Best practices: Report confirms need for contract life-cycle management
By Manufacturing Business Technology Staff -- Manufacturing Business Technology, 10/27/2008 8:07:00 PM
A new report out of Boston-based Aberdeen Group finds 42 percent of corporate enterprises surveyed are being pressured to adopt contract life-cycle management (CLM) technology to mitigate risk, while 34 percent say they’re using CLM to facilitate regulatory and reporting requirements.
The research study, Contract Life-cycle Management: Views from Procurement, Sales, Finance and Legal—sponsored in part by Selectica, a provider of enterprise contract life-cycle management (CLM) solutions—also indicates companies that adopt “best-in-class” CLM practices realize 85 percent of sales orders and revenue recognition compliant with contracts, and 86 percent of purchasing transactions compliant with contracts. This is nearly twice the average of 45 and 39 percent respectively.
“Globalization, more supply risk, and rising costs are driving organizations to place greater emphasis on establishing and managing their contractual relationships and obligations,” states Bill Browning, an Aberdeen group research analyst. “Although each type of contract has some impact on the overall performance of a business, the effects of procurement and sales contracts are among the most immediate and tangible.”
More than 40 percent of companies surveyed are turning to CLM technology to mitigate both internal and external risks. Best-in-class performers also are shown to be more likely to automate CLM processes, including:
• Analysis and reporting (74 percent);
• Contract creation (44 percent);auditing (44 percent);
• Electronic signatures (41 percent);
• Negotiations (37 percent), proposal development (33 percent); and
• Risk assessment (26 percent).
Effective CLM practices also increase visibility for reporting, and facilitate meeting regulatory requirements such as Sarbanes-Oxley that require transparency into business relationships.
Best-in-class CLM performers share a number of key characteristics:
• They are 81 percent more likely to centralize management of contracts;
• They are 3.4 times more likely to establish visibility into contract data; and
• They are 2.4 times more likely to use contract management technology.
In addition, best-in-class CLM enterprises are able to shorten execution time for both procurement contracts (19.7 days as opposed to 31.3 days on average); and sales contracts (16.6 days as opposed to 22.2. days on average. The revenue lost due to poor sales contract management is 74 percent lower than demonstrated by average or poor performing enterprises.
Best-in-class CLM users also are proactive in performance management. They are 2.6 times more likely to generate reports, and 3.4 times more likely to perform analyses to assess contract performance.
“It’s clear from the Aberdeen study that best-in-class CLM enterprises rely on best-of-breed contract management technology to automate best practices,” says Jason Stern, a Selectica company VP. “With our CPM software, Selectica customers are seeing the same kinds of superior CLM performance results uncovered by the Aberdeen Group.”
About the study:
Aberdeen conducted the study among 180 companies regarding their CLM enterprise applications. The survey sampling represents companies from large enterprises ($1B US) to small businesses ($50M or less), mostly from North American companies (56 percent) as well as respondents in EMEA, Asia, and Central and South America. The study includes a cross-section of job titles (C-level, vice president, directors, etc.) and job functions (procurement/supply chain, finance, sales, business process management, etc.). It also represents a variety of industries, including finance, mining and oil production, technology, and manufacturing.
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