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AberdeenGroup

Best Practices in
Contract Management
Strategies for
Optimizing Business Relationships

September 2004
Best Practices in Contract Management

Executive Summary
Key Takeaways

Economic uncertainty and regulatory requirements have put contract management on


enterprises strategic agendas.

Contract lifecycle management automation delivers measurable improvements in fi-


nancial and operational performance.

Leading contract management programs use standard contract language and well-
defined protocols for contract administration coupled with automation and strong ex-
ecutive support.

F aced with lingering economic uncertainty and heightened regulatory requirements,


businesses are under ever-increasing pressures to develop and execute strategies to
continuously improve performance, mitigate risk, and ensure fiscal accountability.
Aberdeen Group was among the earliest research groups to identify contract lifecycle
management as a primary lever for achieving these objectives.
Contract lifecycle management is the process of systematically and efficiently managing
contract creation, execution, and analysis for maximizing financial and operational per-
formance and minimizing risk. Aberdeen has benchmarked enterprise contract manage-
ment strategies and the use of supporting technologies for several years. Our research has
quantified the positive impact contract management automation can have on revenues,
costs, compliance, and operations.
To better understand the strategies required for contract management success, Aberdeen
spent the first half of 2004 examining enterprise contract management initiatives at more
than 35 companies. Our research clearly found that effective contract management re-
quires enterprises to employ a holistic approach to creating and managing trading and
partnership agreements.
The most successful contract management programs include the use of standard and risk-
assed contract language and well-defined protocols for contract administration supported
(and reinforced) by CLM automation and strong executive support. Specifically, the fol-
lowing 10 practices were common among the enterprises achieving the greatest value
from their contract management programs:
1. Audit internal contract management processes, systems, and controls before in-
vesting in a contract management solution.
2. Create a compelling business case with both benefit and crisis.
3. Ensure proper executive and stakeholder support for both contract management
initiative and automation investment.
4. Define detailed functional requirements for a contract management solution
and stick to them.

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Best Practices in Contract Management

5. Dedicate and empower a contract management program champion.


6. Establish a contract management governance council to ensure support from
functional and business unit leaders.
7. Clearly define and communicate procedures and protocols for the complete con-
tracting and contract administration.
8. Where possible, use templates to streamline contracting cycles, minimize risk,
and maximize compliance.
9. Measure program performance and market results.
10. Identify areas for continuous improvement.
This report highlights these contract management success strategies and provides detailed
case studies of enterprises demonstrating best practices in contract management initia-
tives supported by CLM automation. Table 1 lists these winning enterprises in alphabeti-
cal order, and indicates their supporting CLM solution providers.

Table 1: Best Practices Winners and Their Solution Providers

Enterprise Winners Solution Providers Used


Burlington Northern Santa Fe Upside Software
Firemans Fund Insurance Company Nextance
General Motors Covigna
Hewlett-Packard Upside Software
Honeywell I-many
Interpolis Verzekeringen Upside Software
Qualcomm CMSI
Time Warner Determine Software
Toyota Motor Sales U.S.A CMSI
United Asset Coverage Oracle

Source: Aberdeen Group, September 2004

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ii AberdeenGroup
Best Practices in Contract Management

Table of Contents

Executive Summary .............................................................................................. i

Chapter One: Issues at Hand...............................................................................5


Contract Lifecycle Management Defined ....................................................... 5
Contract Lifecycle Management Delivers Results.......................................... 6

Chapter Two: Key Business Value Findings .........................................................8


Key Business Drivers..................................................................................... 9

Chapter Three: Best Practices and Recommendations...................................... 11


Automation is Key to Best-in-Class Contract Groups .................................. 11
Contract Management Best Practices ......................................................... 13
1. Audit processes, systems, and controls first................................... 13
2. Create business case with benefit and crisis..................................... 14
3. Ensure proper executive and stakeholder support ............................ 15
4. Define system requirements and stick to them............................... 15
5. Empower a contract management program champion...................... 16
6. Establish a governance council......................................................... 16
7. Define contract procedures and protocols......................................... 16
8. Use contract templates whenever possible ....................................... 17
9. Measure program performance and market results .......................... 17
10. Identify areas for continuous improvement...................................... 18

Chapter Four: Best Practices in Contract Management Profiles of Winners ..... 19


BNSF Taps Contracts to Drive Supply Management Success..................... 20
Executive Summary .............................................................................. 20
Business Challenge .............................................................................. 20
Contract Management Strategy ............................................................ 21
Contract Management Selection and Deployment ................................ 21
Results .................................................................................................. 22
Lessons Learned................................................................................... 22
Future Outlook ...................................................................................... 22
Aberdeen Conclusions .......................................................................... 23
Contract Management Insures Supply Management Turnaround at FFIC... 24
Executive Summary .............................................................................. 24
Business Challenge .............................................................................. 24

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Best Practices in Contract Management

Table of Contents
Contract Management Selection and Deployment ................................ 25
Results .................................................................................................. 26
Lessons Learned................................................................................... 26
Future Outlook ...................................................................................... 26
Aberdeen Conclusions .......................................................................... 27
Hewlett Packard Controls Contracts to Support Sales................................. 28
Executive Summary .............................................................................. 28
Business Challenge .............................................................................. 28
Contract Management Strategy ............................................................ 29
Solution Selection and Deployment ...................................................... 29
Results .................................................................................................. 30
Lessons Learned................................................................................... 31
Future Outlook ...................................................................................... 31
Aberdeen Conclusions .......................................................................... 31
Interpolis Uses Contract Management to Improve Bottom Line................... 33
Executive Summary .............................................................................. 33
Business Challenge .............................................................................. 33
Contract Management Strategy ............................................................ 33
Contract Management Solution Selection and Deployment .................. 34
Results .................................................................................................. 35
Lessons Learned................................................................................... 35
Future Outlook ...................................................................................... 35
Aberdeen Conclusions .......................................................................... 36
QUALCOMM Uses Contract Management to Dial Up Savings and Control .. 1
Executive Summary ................................................................................ 1
Business Challenge ................................................................................ 1
Contract Management Strategy .............................................................. 2
Contract Management Selection and Deployment .................................. 2
Results .................................................................................................... 3
Lessons Learned..................................................................................... 3
Future Outlook ........................................................................................ 4
Aberdeen Conclusions ............................................................................ 4
Time Warner Taps Contract Management to Improve Spend Management . 5
Executive Summary ................................................................................ 5
Business Challenge ................................................................................ 5

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Best Practices in Contract Management

