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Aligning Contracts and Organizational Goals: An Untapped Source of Enterprise Value
We are in complex and uncertain times, where the demands of the business are continuously evolving. The current business ecosystem has seen a big shift, with hyper-specialization coming to the fore creating an expanding ecosystem. Organizations no longer operate in a vacuum. They have large dependencies on specialized external vendors and suppliers whose performance directly impacts their capability to serve customers beyond the traditional cost focus.
The simple way to look at this is, every organization procures some form of goods or services from suppliers, adds value to it, and sells it to customers. So, if a supplier doesn’t deliver on time or doesn’t adhere to the set quality standards, you suffer when your ability to satisfy your customers is affected. And that is precisely why it is imperative to effectively manage and track supplier performance. And the best and perhaps only way to do so is via the contracts that contain the rules of the engagement for such relationships.
Equally important, if these contracts are not aligned to the organization’s business goals, chances are the organization, and the supplier, spend time on activities that do not further the goals of the organization. Not only does this put organizational goals at risk, but it results in excess contractual spend on goods and services that are simply not important and don’t contribute to achieving these goals. The aim is to align the spend, and supplier actions to help the organization achieve its goals and objectives in the most cost-effective manner.
Another important aspect is that traditionally, companies have looked at their contracts in isolation. This isn’t totally surprising, given that large organizations typically have thousands of contracts across their contract portfolio. Even with the few high impact agreements, organizations often do not have a structured process in place to identify and track how one key contract affects another.
We have discussed the need for having alignment between contracts and organization goals, now let us see how such an alignment can be achieved.
CATS CM® Methodology
Introducing CATS CM® – a comprehensive, scalable, and reliable contract management methodology (with its origins in the Netherlands) that enables organizations to continuously assess the alignment of contracts with company goals. This leading methodology is leveraged by hundreds of organizations to drive additional value from their contract portfolios at all levels – strategic, tactical, and operational.
At the top lie the company’s mission and vision, which set the context for organizational goals and objectives (could be related to revenue, profits, compliance, customer satisfaction, environmental responsibility, etc). If contracts are to help achieve these goals, then contract objectives need to be created aligned to these goals and managed accordingly.
So, in practice, a contract manager should know which organizational goal(s) every contract is contributing towards. Only then will contract performance (which follows contract objectives) help achieve these goals. This approach ensures that the company’s mission and vision are cascaded down through the contracts to supplier performance, which in turn helps make the vision a reality.
Such a top-down approach also helps organizations overcome the challenge of individual departments (e.g. procurement, IT, sales, delivery, finance etc) working in silos and often in conflict with one another, as contracts for suppliers across these departments will be in alignment with the broader company objectives.
As mentioned earlier, this methodology helps create value at all levels of the organization, which are shown in the chart below.
The top enterprise or ecosystem level is where the business strategy and goals are linked to the contract objectives for the entire portfolio of contracts. Next is the tactical level characterized by various functions like procurement, IT, finance working in silos to achieve their departmental goals. And at the bottom is the operational level which involves the day-to-day execution of contracts.
Role of CLM in adopting this methodology
Traditionally, CLM technology has focused on the operational or execution level, assisting organizations with contract execution. But with the onset of AI-powered extraction, advanced analytics and business intelligence systems, CLM has started moving up to the tactical level by consolidating contract performance data at the operational level and converting that into knowledge and insights that aid decision making. However, CLM traditionally remained disconnected from the strategic – enterprise level.
And that is where joining a methodology like www.CATS-CM.com and a modern CLM application is a truly transformational force. CLM tools that adopt this methodology provide the missing link between the strategic level and the tactical and operational level, elevating contract management for the first time to the C-suite. We always knew, “if you are not in control of your contracts, you are not in control of your business”, and now there is finally a technology solution that allows the organization to see where they are in control and where they have gaps.
CATS CM®– SirionLabs Partnership
While a good contract manager/ owner would think about company objectives when creating and governing contracts, such an approach has never been adopted as a focused and structured process. Contract drafting and authoring more often than not ignores the company objectives, resulting in requirements on suppliers that do not impact organizational goals.
At SirionLabs, we recognize the power of this methodology and the value it brings to organizations, and hence have partnered with CATS CM® to offer this methodology as part of the Sirion solution. Our partnership with CATS CM® is a huge leap forward for CLM, enabling organizations to harness CATS CM®’s scalable, strategic and data-driven methodology to construct optimal contracts that are aligned to business objectives and once executed, automatically track and correct potential value conflicts in record time.
Customers can focus their contract creation and subsequent contract management efforts on those aspects that directly impact the outcome of the business, reducing unnecessary effort and ensuring clarity on the interrelationship between different contractual arrangements. Customers can visualize “inter contract relationships” in Sirion to see whether a contract is “impacted” by or “impacting” another contract. This goes a long way in enabling organizations to leverage the power of the sum of their contracts.
To learn more about how SirionLabs and CATS CM® are helping organizations drive additional value from their contract portfolio, you can watch our recent webinar here, or download the product overview document here. We will be sharing more content on the CATS CM® – SirionLabs partnership in the future, with another blog post on how this methodology was implemented in Sirion.