Contract management: the key to your income
According to a study on contract management, most organizations lack knowledge in this area and choose to work with external providers of this service
One of the biggest causes of lost profits has been the failure of many organisations to manage contracts. A study conducted by EY Law and Harvard Law School's Center on the Legal Profession refutes this fact.
Among the international companies that participated in this study, 92% of them plan to change their contract management. On the other hand, 99% of them stated that they do not have the necessary technology to improve their contract management.
The importance of organising optimal contract creation is refuted by the fact that 57% of the companies participating in the survey said that they do not have the necessary technology to improve their contract management. Fifty-seven percent of the companies participating in the survey said that the reason their revenues have declined is because of ineffective contract management.
The vast majority of participating firms (92%) say they are trying to transform the way they contract, despite encountering obstacles. One of them is the optimisation of technological tools. While 70% of participants develop a technology and sourcing strategy, it is in the use and collection of data, as well as the optimisation process that prevents them from improving their contracts.
"The importance of getting contracting right cannot be underestimated. For many organisations it is something of an Achilles' heel, but with the right transformation efforts focused on people, process and technology, procurement can become a business differentiator," believes John Knox, leader of EY Global Legal Managed Services.
Knox gives clues on how to reverse the situation:
"The survey shows that one of the ways organisations intend to address these challenges is by working with subject matter leaders and external providers. This type of co-contracting arrangement can help clarify responsibilities, centralise processes and help ensure that the right work is aligned with the right resources so that organisations can focus on more strategic activities".
49% of survey respondents admit to lacking a defined process for storing contracts after execution. Another relevant fact: 78% of them do not follow up on the fulfilment of the obligations contained in contracts.
"Contracts are at the heart of every company. They determine how growth occurs and how risks are managed. It is therefore absolutely critical that organisations have effective systems and processes in place to manage all aspects of the contracting process, from negotiation and execution, to termination or renewal, as well as an accurate understanding of the obligations, benefits and risks across the full spectrum of their contracts," says David B. Wilkins, Deputy Dean for Global Legal Profession Initiatives and Director of the Center on the Legal Profession at Harvard Law School.