Table of Contents
Contract Management Strategy .............................................................. 6
Contract Management Selection and Deployment .................................. 6
Results .................................................................................................... 7
Lessons Learned..................................................................................... 8
Aberdeen Conclusions ............................................................................ 8
Contract Management Drives Compliance and Improvements at Toyota ..... 9
Executive Summary ................................................................................ 9
Business Challenge ................................................................................ 9
Contract Management Strategy ............................................................ 10
Contract Management Selection and Deployment ................................ 10
Results .................................................................................................. 11
Lessons Learned................................................................................... 11
Future Outlook ...................................................................................... 12
Aberdeen Conclusions .......................................................................... 12
UAC Ups Contract Management Skills to Meet Growth............................... 13
Executive Summary .............................................................................. 13
Business Challenge .............................................................................. 13
Contract Management Strategy ............................................................ 14
Contract Management Selection and Deployment ................................ 14
Results .................................................................................................. 15
Lessons Learned................................................................................... 15
Future Outlook ...................................................................................... 15
Aberdeen Conclusions .......................................................................... 16

Author Profile .....................................................................................................17

Appendix A: Research Methodology ..................................................................18

Appendix B: Related Aberdeen Research and Tools..........................................19

About AberdeenGroup ...................................................................................... 20

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Best Practices in Contract Management

Figures

Figure 1: The Contract Management Lifecycle.....................................................6

Tables

Table 1: Best Practices Winners and Their Solution Providers............................. ii

Table 2: Benefits of Contract Management Automation........................................7

Table 3: Contract Lifecycle Mangement PACE.....................................................8

Table 4: Attributes of Contract Management Excellence .................................... 12

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AberdeenGroup
Chapter One:
Issues at Hand
Key Takeaways

Contracts are a staple of business, but poorly managed by most companies.

Contract lifecycle management provides a systematic approach for improving contract


performance and compliance.

Automation can accelerate contract management improvements by providing contract


visibility, streamlining contracting cycles, mitigating risks, and maximizing perform-
ance and compliance.

C ontracts are the foundation of the business world. Between 60% and 80% of all business-to-
business transactions are governed by a formal trade agreement, with the typical Fortune
1000 company maintains 20,000 to 40,000 active contracts at any given time1. These
agreements dictate the terms, pricing, and service levels of a companys customer, partner, and
supplier relationships. Contracts also provide a framework by which a company measures its opera-
tion and financial performance and compliance with business obligations and regulatory require-
ments.
Unfortunately, Aberdeen Groups 2003 assessment of enterprise contract management operations
found that many businesses lack the processes, systems, or corporate governance required to opti-
mally manage customer, partner, or supplier contracts. Aberdeens examination found that most
companies continue to manage contracts with a mix of manual, paper-laden, and informal proc-
esses; fragmented business systems; and ex post facto audits and analyses. This hodgepodge strat-
egy limits visibility into corporate contracts and performance, exposing enterprises to inflated
costs, diminished negotiation leverage, missed revenue opportunities, poor compliance, and regula-
tory backlash.

Contract Lifecycle Management Defined


Contract lifecycle management also referred to as enterprise contract management -- is the proc-
ess of systematically and efficiently managing contract creation, execution, and analysis for maxi-
mizing operational and financial performance and minimizing risk. An examination of enterprise
contract management practices across multiple industries and geographies has led Aberdeen to
identify the following phases of the contract life cycle (Figure 1):
Creation, including final negotiations and collaboration; document redlining and markup,
and signatures; ensuring use of standardized contract templates and clauses; and enforcing
business oversight and controls.
Activation, including establishing a central repository of all contract information. This re-
pository should be searchable and integrate directly with key transactional systems in order
to make contracts active.

1
Institute for Supply Management

5
Best Practices in Contract Management

Compliance, including proactive tracking of internal usage of preferred suppliers and con-
tracted pricing; tracking of term, pricing, rebate, and service-level compliance for customer
and supplier agreements; and monitoring and auditing of contract terms, changes, and per-
formance to ensure regulatory compliance.
Analysis, including the active enforcement of spending against budgets; balancing orders
between preferred suppliers to optimize usage and returns; and assigning resources for the
optimal management of the most profitable products and customers. Also, term analysis of
contract performance and attributes to determine future sales, budgeting, sourcing, supplier
management, and risk strategies.
Companies that utilize such standardized processes and controls across the contract management
lifecycle have realized reduced procurement expenses and operation costs, increased revenues and
customer satisfaction, improved order-to-cash and order-to-pay cycles, and enhanced compliance
(Table 2). These

Figure 1: The Contract Management Lifecycle

Source: Aberdeen Group, September 2004

Contract Lifecycle Management Delivers Results


The primary business drivers accelerating adoption of contract management improvement
initiatives and technology investments are examined in detail in the next chapter. However,
a clear driver for such investments is that, when coupled with appropriate processes and
controls, contract management automation delivers measurable benefits in the form of
revenue improvements, cost savings, process efficiencies, and performance enhancements.

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Best Practices in Contract Management

Aberdeens examination of enterprise contract management programs clearly indicates that


optimizing contracting and contract administration operations requires effective alignment
of processes, governance, and contract management automation. Most commercially avail-
able contract management solutions provide a centralized repository for contracts, tem-
plates, and clauses; collaborative contract creation, redlining, and audit trail capabilities;
activation of key contract terms; compliance monitoring and management; and contract
performance analysis.
Specific benefits achieved from contract management automation appear in Table 2.
Many enterprises have achieved full ROI from their solution investments in less than a year
thanks to improvements in contract compliance, access to pricing discounts and rebates,
and enhancements in revenue capture and acceleration. Contract management solutions
have also proven valuable in assisting companies in complying with regulatory reporting
requirements.
Table 2: Benefits of Contract Management Automation
Improvement Area Performance Impact
Compliance management Improve compliance 55%
Rebate/discount management Improve 25% - 30%
Material/service costs Reduce 2% - 7%
Contract renewal rates Improve 25%
Revenues Improve 1% - 2%
Evergreen contracts Eliminate evergreen contracts
Contracting cycles Cut contracting cycles in half
Procedures and terms Standardize processes and terms to miti-
gate risks, ensure proper
approvals, enforce polices
Contract analysis Analyze and maximize performance
Administrative costs Reduce 25% - 30%

Source: Aberdeen Group, September 2004

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Best Practices in Contract Management

Chapter Two:
Key Business Value Findings
Key Takeaways

Contract lifecycle management initiatives and system adoption are being accelerated
by continued pressures to improve financial and operational performance, new regula-
tory requirements globalization, increased contract volumes and complexity, and erod-
ing value of enterprise business application investments.

