Systems: Ensuring contract data, such as terms, pricing and supplier information is consistent cross supply chain and e-procurement systems can be a considerable challenge. Many companies experience data management problems and are unable to validate purchase orders against contract terms. Contract management eliminates this problem by providing purchasing systems with contract data that is always up to date, even as contract amendments take place over time. 6. Managing Internal Obligations: With every executed contract comes a myriad of obligations, such as payment schedules, due dates, performance-based contingencies, and follow up requirements for missed obligations. Contract management tracks contract obligations and uses rule-based notifications to enable purchasing professionals to proactively meet company commitments. - 15 - © 001 - 009 Emptoris, Inc.
  • 16. the path to Enterprise Contract management Excellence The Impact of Best-in-Class Contract Management Most contract management experts and companies seasoned in their implementation and use of contract management technology, emphasize that people, process and technology all play an important role in transforming contract management at a Global 000 organization. Companies that employ best-in-class contract management processes and technology can see a significant impact on their agility, efficiency and bottom-line: According to a survey of Global 000 companies by the Aberdeen Group, best-in-class contract management allows companies to capture a higher percentage of savings that have been negotiated during a supplier negotiation or sourcing event. The study found that best-in-class companies achieve, on average, 68% of spend on-contract versus just 7% for average companies, and just 8% for the lower one-third of companies. The same study found best-in-class companies had 88% percent of transactions that are compliant with contracts versus 8% for average companies. In terms of sales and revenue management, the study found that 75% of sales orders and revenue recognition is compliant with a particular contract at best-in-class organizations versus just over 50% on average at Global 000 companies in general. Best-in-class companies also had a close to 60% annual contract renewal rate versus just % to 8% for average to poorly performing companies on average. Global 2000 Usage of Contract Management Technology Estimates vary, but market research, in general, shows a significant expansion in the use of contract management technologies by Global 000 organizations. In a recent Aberdeen Group study, close to 60% of companies reportedly had already advanced beyond manual processes or homegrown, custom-built and other limited solutions – or were currently planning to adopt contract management technologies. A survey by Inside Counsel and Emptoris found that close to half (9%) of all Global 000 companies were currently planning for, or in the process of, automating the contract management process. Twenty-three percent (%) of companies reported that they had already automated their contracting process or were close to completing an automation process. The survey was conducted with a sample of 500+ legal and contracting professionals at Global 000 companies and was compiled in September 008. Illustrating the enterprise-wide adoption of the solutions, Gartner estimates that within the next four years, 0% of Global 5000 companies will use a contract management enterprise application for at least two or more departments within their global organizations. The report also uncovered the delivery models currently in use or planned for use by Companies, with 61% of companies employing contract management solutions having installed the solution on site at their enterprise. - 16 - © 001 - 009 Emptoris, Inc.
  • 17. However, according to Emptoris, one of the leading providers of contract management technologies, an increasing number of companies are choosing a Software-as-a-Service (SaaS) model for the delivery of their contract management solutions. The majority of companies, some 6% indicated that their primary focus in implementing a contract management solution was to provide a centralized contract repository to provider better visibility into their contracts. As discussed below, the establishment of a central contract repository and its use for improving visibility and compliance, and efforts to streamline contract reviews and approvals, is typically the first “Enterprise-wide [contract step in a contract management transformation program. The Aberdeen lifecycle management] study found that approvals workflows and reporting and analytics were the has won out, with the vast majority of enterprises next most popular reasons for adopting a contract management solution. opting for CLM products that allow them to more Relatively few companies attempt to manage contracts with their existing effectively create and Enterprise Resource Planning (ERP) systems because of the very limited manage all contracts on a capabilities of ERP-based contract functionality. According to one report, single platform,” ERP and procurement solutions, “do not automate contract creation and – The Forrester Wave™: Contract Life-Cycle approval workflows and cannot, on their own, ensure contract compliance Management at the point of transaction. Further, they ignore the role of the Legal department in the contracting process, resulting in cumbersome workflows and poor adoption. While these strategies are tempting, especially given the resources companies have devoted to their enterprise solutions, they fail because none of these systems is focused on automating the full contract lifecycle.” In terms of best-of-breed contract management solutions, Global 000 companies have also opted for solutions that can handle contracts across an enterprise, as opposed to “process-centric” or industry-centric contract management solutions. Given the strategic nature of contracts, the CFO’s and Chief Counsel’s office are often involved in the selection of such solutions, and thus tend to prefer solutions that can be used by different departments across the organization. A Gartner research report further states that “the enterprise contract management solution is, by virtue of its architecture, typically suitable to support multiple contract types because the base solution architecture requirements are the same for each type.” The Path to Enterprise Contract Management Excellence The path to contract management excellence involves a mix of people, process and technology, and tends to be “more of a journey than a destination.” However, outlining a clear roadmap for contract management improvement and automation will help companies ensure a smooth path of progress. Experts and best-in-class practitioners advise companies to align the program objectives with corporate and senior management objectives, and to develop benchmarks and evaluation criteria to measure success. - 17 - © 001 - 009 Emptoris, Inc.
