Future of Commercial and Contract Management
In today’s complex business environment, the commercial contracts are required to be handled extremely carefully. Covid-19 has created a compelling need amongst the enterprises to re-evaluate their existing contracting processes and to adopt commercially available Contract Lifecycle Management (CLM) tools. This has created huge demand for Commercial and Contract Management (CCM) skills in the organizations. Sharp CCM skills are essential for obtaining true economic value from any contractual relationship.
It’s a well-known fact that evolution of technology is posing threat to several skills that are prevailing as of today. Whereas, CCM skill has high potential to emerge as a futuristic skill. However, it will have to be quite different from what it is today as several administrative, repetitive and even intelligent tasks will be taken over by automation and technology.
Contract Lifecycle Management tools are being built on Machine Learning, Artificial Intelligence and enterprise cloud platforms which are loaded with features and has a potential to transform the way the contracts are being managed as of today. Additionally, these tools can be integrated with the Enterprise Customer Relationship Management (CRM) platforms of the organizations which enable exchange of information in real time and boosts the efficacy of overall system.
As per a survey conducted by World Commerce and Contracting (formerly known as International Association of Contract and Commercial Management- IACCM), the average cost of poor contracting is 9.2% of a firm’s annual revenue. This leakage is even higher for large and capital project industries. WorldCC has also identified 10 pitfalls which contribute to these losses in commercial contracts. The major pitfalls identified in the report are:
Lack of clarity on scope and goals, resulting in claims and disputes.
Not involving Legal/ Contract team early enough, resulting in wrong form of contract and extended lead time.
Protracted negotiations leading to competitive exposure and delayed revenues
Negotiation focus on wrong terms and risks resulting in loss of economic benefit which makes contract a weapon rather than an economic instrument.
Contracts lack flexibility with insufficient focus on governance. Due to this, the performance management is dominated by blames or fault finding.
Contracts are difficult to use and understand. Due to this, users see contract as irrelevant to business needs.
Entire contracting process can be jeopardized by not involving right stakeholders at the right time, using wrong contracting templates, negotiating on wrong terms and conditions, allocating risks to the other party, focusing too much on price and not on overall economic value of the contract, etc. Due to lack of focus and priority, we tend to ignore some important aspects in our contracts, which lead to revenue leakages, disputes and various other complications after signing of the contract. Badly written and negotiated contract often requires lot of administrative efforts from both the parties during post contracting stage and can be identified as the main reason for gross failure of business relationships. Consequences of badly written contracts are huge and cannot be remedied by any means other than amending those provisions which were overlooked during the pre-contracting stage.
It is observed that long term complex contracts require extensive monitoring and regular amendments on account of changing business needs, evolution of technology, consumer behavior, competition and various other related factors.
In this context, Commercial and Contract Management (CCM) function plays a significant role to resolve complex business challenges during pre-sales and post-sales stages. Practicing CCM Professionals must be equipped with exceptional drafting, interpretation, negotiation, pricing, decision making, coordination and project management skills. They also must have legal, business and financial acumen at a minimum. Thorough understanding of CLM Tools and CCM Processes is also an important element in this profession. Objective and performance indicators of CCM function in an organization shall include improving profitability margins, revenue growth, establishment and effective management of contractual commitments, plugging of revenue leakages, maintaining strong client-vendor relationships and simplification of contracts at a minimum. It is also essential that CCM professionals are equipped with right qualifications with a bachelor’s degree in Technical domain or Commerce or Legal with a master’s degree in Business Administration. CCM Certification coupled with effective communication, negotiation and other related soft skills are must. Strong domain knowledge is required because of highly complex and precise contractual outcomes. Continuous upgradation of skills, knowledge of industry trends and technology advancements will ensure a promising career to existing and aspiring CCM professionals.