A berdeen has encapsulated the primary drivers for enterprise contract management into the
following PACE (pressures, actions, capabilities, and enablers) framework (Table 3).
Pressures: External forces that impact an organizations market position, competi-
tiveness, or business operations
Actions: The approaches that an organization takes in response to industry drivers
Capabilities: The business process competencies required to execute corporate strategy
Enablers: The key functionality of technology solutions required to support the organiza-
tions enabling business practices

Table 3: Contract Lifecycle Mangement PACE

Priorities Prioritized Prioritized Prioritized Prioritized


Pressures Actions Capabilities Enablers
Continued Improve compli- C-level emphasis on Central and search-
1
pressure to ance with existing supply able repository for
reduce costs supply contracts. management; ad- supply contracts.
Ensure accurate vances in supply Integration of con-
pricing. Access management tract pricing and
volume breaks, knowledge and dis- terms with transac-
discounts, and re- cipline; tional systems.
bates. Eliminate increased spend Online contract ne-
evergreen con- under procurement gotiation capabilities.
tracts. Accelerate groups control.
sourcing cycles

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Best Practices in Contract Management

Priorities Prioritized Prioritized Prioritized Prioritized


Pressures Actions Capabilities Enablers
Pressures to in- Accelerate and Improved access to Central and search-
2
crease revenues maximize revenue contract information able contract reposi-
accrual of existing and approved tem- tory. Standard, risk-
customer and part- plates. assessed contract
ner contracts. In- templates and
crease contract terms. Proactive
renewal rates. alerts for contract
Speed order-to- milestones and re-
cash cycles. newals.
Increased regula- Establish standard C-level focus and Central and search-
3
tory reporting re- procedures, con- increased budget for able contract reposi-
quirements trols, and reporting compliance infra- tory. Standard, risk-
contractual obliga- structure improve- assessed contract
tions, execution, ments. templates and
and performance. terms. Performance
measurement and
reporting.
Increased Enhance legal, ne- C-level focus on Standard, risk-
4
volume and com- gotiation, and con- global expansion, assessed contract
plexity of trading tracting skills and licensing, and stra- templates and
agreements resources, particu- tegic partnerships. terms. International
larly for interna- Increased budget for capabilities. Ad-
tional agreements. global and strategic vanced analytics for
Foster knowledge expansion. risk analysis.
sharing and reten-
tion. Improve risk
analysis.
Eroding value Extend value and Hosted and on- Central and search-
5
from procurement, usability of existing demand application able contract reposi-
customer relation- business systems and service models. tory. Data and proc-
ship management, and improve data Availability of pack- ess integration of
and enterprise accessibility to em- aged contract man- contract activities
resource planning power frontline em- agement solutions and terms into
technology in- ployees to effi- with advanced con- transactional sys-
vestments ciently execute tracting functionality tems. Advanced
processes and in- and data manage- reporting and analy-
formed decisions. ment sis tools.
capabilities.

Source: Aberdeen Group, September 2004

Key Business Drivers


Aberdeen research indicates that the following market conditions are making contract lifecycle
management a corporate priority:

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Best Practices in Contract Management

Uncertain global economic conditions and continued pressures to reduce costs and improve
financial and operational performance.
New regulations such as the Sarbanes Oxley Act require companies to establish and
document business controls, procedures for tracking and reporting material business infor-
mation, procedures and systems for ensuring compliance and auditing.
Globalization is increasing the types and complexity of contracts as well as the risks inher-
ent in trading relationships.
Outsourcing, licensing, and channel agreements are growing both in number and complex-
ity.
Insufficient human resources and systems infrastructure to effectively locate, execute, and
optimize contract performance.
Increased availability of packaged enterprise software applications designed to automate
and improve contracting, contract administration, and contract compliance and analysis
processes.

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Best Practices in Contract Management

Chapter Three:
Best Practices and Recommendations
Key Takeaways

Aberdeen research of more than 200 enterprise contract management programs,


including more than 35 contract management automation deployments identified 10
leading strategies for success.

Attributes of best-in-class strategic contract management programs include well-


defined contracting and administration procedures, strong corporate governance and
support, reuse of approved terms all reinforced through supporting contract man-
agement automation.

T o better understand the strategies required for contract management success, Aberdeen
Group spent several months examining contract management processes, governance, and
supporting technology systems at more than 35 enterprises. Aberdeen evaluated contract
management competence of each enterprise using several criteria, including breadth of contract
management program and system deployment; percentage of total trading relationships under con-
tract; compliance with contracted agreements; cost and revenue improvements; contracting process
efficiencies; and the alignment and integration of contracting and contract administration with
broader business strategies.
This most recent research effort followed Aberdeens previous examination of contract manage-
ment operations at 200 enterprises.

Automation is Key to Best-in-Class Contract Groups


Table 4 summarizes the differentiating attributes of best-in-class contract management operations.
One key defining attribute is the use of automation to streamline, support, and reinforce contracting
processes and contract access and compliance management companywide.

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Table 4: Attributes of Contract Management Excellence

Laggards Industry Average Best in Class


Process No standard contracting Contracting processes Contracting processes
or compliance manage- defined at the business standardized company-
ment procedures. Labor- unit or division level; but wide. Proactive compli-
intensive processes. not vigorously enforced. ance enforcement. For-
Ad hoc compliance en- mal templates estab-
forcement. Templates lished and enforced for
established for some all practical contract
contract categories but categories, clauses, and
sporadically applied. terms.
Organization No formal contract group Contract administrators Contract administrators
or administrators. Con- within select functional within all relevant func-
tracting decisions made groups (e.g., IT). Con- tional groups and
at site- or functional tracting decisions coor- aligned enterprise wide.
level. dinated at division or Contracting decisions
business unit basis. coordinated company-
Some coordination be- wide. Contracting is in-
tween contracting, legal, tegrated phase of
procurement, and/or source-to-pay, order-to-
sales. pay, and partnering
processes.
Knowledge No repository for con- Formal contract reposito- Central contract reposi-
tracts. All contracts ries established on busi- tory shared company-
stored in paper format or ness unit or division wide. Able to search all
on personal PCs. Little, basis. Able to search contract information.
if any, ability to locate contracts. Some ability Proactive alerts of con-
contracts. No ability to to search header infor- tract milestones, compli-
track contract milestones mation. Some ability to ance, and violations.
and compliance. track key milestones and Able to search and as-
compliance. No ability to sess clauses and terms
search specific clauses
or terms.
Technology Contracts created using Contracts created using Customer, partner, and
basic word processing basic word processing procurement systems
tools. Negotiation via tool supported by rudi- integrated with a con-
mail, fax, and phone. mentary homegrown tract management sys-
Manual compliance re- system. Compliance tem that supports au-
views and analysis. review and analysis by thoring, collaboration,
spreadsheet and/or da- monitoring, analysis, and
tabase application. reporting.
Some reporting capabil-
ity.

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Best Practices in Contract Management

Laggards Industry Average Best in Class


Performance Compliance and per- Compliance and per- Compliance and per-
metrics formance measured formance measured on formance measured in
sporadically. >33% of quarterly basis. 20% of real-time. <10% of pur-
purchases non- purchases non- chases non-compliant.
compliant. compliant.
Source: Aberdeen Group, September 2004

Contract Management Best Practices


Aberdeens Best Practice research project identified 10 factors as key strategies for contract man-
agement success:
1. Audit internal contract management processes, systems, and controls before investing in a
contract management solution.
2. Create a compelling business case with both benefit and crisis.
3. Ensure proper executive and stakeholder support for both contract management initiative
and automation investment.
4. Define detailed functional requirements for a contract management solution and stick to
them.
5. Dedicate and empower a contract management program champion.
6. Establish a contract management governance council to ensure support from functional and
business unit leaders.
7. Clearly define and communicate procedures and protocols for the complete contracting and
contract administration.
8. Where possible, use templates to streamline contracting cycles, minimize risk, and maxi-
mize compliance.
9. Measure program performance and market results.
10. Identify areas for continuous improvement.