  • 18. Laying a Foundation for Success: Central Repository to Gain Greater Visibility, Establishing Automated Reviews and Approvals Most companies begin their program of contract management automation and transformation, driven by a desire for a centralized repository for contracts to ensure better visibility into those agreements. The sheer magnitude of expired and active contracts and amendments scattered across an organization makes providing a central location for these agreements an urgent priority. In its most fundamental form, the contract management solution serves as a repository with search and retrieval capabilities for accessing contracts and amendments. Leading solutions provide sophisticated repository functionality that enables users to search for contracts by any parameter or criteria, while preserving visibility and access privileges for the particular contracts. Creating Stronger Contracts: Employing Template Contracts and Clauses The next stage of sophistication in enterprise contract management typically involves actively managing contract templates and clauses. Some companies engage in a process of template rationalization where existing representative agreements are consolidated into a few select templates for easier contract creation and maintenance. During this process, clauses are reviewed for commonality and rationalized to minimize variations of a single clause. For instance, this rationalization process helped one company reduce 85 versions of a sales contract into less than 0 sales contract templates. Leading ECM solutions deliver capabilities for more efficiently managing templates and clauses. A contract management solution can help professionals easily create contracts by pulling from a library of legally-approved templates and clauses, and modify the contract with alternative, approved clauses as appropriate. The company can further enhance control over contracts and mitigate risks by using the solution to mandate the inclusion of certain clauses and flagging contracts that deviate to be routed and approved by specific managers. In addition, contract management wizards can be sued to present a series of questions to front-line employees, such as sales representatives, using the answers to automatically create a first draft template contract that carries relevant and pre-approved business terms. - 18 - © 001 - 009 Emptoris, Inc.
  • 19. Checklist for Enterprise Contract Driving Contract Excellence: The more a company improves its ability Management Solutions to manage and optimize business terms while ensuring compliance, Searchable and access-controlled the more it can transform contracting into a strategic competence. central repository for all contracts Leading contract management solutions provide functionality, Library of contract templates and such as workflow, alerts and reporting, that help proactively review clauses with alternates and usage guidelines evergreen contracts and renew contracts facing expiration. Executive Dynamic workflow processes for dashboards and custom reports provide operational information for contract creation and approvals  Tight Microsoft Word integration continuous improvement. Most importantly, these applications allow for on- and off-line contract business terms to integrate with other mission-critical systems, such creation and red-lining as supply management, enterprise resource planning (ERP) sales Pre-built adaptors and GUI integration tools for linking to force automation, and contract administration. Leveraging imbedded existing enterprise systems analysis functionality or integrating with analytics applications enables Contract analytics and company performance metrics companies to predict market behavior based on past performance and  Proactive obligation notification identify business terms that deliver distinct advantages. and renewal management Contract compliance management that seamlessly links to enterprise systems - 19 - © 001 - 009 Emptoris, Inc.
  • 20. nortel networks Corporation – Global Contract management implementation Nortel Networks Corporation, commonly known simply as Nortel, is a multinational telecommunications and network equipment manufacturer, with $10.9 billion in annual revenues and operations in more than 100 markets globally. In early 006, the company set out on a path to improve its global sourcing operations through the application of e-sourcing software and to streamline and transform its contracting globally through the application of contract management software. Challenges in the Contracting Process Implementing a contract management solution was more than a tech upgrade for Nortel; it represented a transformation in the contract management process. The contracting process “really stalled up business,” said one Nortel executive. Processes and approvals were not always clearly defined or well-known across a department. The company got external feedback, through a corporate audit, which strongly recommended level-set contract controls across the global organization. “The audit was definitely an impetus for changes,” said the executive. With the added necessity to comply with Sarbanes-Oxley, and the demands for a clear and auditable record trail for significant transactions and relationships, the case for automating the contract process was bolstered. “We had some workforce issues as well,” said Eric Olson, Manager, Data Management Process & Systems, Global Procurement at Nortel. “The shear amount of manual force we needed to deal with the legal and contracting aspect of our supplier relationships was a significant workforce burden.” Every single contract produced within the procurement organization needed to be reviewed and approved. Nortel – Driving Value with Contract Management Implementing a contract management solution wasn’t all about addressing challenges, Nortel saw potential for significant value in the effort as well, from making staff and processes more efficient, to ensuring cost savings and revenue are effectively captured. One key area of value was in gaining visibility into and consolidating multiple contracts with an individual supplier or vendor to maximize volume discounts and gain leverage in negotiating savings. “This will certainly have an impact on our cash particularly over time,” said Olson. Nortel executives also saw value in using contract management in connection with their sourcing activities and solution, particularly in terms of assessing the financial stability of its suppliers. Accessing Financial Strength of Key Suppliers Given the hundreds of key suppliers the company uses to supply components and services in the development and manufacturing of its products, Nortel must asses the stability and viability of its suppliers to ensure there are no disruptions in its supply chain. - 0 - © 001 - 009 Emptoris, Inc.
