Category:
Contract Lifecycle Management

Moving Contract Management Beyond Dormant Enforcement

February 2, 2023
Jon Hansen

As Founder and Chief Editor of the Procurement Insights blog, over the past 40 years Jon has gained an international reputation for delivering unique and meaningful insights into the procurement world and business in general through a variety of mediums including radio and television.

A sought-after speaker, writer, and moderator; he is a two-time Ottawa Finalist for the Ernst & Young Entrepreneur of the Year Award for having built and ultimately selling his software company for $12 million.

We hope you enjoy Jon's candid yet knowledgeable perspective on the importance of efficient contract management as it relates to Terzo.

One of the most interesting revelations regarding contract management in the post-Covid world is that most organizations were only using 20% of their CLM platform – mainly under the control of the legal department.

Before the pandemic, CLM was viewed as a static repository of legal terminology and clauses to hold suppliers' feet to the fire of enforcement. In other words, once executed, contracts were stored and forgotten until something went wrong. Then, as we discovered during the pandemic, companies scrambled to assess their vulnerabilities, liabilities, and potential paths to a resolution regarding disrupted supply chains. At that point, there was the beginning of the realization that contracts were not a tool of enforcement but a source of actionable knowledge that facilitated greater understanding and collaboration with suppliers.

From Adversaries to Strategic Partners

At our core, we want to be more of a data company – an enterprise AI company that extracts data intelligence across any and all business documents. – Justin Hiatt, Terzo

Most automated contracting systems were created by legal professionals for legal professionals, making CLM little more than a "glorified data storage" bin. In this context, contract management has traditionally been a dormant "search and enforce" tool instead of a "living" arrangement between strategic partners that can adapt to changing realities on a mutually beneficial basis for all stakeholders.  

When I say search and enforce, I am talking about the "file and forget" contract management strategy once the paperwork is signed. The problem is that a contract may work “at the moment” of execution but quickly become outdated and draconian when circumstances in the real-world change.

Richard Pennington, who I consider to be one of the most knowledgeable legal procurement minds in the industry – you can check out his LinkedIn profile to see what I mean, understands the difference between contract enforcement and strategic supplier engagement. He also understands the evolution of technological capability and its potential for elevating contract management beyond data dormancy to actionable intelligence.

What is Actionable Intelligence?

“Adopt a forward-thinking strategy to take advantage of emerging AI technologies as they become available will enable future procurement professionals to leverage AI to create lean, efficient supply chain strategies to minimize risk, streamline processes and lower costs.” - Martin Krumrey, Co-Founder CPO Interactive

In discussing his work with Terzo to support his clients in Europe, CPO Interactive’s Martin Krumrey made an interesting statement. He talked about how organizations could “unlock financial insights in their contracts by visualizing saving potential.”  

My initial reaction was to think he was talking about leveraging contracts to get better terms from suppliers. My initial response reflects the traditional view of contracts being a tool of leverage versus engagement. Finding the hidden value in a contract was always a unilateral exercise in which the stakeholder with the best leverage usually got the best deal.

However, the financial insights to which Krumrey was referring were based on the strength of data to provide actionable intelligence beyond a zero-sum outcome in which both buyer and supplier could benefit.

Over my 40 years in this industry, negotiations, contracts, and supplier management were built on a "you don't get what you deserve, you get what you negotiate" mindset. I obviously had to learn more about Krumrey’s approach.

In my next post, I will share the short video of my "off the cuff" conversation with Terzo's Justin Hiatt. It was a frank and unpolished discussion that I am sure you will find as interesting as I did.