1. Audit processes, systems, and controls first


The most successful contract lifecycle management programs begin with a detailed (and sometimes
painful) audit of existing contracting and contract administration infrastructure and competencies.
Areas to examine include:
Contracting and administration processes: Start by following a contract from initial nego-
tiations through post-signature administration, analysis, and end-of-life or renewal. Differ-
ent types of contracts will likely have different processes and approval requirements at the
granular level. It is also likely that these processes will vary by division or group. Many of
these unique nuances will continue to need to be supported. However, the goal should be to
define a common process methodology at the high level so the entire enterprise has a
shared understanding of the procedures and phases of the contract management lifecycle.
Organizational structure and alignment: Examine how your company organized for con-
tract management. Detail the functions and people involved in contracting (e.g., sales, le-
gal, finance, etc.). It is likely that involvement will vary by contract type or even size. (For

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Best Practices in Contract Management

example, legal will be heavily involved in strategic contracts, but less so with high-volume,
non-strategic contracts.) Determine if roles and involvement changes as a contract passes
from the initial contracting phase to post-signature contract administration. Assess the ef-
fectiveness and efficiency of this organizational structure to determine if realignment or
additional dedicated resources are required to effectively manage contracts.
Contract visibility: Assess accessibility of contract information (e.g., pricing, terms, tem-
plates, terms and clause libraries, and complete contracts) to business stakeholders respon-
sible for creating or managing a contract as well as those impacted by a contract. Determine
what information is required for each party to effectively execute their duties. For example,
stakeholders need regular access to the entire contract. Instead, most parties only require
access to header information and key terms that need to be tracked and managed. These
actionable contract details are also what need to be exposed and tracked against transac-
tional systems.
Contract system infrastructure: Map the information technology systems and applications
used to manage contract data and processes. Expect to find multiple and varied automation
and information management approaches across the enterprise. Aberdeen research revealed
that contract management systems often vary by internal business function and division,
with each stakeholder group creating its own method (often a Microsoft Excel spreadsheet
or Access database) to track and manage key contractual obligations, terms, and pricing ta-
bles.
Performance metrics and performance: Determine which, if any, areas of contract man-
agement performance your company consistently measures. Identify areas not currently
measured that should be. Be sure to define measures for contract performance (e.g., pricing,
service levels, revenue accelerators, etc.) and process performance (e.g., contracting cycles,
use of approved terms, renewal rates, etc.).

2. Create business case with benefit and crisis


Most enterprises have gross misconceptions about their contract management competence. And in
most cases, enterprise executives fail to understand the magnitude and impact insufficient contract
management is having on their companys financial and operational performance. An internal audit
helps bring these issues to light. However, securing sufficient resources and budget for improving
contract management operations will require development of a well-defined business case that ac-
complishes the following:
Defines and baselines existing contract management performance, including both strengths
and weaknesses the internal audit uncovered in the areas process, organization, knowl-
edge/visibility, technology, and performance metrics.
Quantifies the current costs of underperforming areas of your contract management pro-
gram. Such costs include the costs of missed contract milestones (e.g., overpayment, penal-
ties, inaccurate prices, missed revenue accelerators); costs of risky contract language (e.g.,
elongated payment cycles on customer contracts, short payment cycles on supply contracts,
evergreen renewals, inadequate intellectual property (IP) or brand protection, maverick
contracts); costs of inefficient processes and controls (e.g., long contracting cycles; lagging
contract execution, missed renewals, and regulatory violations and fines).
Details a blueprint for contract management improvements, including prioritization and
timeline of actions, resource, systems, and budgetary requirements, protocols and govern-
ance requirements.

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Best Practices in Contract Management

Estimates the financial and operational benefits of executing such improvements. Such cal-
culations can be developed by leveraging benchmark information from third-party sources,
such as industry associations, such as the IACCM, industry analysts, like the Aberdeen
Group, and contract lifecycle management solution providers.
The quickest way to garner support (and budget) for a contract lifecycle management initiative is to
link the business case to a pending crisis, such as impending regulatory reporting requirements,
such as the Sarbanes Oxley Act, or financial issues, such as lost revenue, elongated order-to-cash
cycles, or unnecessary waste or cost.
For General Motors Corporation the Block Exemption Regulation (BER), which required re-
contracting with 14,000 dealers across 15 countries within a one-year period, provided more than
sufficient crisis to create a compelling business case and garner executive alignment and budget for
a contract lifecycle management initiative and solution investment.

3. Ensure proper executive and stakeholder support


The fact that contract management is one of the few business processes that touch the entire enter-
prise from sales and procurement through legal and finance is both good and bad news.
The good news is that every stakeholder understands the importance of having rapid access to the
data and tools required to maximize contract compliance and value. The bad news is that every
stakeholder has a different view of the proper processes, governance, and systems required for ef-
fective contract management.
These differing perceptions will become readily apparent during the initial auditing phase. How-
ever, designing and executing an effective contract lifecycle management initiative will require
buy-in and ongoing support from two key constituencies:
1. Top line executives who can free up budget and align performance metrics and incentives
to reinforce contract management goals, principles, and systems adoption.
2. Business-line managers and frontline employees who will be responsible for complying
with new corporate policies and systems for contract management.
Leading performers, such as BNSF, Time Warner, and Toyota attribute a large portion of their con-
tract management success to their decision to secure early support and alignment of key stake-
holders and executives. Such early cross-functional involvement helped these enterprises mute the
significant change management issues that can accompany a contract management initiative.
For example, FFIC established a cross-functional team of supply management, information tech-
nology (IT), and finance professionals to map out the optimal to-be state for an end-to-end con-
tracting and procurement process. The team solicited input and requirements from business line
managers that would be responsible for issuing contract requests and releasing orders against sup-
ply contracts. Armed with these requirements, the selection team defined a specifications blueprint
for the processes and governance structures required for effective contracting and administration as
well as the supporting functionality required from a contract lifecycle management solution.

4. Define system requirements and stick to them.


Contract lifecycle management is one of the few business application areas where the functionality
and breadth of commercial packaged solutions often exceeds the requirements of the enterprise.
(Or, more precisely, available solution functionality in a contract lifecycle management suite is of-
ten too much for an enterprise to digest in a single deployment project.) As a result, a system re-

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Best Practices in Contract Management

quirements and deployment plan should be based upon the prioritized goals and timelines detailed
in the enterprises business case for its contract management improvement initiative.
Project leaders must guard against the siren song of excess solution functionality or risk elongated
deployment cycles, lagging system adoption, and delayed time-to-value.
In the words of one contract management program executive: Where companies fail is when they
allow new features to distract them from their core goals. Dont try to use all the features that they
put in these systems, becauseyou defeat the purpose of what you really want to do. Once you
achieve your initial goals, you can then begin to see what else the system is capable of doing.