  • 21. Due to the critical nature of these suppliers, Nortel has a business continuity policy in place to ensure the review the financial stability of its suppliers. This program has two major tracks, which call for (1) regular annual supplier self-assessments of financial health, and () proactive financial assessments by Nortel when a supplier meets a certain spend threshold. The first criteria requires Nortel to have time-based notifications or alerts to request the financial assessments from suppliers, and the second criteria required triggers to alert Nortel when a supplier was hitting a certain level of spend. The contract management solution enabled both these alerts. Nortel has implemented a level of integration between its contract management solution and its financial evaluation and business continuity systems to ensure tighter compliance in this area. Nortel Required a Global, Enterprise-wide Solution Nortel kicked off its contract management implementation in early 006, after a thorough review of the contract management solutions available in the market. The company chose a solution, Emptoris Contract Management, which could be used globally and enterprise-wide across the company’s Procurement, Sales, Financial and Legal departments. Nortel employs its contract management solution globally, both on the buy-side and the sales-side of the company. Nortel’s global procurement operations include significant operations in Ottawa, Boston, London, Mexico City and Delhi, India, as well as compliance offices in China, India and countries in Southeast Asia and South America. “Nortel definitely has a dispersed, global personnel involved in its procurement operations,” noted Olson. The solution is also accessed and used for strategic to functional purposes across the global company’s internal organizations, primarily in Procurement, Sales, Compliance, and Legal, and on occasion by Finance and even Engineering. Finance uses the solution to look at technical accounting exposures, to mitigate those inherent risks. “From Weeks to Fifteen Minutes” “Previously, you would have to ask each individual on a team for contracts to assess their risks, and we often had to scramble quickly to fulfill these requests, now that is all centralized,” said one Nortel executive. Similar information requests and visibility tasks use to take days or weeks to fulfill before the contract management solution implementation turned those requests into “fifteen minutes tasks.” “The CFO or Chief Procurement Officer would regularly want to know our spend at a given period with a certain supplier or on a certain category. That type of task would take anywhere from hours, to days to a week, depending on the request, now its almost as simple as conducting a Google search,” said Olson. - 1 - © 001 - 009 Emptoris, Inc.
  • 22. “Good Contracts Help Minimize Risks” “Risk mitigation is what contract management is all about. If you draft good contracts, you help ensure you minimize or avoid certain risks. When contracts take months to draft and approve, it tends to diminish your confidence that you are full covering the issues and risks you want to address,” said Olson. “If a contract expires, you open the organization up to potential risks and problems. If you are not keeping track of business continuity or financial evaluations you expose yourself. Without a system in place it’s tough to address these issues and know if you are being successful,” continued Olson. In a global organization, documents are often produced in various languages and currencies, a contract management solution allows for a view of those contracts in the company’s preferred language and currency, which improves visibility into risks and furthers compliance. Usability: Other People’s Paper and Contract Wizards Nortel executives also emphasized the usability benefits of contract management solutions. On the sales-side, Nortel uses the Emptoris Contract management ‘Wizard” to allow Sales Professionals and front-line Contract Managers to create sales contracts by utilizing a user-friendly online questionnaire, similar to a Turbo-Tax application. That questionnaire drives creation of a template sales contract that meets Management and Legal’s pre-approved standards, and meets the parameters of the sales team as well. Also on the sales side, Nortel utilizes contract management functionality to capture “Other People’s Paper” or contracts written by customers. The function allows for the scanning of outside contracts and the conversion of the text into an active, intelligent contract document in the contract management system. This allows Nortel Sales to work within the customer’s terms, while still gaining the visibility and legal and compliance controls, available in the contract management system. This also allows for quicker internal review and edits to external agreements. Lessons Learned Nortel cautions that companies should conduct due diligence in terms of identifying the legacy contracts to be loaded into the contract management solution in advance of implementation, if possible, noting this was an area that required the most investment of time in getting the contract management solution up and running. Nortel executives noted that it was easier and took less time to create templates and load legacy contracts on the sales side of the business, than on the procurement side of the business. “If we had to give advice to another company implementing contract management, we would advise to focus on having a strong implementation plan, focus on training and adoption, and give yourself and the organization time to transition,” said Olson. -  - © 001 - 009 Emptoris, Inc.