5. Empower a contract management program champion


Establish a contract lifecycle management program manager or group that is responsible for the
following activities:
Communicating and ensuring alignment on program goals and milestones.
Ensuring proper training on contracting and contract administration protocols, governance,
and systems.
Measuring contract management process performance and system adoption.
Reporting performance results to governance council and key stakeholders.
Providing recommendations for continuous improvements.
Leading enterprises align this program champion with support champions or super users within
specific functional groups or business units. Such alignment provides a clear channel both to com-
municate new policies and system enhancements and to receive feedback and performance informa-
tion from the field.
For example, HP identified and trained super-users in each region and business unit. Functioning as
the local champions for the overall contract management program and resident experts for system
adoption, these super users are responsible for supporting training, support, and user adoption.

6. Establish a governance council


Create a contract management governance council that includes the leadership of major business
units and functional stakeholders across the organization, including contracts, legal, procurement,
sales, business development, finance, and information technology. Such coordination provides a
structured environment to identify and secure alignment on contract management protocols, gov-
ernance, and systems requirements. It also facilitates the exchange of internal best practices and
encourages company leaders to take an active role in protocol and/or systems adoption and ensur-
ing compliance with negotiated contracts. The governance council is also vital for ensuring contin-
ual communication and reinforcement of contract management goals.

7. Define contract procedures and protocols


It is highly likely that an internal audit of contract management infrastructure and processes will
uncover a myriad of approaches and semi-formal processes and procedures for creating, communi-
cating, and governing corporate contracts. As noted above, these procedures will likely vary by di-
vision, function, and contract type. The highest variances will likely occur in the contract admini-
stration processes i.e., the activities for monitoring and managing contract compliance and value
after signature.

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Best Practices in Contract Management

Aberdeens examination of enterprise contract management programs consistently finds that, while
many companies have defined processes and protocols for contract negotiations, few have well-
defined roles, responsibilities, or processes for contract administration. In fact, in many cases, con-
tracts and related compliance are only reviewed as the contract comes to term. Such ex-post-facto
approach to contract administration leads to a myriad of factors including, incorrect pricing, late
payments, missed service milestones and revenue opportunities, insufficient certifications and in-
surance, and increased risk.
It is unlikely that a single process will address the unique aspects of different business units or con-
tract types e.g., procurement contracts differ from licensing contracts. However, the goal should
be to define a common process methodology or guidelines at the high level so the entire enterprise
has a shared understanding of the procedures and phases of the contract management lifecycle.
For example, one large enterprise established a bifurcated process methodology for ensuring con-
tract administration:
For strategic and/or high-dollar contracts, the company would establish a contract launch
meeting, pulling together a cross-functional team that included those negotiating the con-
tract, legal, and those responsible for administering the contract. The purpose of this meet-
ing was to gain a consistent understanding of the contract milestones, terms, and intent.
And to assign specific roles and responsibilities for administration of the contract.
For non-strategic, standard, or high-volume contracts, the company had predefined roles
and responsibilities. The company also established an online terms-definition library to as-
sist contract administrators in interpreting the intent of a particular milestone or term, and
recommended approaches for ensuring compliance with this term.

8. Use contract templates whenever possible


Internal audit will likely identify significant waste and duplicative efforts across the enterprise. For
example, Aberdeen research has revealed that management, legal, and finance groups spend an un-
duly large portion of their time reviewing contract terms and conditions that are frequently used
across the company. Likewise, business managers spend an inordinate amount of time recreating
contract terms and variances for agreements that should be standard across an entire category of
trading relationships. In many cases, these activities and reviews are unnecessary, lengthening con-
tracting cycles and hindering productivity.
Leading enterprises are streamlining the contracting process by creating libraries of contract tem-
plates and clauses that empower approved stakeholders to construct a contract using pre-approved
pricing, terms, and conditions all while mitigating the use risky contract language. These tem-
plates are defined for specific and generally highly used contract categories or types, such as con-
tingent labor agreements.
For example: HP has defined a library of contract templates for specific product and service types.
These templates also include variations that support local requirements and business regulations.
Result: HP reports shorter contracting cycles and improved compliance.

9. Measure program performance and market results


Contract management leaders continually measure contract management performance. Key areas
for measurement include:
Transactional compliance: Be sure to measure internal operational compliance (e.g., em-
ployees use of preferred suppliers, pricing accuracy, service execution, payment accuracy)

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Best Practices in Contract Management

as well as trading partner compliance (e.g., on-time payments from customers, on-time de-
livery and accurate pricing from suppliers, etc.).
Process compliance and performance: Be sure to measure compliance with pre-established
protocols, governance, and pre-approved contract language. Measure total contract volume
throughput. Also measure the efficiency and accuracy of contract process, such as contract-
ing cycle times by contract type and group and completeness and accuracy of records in
your contract database.
Regulatory compliance: Be sure to track all financial, environmental, and industry-specific
regulations and reporting requirements. Ensure that contract language, administration, and
reporting comply with these regulations.
To maintain program alignment and support, establish clear channels for communicating and re-
viewing contract performance at regularly scheduled intervals.

10. Identify areas for continuous improvement


The most successful enterprises view contract management as a continuous improvement process.
These companies use performance measurement information to not only reinforce program and sys-
tem adoption but also to identify new areas of opportunity for improvement.
Phase two improvements might include expanding a library of contract templates, improving inte-
gration between contract management and transactional systems, adopting advanced tools for re-
porting and analysis of contract performance, or building a portal to extend access to select contract
information to approved trading partners.
To drive such improvements, these companies leverage pre-established channels and training pro-
grams to continuously communicate and reinforce the processes, expectations, and goals of the im-
provement initiative. Program champion, super users, and the governance council function as vital
channels for defining and driving continuous improvement in contract management operations.

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Best Practices in Contract Management

Chapter Four:
Best Practices in Contract Management
Profiles of Winners

Aberdeen research of more than 35 contract management programs and system de-
Key Takeaways

ployments has identified the following enterprises as demonstrating best practices in


contract lifecycle management:
o Burlington Northern Santa Fe (BNSF)
o Firemans Fund Insurance Company (FFIC)
o General Motors
o Hewlett-Packard
o Honeywell
o Interpolis Verzekeringen
o Qualcomm
o Time Warner
o Toyota Motor Sales U.S.A.
o United Asset Coverage (UAC)
Case studies of most these vendors follow in this chapter. Remaining case studies will be
published in an ongoing series.

Case studies of seven of these enterprises follow in this chapter. Remaining case studies will be
published on an on-going series during the month of October with the final report complete by Oc-
tober 31, 2004. Please check www.aberdeen.com after that date.

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Best Practices in Contract Management

BNSF Taps Contracts to Drive Supply Management Success

Executive Summary
As one of the largest railroads in North America, The

Best Practices in Contract Management


Burlington Northern and Santa Fe Railway Company Company Name
(BNSF) knows the importance of reliable perform-
ance. The $9 billion railroad has made significant in- The Burlington Northern and Santa Fe Rail-
vestments to ensure that its freight trains run on time way Company (BNSF)
across its 32,500 miles of routes. But, like most busi-
nesses, BNSFs performance is linked to the quality Solution Provider
and reliability of its suppliers.
As recently as 2001, BNSF relied on multiple systems Upside Software Inc.
and distributed, manual processes to negotiate and
manage supplier contracts. As a result, the railroad Business Challenge
lacked clear visibility into supply contracts, impeding
its ability to control costs and performance. Labor-intensive contract management proc-
esses led to poor visibility, lengthy cycles,
In 2002, as a part of a supply management transfor-
high costs, and increased risk from non-
mation initiative, BNSF deployed a contract lifecycle
compliance with standard terms.
management solution from Upside Software Inc., to
automate and streamline day-to-day contracting and
compliance activities for its services contracts. Today, Strategy
the railroad has cut contracting cycles by 60%, and is
Automate and streamline contract manage-
executing 50% more contracts with 10 fewer people.
Most important, BNSF has mitigated supply risks by ment process.
ensuring formal contracts and proper insurance Enforce common contract language and
documentation are in place. . procedures.
Align contract management with broader
Business Challenge supply management initiative.
Three years ago, BNSF was relying on a staff of 14
full-time employees to manage supplier service and Value Achieved
purchase contracts in a centralized, but manual, 16-
step process that took an average of 30 days to com- Mitigated millions of dollars in potential fines
plete. Supply contracts were negotiated through a se- by ensuring suppliers are properly insured.
ries of time-consuming manual exchanges between a Cut contracting cycles by 60%.
central contracts group, the field, and suppliers. Of- Improved worker productivity.
ten, contracts would not be in place until some time Eliminated FTEs.
after the supplier arrived on site, which placed BNSF
Achieved full system ROI in 62 days.
at risk from an insurance perspective.
If a supplier is coming on our property to perform a service, they have to have a contract and they
have to be properly insured, said Leigh Ann Vernon, assistant vice president Strategic Sourcing at
BNSF, adding that, in the past, BNSF had no formal way to ensure that a supplier on property had
an approved contract. Without a contract or any assurance that they have the proper insurance, our
whole company is at risk.
BNSF also struggled with an outdated contract management system. One director, three full-time
contract event negotiators, and ten clerks had been using a mainframe SAS system to support their
efforts, but when the companys Technology Services Department stopped supporting it, they relied

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Best Practices in Contract Management

mainly on a cut-and-paste method using word processing documents, limiting visibility into sup-
plier contracts and use.
We couldnt see what we were spending, said Vernon. We didnt even know how many con-
tracted suppliers we had.

Contract Management Strategy


As a part of a larger supply management transformation initiative, BNSF identified three key areas
to leverage enabling technologies: strategic sourcing, supply contract management, and procure-to-
pay processes.
BNSF identified contract management as core to success across all these initiatives, helping the
company better leverage its spending in sourcing engagements and drive ongoing compliance. The
railroad viewed contract lifecycle management (CLM) automation as key to streamlining contract-
ing cycles, reducing manual procedures, and improving audit controls and compliance. BNSF also
viewed CLM as vital to establishing a central contract repository and to standardizing and enforc-
ing contract procedures and language.

Contract Management Selection and Deployment


BNSF began by establishing a cross-functional team to conduct a thorough build-versus-buy analy-
sis, assessing its internal requirements and development capabilities and measuring these against
available capabilities of commercial contract management solution providers. BNSF placed particu-
lar emphasis on automated contract request, collaboration, and creation capabilities, viewing this
functionality as vital to its goal of speeding contracting cycles and reducing administration costs.
Unfortunately, their market analysis found that, at the time, most CLM applications focused on
terms tracking and compliance, but lacked contract creation capabilities.
Other capabilities identified for assessment included:
Ease of use
Automated event management, review, and approval workflow support
Ability to monitor, analyze, and manage contract compliance and performance
Integration with financial systems for invoice reconciliation and payment
Support of electronic interactions with suppliers
BNSF selected Upside Softwares UpsideContract solution, due to its contract creation capabilities,
ease of use, and integration with Upsides invoice management capabilities. Andy Manthei, BNSF
director, Contract Services, said the decision was also based on Upsides favorable record of per-
formance, financial stability, and customer references.
BNSF intentionally began its deployment with a limited pilot of UpsideContract, training and test-
ing select groups of users in the field. This trial approach allowed BNSF to elicit early feedback on
system features and training methods. The implementation team used this input to encourage Up-
side to incorporate system enhancements and to determine the most effective means for training and
driving system adoption.
The implementation involved a number of integration points, including BNSFs ERP; GEAC Mil-
lennium; Upsides billing module, dubbed FAST Track eAP; BNSFs corporate records database;
and BNSFs FileNet document management system to incorporate scanned images of contracts al-
ready in place. Upside also developed software conversion routines to extract metadata from

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Best Practices in Contract Management

BNSFs SAS system into UpsideContract as appropriate. Another key integration hook was to a
third-party service that ensures suppliers have valid insurance certificates.

Results
BNSF went live on the Upside system a little over two years ago. Today, the company manages
over 3,000 contracts in the system, representing about 85% of its service agreements. The railroad
has also rolled out the system to more than 200 users and is using it to manage contracts in a num-
ber of other categories, including fuel, transload, public projects, intermodal drayage, intermo-
dal/automotive facilities and asset sales.
The solution has allowed BNSF to streamline its contracting process from a 16-step manual, paper-
based procedure to seven automated and fully auditable steps. This automated process has allowed
BNSF to cut contract creation cycles from the time a contract is requested until the time the con-
tract is sent to the supplier for signature -- from an average of seven days to about a day. Overall,
BNSF has shaved the total contracting process lifecycle from 30 days to 10 days or less.
Such efficiencies have allowed BNSF to increase its contract creation throughput by 50% while
reducing its dedicated contract management staff to four FTEs.
Equally important, BNSF has mitigated potentially millions of dollars in insurance liability risk by
speeding contracting cycles and providing assurances that contracted suppliers have requisite and
valid insurance coverage.
In the past, the contracting organization unit of BNSF was often notified of the need for a contract
when a contractor was already on site, said Manthei. Now we can turn the request around quickly
to ensure that we are covered.
These improvements contributed to an impressive full return on investment (ROI) on the Upside
application within the first 62 days of deployment.