  • 23. In terms of driving adoption, Nortel developed an internal “contract council” which included representation from upper management, to ensure smooth implementation and adoption of the contract management transformation and solution. “Putting together a cross-functional team was critically important, and you want to have a few people with some horse-power as a sounding board. Building a consensus and keeping people on that consensus, and on plan is a key component of a successful implementation,” advised Olson. “I recommend having real tangible benchmarks and goals for the program. For us, conducting and passing an internal audit of our contracting processes was a key goal, and one we recently completed,” continued Olson. “We are far from done in our full usage of contract management software; however, it’s really more of a journey than a destination. There is more value, more adoption to be realized,” concluded Olson. Emptoris Contract Mangement System Who Benefits? srms pst Lead Gp/Compliance Central repository for contracts worldwide-Easy Searching X X X Framework for single Global Contracting Process X X X Store important documents directly with the contract X X Tracking of contract status for individual or PST X X Notification of contract expiry X X Manage Contract Lifecycle including reassigning ownership X X Electronic routing and approval X X Contract templates - latest revisions always available X X in the tool Close SOX audit exposure X Track and mitigate potential Technical Accounting Issues X -  - © 001 - 009 Emptoris, Inc.
  • 24. Conclusion Contracts represent the foundation of all business relationships between customers and trading partners. Advanced contract management processes allow businesses to streamline their contract processes and ensure that the value negotiated in a contract is the value received. Across the global enterprise, contract management impacts not only Legal, but also impacts Finance, Sales, and Procurement. The most successful businesses collaborate across departmental lines to create contract processes and procedures that ensure the best business for the global organization. Automation standardizes these processes to be repeatable and scalable as the business grows. About Emptoris Emptoris is a world leader in innovative supply and contract management software solutions that empower enterprises to realize best value and accelerate profitable growth. Emptoris solutions are used by successful Global 000 companies in every industry. Emptoris sourcing spend analysis and contract management solutions are consistently recognized by leading independent analyst firms as the market’s leading solutions. Most recently, Emptoris was positioned as in the “leaders quadrant” in the Gartner research report, “Magic Quadrant for Sourcing Application Suites, 008” - and received the highest score for “Current Product Offering” in “The Forrester Wave: Contract Life-Cycle Management, 008.” Emptoris customers include American Express, Boeing, ConocoPhillips, GlaxoSmithKline, Kraft, Motorola, Owens Corning, Syngenta, and Vodafone. -  - © 001 - 009 Emptoris, Inc.
  • 25. Further resources and recommended reports “The Forrester Wave: Contract Life-Cycle Management” This 17-page research report from Forrester Research, an acclaimed independent research firm, reviews 1 contract management software providers and evaluates them on 110 criteria, including current product offering, strategy and market presence. “Gartner MarketScope for Contract Management Software” This research report from Gartner, based on interviews with companies that have implemented contract management solutions, reviews nine contract solutions and rates the solutions fourteen criteria including: customer experience, business model, market understanding, innovation, and product functionality. “Contract Lifecycle Management and the CFO: Optimizing Revenues, Capturing Savings” Benchmark study of contract management implementations by The Aberdeen Group. “Bringing Contract Management into the 21st Century: 5 Principles Every Procurement Executive Should Know.” Online seminar featuring the Global Purchasing Manager at Syngenta AG, a Financial Times Global 500 company; and Andrew Bartels, Vice President & Research Analyst at Forrester Research. In the seminar, the experts share their experiences and insights into best practices in contract management. “Taking SAP to the Next Level: Using Contract Management to Gain Greater Value from SAP” Whitepaper from Emptoris examining how to maximize an investment in SAP through the addition of advanced contract management capabilities. “Contract Management Automation - Delivering Compliance and Bottom Line Results” In this podcast, Tim Cummins, the Executive Director of the International Association of Contract and Commercial Management (IACCM) discusses the importance of contract management to global companies – and how improved contracting processes and technologies can help companies improve compliance and bottom line results. - 5 - © 001 - 009 Emptoris, Inc.
  • 26. notes - 6 - © 001 - 009 Emptoris, Inc.
  • 27. notes - 7 - © 001 - 009 Emptoris, Inc.
  • 28. For more information about Emptoris, visit: www.emptoris.com, call 1.781.993.9212, or email sales@emptoris.com. Emptoris, inc. 200 Wheeler Road, Burlington, MA 01803 tel 781-993-9212 • fax 781-993-9213 • www.emptoris.com © 2001 - 2009 Emptoris, Inc.