Lessons Learned
BNSF identified the following factors as major contributors to its contract management success:
Secure executive support: Sponsorship at senior levels is paramount, said Vernon. You
need to have senior buy-in, or the rest of the organization wont follow.
Make all relevant stakeholders part of the process: Vernon said the early and frequent in-
volvement of cross-functional team members from the outset is important for early buy-in
and ongoing adoption. She said that her group has created a formal feedback loop with the
original team members to get ongoing adoption and functional updates. BNSF also took a
train the trainer approach to educating key employees on the system so users would have
a local resource for assistance.
Communicate early and often: A key component of BNSFs early and ongoing success has
been to clearly define project objectives and communicate execution against these with the
end-users across the organization, including surveying user feedback on an ongoing basis.

Future Outlook
Today BNSF is looking to begin tracking industry and supplier performance metrics in the Upside
solution so it can be more responsive to market dynamics. The railroad plans to leverage this in-
formation for supplier performance scorecards and assessments, and compliance analysis.

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Best Practices in Contract Management

In addition, BNSF is evaluating linking the Upside solution to online sourcing tools such as elec-
tronic request for proposal (eRFP) to enable a fully automated source-to-pay process. In this sce-
nario, contract terms negotiated online can be used to automatically populate a contract agreement,
eliminating the need for final offline contract negotiations or for re-keying data. BNSF could also
use the terms and conditions of an existing contract to auto-populate an eRFP or trigger a reverse
auction event.

Aberdeen Conclusions
BNSF has made contract management the foundation of its supply management transformation. By
automating the contracting process, the railroad has already realized measurable improvements in
the form of reduced process cycles and administration costs, and mitigated supply risks. The com-
pany is now using contracts to drive improvements in supplier performance and spend compliance.
BNSF stands as a prime example of how contract management can be used as a lynchpin for supply
management success.

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Best Practices in Contract Management

Contract Management Insures Supply Management Turnaround at FFIC

Executive Summary
A leading property-casualty insurance company,

Best Practices in Contract Management


Firemans Fund Insurance Company (FFIC) knows Company Name
the importance of managing risk. For more than 140
years, the $4.5 billion insurer has secured the homes, Firemans Fund Insurance Company
lives, and assets of individuals and businesses across
a range of industries. Solution Provider
In 2002, FFIC applied these risk management princi-
Nextance
ples to its supply agreements. At the time, the insurer
had no formal contracting procedures and controls,
and contract information was distributed across mul- Business Challenge
tiple business systems.
Lack of standard contracting processes
Looking to better leverage its spend and mitigate
risky contracting language and supply relationships, Redundant contracts
FFIC established a formal contract management or-
ganization, defined standard contracting procedures Insufficient contract visibility and compliance
and language, and adopted a contract lifecycle man-
agement (CLM) solution from Nextance. The strategy Fragmented contract information
resulted in dramatic process efficiencies, increased
contract visibility and control, improve leverage with Strategy
suppliers, and millions of dollars of cost savings.
Establish central contracting group
Business Challenge
FFIC has built a business on managing risk for others. Define and enforce standard contracting
Unfortunately, FFIC lacked the same rigor when processes and language
managing its own supply relationships. In 2002, the
insurer struggled with highly fragmented contracting Adopt a CLM solution to support the com-
procedures, with each of its eight businesses negotiat- plete contract management lifecycle
ing and managing supply contracts in a slightly dif-
ferent manner. Contract information was distributed Value Achieved
across multiple business systems and Lotus Notes-
based databases. 10-fold improvement in contracting process
This fragmented contract management infrastructure efficiencies
limited visibility into contracts, hindered compliance
efforts, and diminished FFICs ability to leverage its Saved millions of dollars by eliminating re-
spending power with suppliers. Case in point: It was dundant agreements and improving compli-
not uncommon for different FFIC divisions to negoti- ance.
ate separate contracts with the same suppliers, using
different terms and conditions.
Contract Management Strategy
In September 2002, as part of a corporate turnaround initiated by then CEO Jeff Post, FFIC identi-
fied supply management as a key area for improvement. The insurer began by establishing a central
Supply Management organization that was tasked with enforcing common contracting and pro-

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Best Practices in Contract Management

curement procedures, better leveraging spend, and adopting technologies to streamline source-to-
pay processes across the enterprise.
While the charter for the new supply management group was clear, success would not be easy. At
the time, FFIC had thousands of disparate and often redundant supply contracts each using differ-
ent terms and conditions. Such variations were particularly problematic with FFICs complex ser-
vice agreements, such as those for software development and IT outsourcing, which included a
myriad of performance milestones and payment schedules.
To reconcile these discrepancies and improve insight into its supply relationships, FFIC would need
to overhaul existing procedures for negotiating, storing, and managing contracts. Supply manage-
ment leadership established a central contracting group, defined common contracting processes, and
began the process of identifying a contract lifecycle management (CLM) solution that could sup-
port its newly formulated contracting procedures.

Contract Management Selection and Deployment


Understanding that contract management success would require input and support from all corners
of the enterprise, FFIC established a cross-functional team of supply management, information
technology (IT), and finance professionals to map out the optimal to-be state for an end-to-end
contracting and procurement process. The team solicited input and requirements from business line
managers that would be responsible for issuing contract requests and releasing orders against sup-
ply contracts. Armed with these requirements, the selection team defined a specifications blueprint
for the functionality and support required from a CLM solution. Key criteria included: ease-of-use,
central contract repository and advanced search capabilities, and the ability to support the request
and contracting of complex services, such as software licenses, outsourcing, and application host-
ing.
First round responses from the initial request for proposal (RFP) made it clear to FFIC that no sin-
gle vendor could provide a complete solution for all its source-to-pay needs. The insurer divided its
selection process into two areas: requisition-to-order and contract management. After a thorough
analysis of leading providers, FFIC settled on two vendors: PeopleSoft for e-procurement and Nex-
tance for contract management.
Robert Neuhard, FFICs Senior Director of Contracts, said Nextance provided the requisite func-
tionality and configurability required to support its newly defined contracting and contract man-
agement process and the scalability to meet the companys expansion plans. Neuhard also said that
Nextance was selected for its strong leadership team and product roadmap. A final benefit of the
Nextance solution was its ability to integrate with FFICs PeopleSoft implementation.
FFIC began with a limited pilot that included 40 requisitioners, procurement, and contracting man-
agers. Within 45 days, the company had managed 200 service request and contracts through the
system. The insurer solicited feedback from these early users and worked with Nextance to incor-
porate user interface and functional changes into the system before full production.
From March 2004 through August 2004 FFIC handled a combined total of 1,000 service requests,
contracts and non-disclosure agreements in the Nextance system,, and continues to upload its his-
torical contracts. The insurer has established templates for more than 20 different contract types and
a library of approved clauses, helping standardize contracting language and shorten the overall con-
tracting process.
The Nextance system allows front-line requisitioners to request a contract, guiding the users
through a series of questions and prompts to secure requisite specifications to enable FFIC buyers
to source the requested product or service effectively. The system routes these requests for depart-

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Best Practices in Contract Management

mental and financial approval simultaneously with routing it into the procurement organization,
providing constant visibility into contract information and request status. Once departmental and
financial approvals are received, a contract specialist either selects an existing master agreement in
place with a current supplier to fulfill the requisition or issues an RFx with the appropriate best in
class terms and conditions attached from the agreement library. Terms and conditions, schedules
and scopes of work are negotiated through the system, tracking all revisions and mark-ups. Prior to
execution, the system automatically routes the agreement to the General Counsels office for ap-
proval and the final negotiated price is validated against the dollar amount approved at the begin-
ning of the process to ensure that the correct level of financial approval is in place. In June, FFIC
integrated the Nextance solution to PeopleSoft SRM, linking vital supplier, contract, transaction,
and payment information. Ninety percent of the information needed to create a purchase order
(PO) in PeopleSoft will be supplied from Nextance, said Neuhard. Transactions from PeopleSoft
can be verified against contractual terms and pricing in the Nextance system to ensure appropriate
compliance and rebate capture. This will be important for our transaction compliance monitoring
plans, said Neuhard.
FFICs supply management group also uses monitoring and reporting tools within Nextance to
track and measure contracting cycle times, and process compliance.

Results
Since initial deployment, FFIC has saved more than $1 million by reducing redundant contracts.
The insurer estimates another $1.5 million savings from eliminating the creation of one-off or
unnecessary contracts and off contract buying.
The [Nextance] system has dramatically improved our visibility into supply contracts, said Neu-
hard. This has helped decrease the number of redundant contracts and improved our ability to lev-
erage contract rates, discounts, and rebates.
FFIC also reports that automating its contracting processes has resulted in a ten-fold improvement
in contracting efficiency.
Neuhard said the system has also enabled improved tracking of contractual rights and obligations,
reducing costs associated with erroneous payments for software that was never installed or involved
fewer seats or users than negotiated.

Lessons Learned
FFICs supply management transformation reinforced the importance of setting clearly defined re-
quirements and responsibilities, validating assumptions and goals,, and constant communication.
Communication was critical to the success of our system selection and deployment process, said
Neuhard. The two [selection] groups were able to clearly communicate the status of system selec-
tion and deployment and were able to see the potential benefits of integrating the [Nextance and
PeopleSoft] systems to meet the needs of both supply management and FFIC overall.

Future Outlook
FFIC views stakeholder involvement as critical to its ongoing success. The insurer plans to con-
tinually find ways to use the Nextance and PeopleSoft systems to empower frontline requisitioners
with the ability to initiate requests for a larger portion of the goods and services they need to do
their jobs. To this end, FFIC is continually building RFP and contracting templates for all spend
categories. These templates will guide requestors through the requisition process, ensuring detailed
specification of requirements and driving compliance with standard contracting language.

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Best Practices in Contract Management

Aberdeen Conclusions
FFIC made contract management the linchpin of its turnaround strategy for its supply management
operations. The insurer employed a calculated strategy that involved securing executive support,
standardizing contracting procedures and controls, adopting CLM automation, and incorporate all
relevant stakeholders into the reengineering and solution deployment process. The holistic focus on
people, process, and technology allowed FFIC to dramatically improve contract visibility and con-
trols, achieve significant cost savings and process efficiencies, and provide a foundation for effec-
tive supply management.

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Best Practices in Contract Management

Hewlett Packard Controls Contracts to Support Sales

Executive Summary
Hewlett Packard (HP) has come a long way in 66

Best Practices in Contract Management


years, progressing from the original garage start up Company Name
to its current role among the worlds leading con-
sumer information technology companies. Hewlett Packard
To support sales operations for its computers, print-
ers, and business systems and services globally, HP Solution Provider
works with a vast network of direct sales people and
Upside Software Inc.
channel partners in more than 70 countries. Yet, until
two years ago, HPs customer and channel partner
contract information was distributed across multiple Business Challenge
online and offline systems, clouding the computer
Sales and marketing contracts details were
makers ability to gather a complete view of its trad-
ing terms with any customer. distributed on paper and in more than a
dozen home-grown systems, precluding
As part of its initiative to improve contracting proc-
easy insight into business and on-going
esses and gain a unified view into contract and cus-
sales opportunities support.
tomer data, HP adopted a contract lifecycle manage-
ment (CLM) solution from Upside Software Inc. The
investment is providing a single point of truth for Strategy
all contracts, enabling HP to streamline processes,
To implement a centralized contract man-
enhance service levels, and improve revenue renewals
with key clients. agement organization supported by an en-
terprise-wide system accessible to HP per-
Business Challenge sonnel and partners globally
HP is an indisputable global leader in multiple con-
sumer and business technology segments. However, Value Achieved
to stay on top HP must continually develop innova-
Streamlined the contract management proc-
tive new products, improve operational performance
and efficiencies, and grow and enhance customer rela- ess and developed a central repository of
tionships. Each of these initiatives rely heavily on contract detail. Reports that used to take
HPs ability to gain accurate, complete, and timely three to four days to complete now take only
insight into pricing, obligations, and service levels to a few hours.
customers.
As recent as 2001, HP struggled to locate customer contracts, let alone optimize these. Information
on customer relationships was distributed across different home-grown applications, each devel-
oped to address the unique requirements of a specific geographic region or business unit. Contract-
ing processes and terms also varied by region, business unit, and contract type, with many contract
creation and compliance procedures handled entirely manually.
According to Luis Huix, Contracts Operations Group Manager, it took as long as a full week to cre-
ate a single report that provided a consolidated record into all the contracts HPs different business
units had with a particular customer. If management wanted to get all information on a specific
customer, an employee would have to request a report from several systems and databases and then
manually coordinate this information into a single report. HP knew that optimizing customer rela-

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Best Practices in Contract Management

tionships would require drastic changes to its contract management operations and systems infra-
structure.

Contract Management Strategy


In 2001, HP set out to transform its contract management operations. The companys strategy can
be segmented into three key areas:
Create a global sales and marketing contracts group that has oversight of contract procedures and
terms, is responsible for coordinating and aligning contracting with regional and business unit lead-
ers, and is tasked with driving compliance.
Define and enforce common contract management procedures, contract language, and controls
across all HP regions and business units.
Leverage automation to streamline contracting procedures, monitor and enforce compliance, and
provide a single repository for all customer contracts and related performance information.
HPs global contracts operations group was well aware of the change management issues that
would be involved in successfully executing its contract management transformation strategy. To
overcome this hurdle, the newly founded group began by developing a detailed and compelling
business case on how customer and partner contract management would impact the business units
in terms of revenue, profitability, performance, and efficiency. The group then evangelized this
message to sales leadership and stakeholders within HPs various regions and business units.
Huix summed up the contract management value proposition in one sentence: We made it clear to
the businesses that with all customer information in one easily accessible place, they would have an
edge in selling to customers the way they want to be sold to.

Solution Selection and Deployment


With the proper contract management organizational structure and process definitions in place, HP
examined its options for a contract lifecycle management (CLM) system. The company developed a
formal request for proposal for a CLM solution outlining approximately 25 must have criteria, as
well as preferred additional requirements. Key criteria included:
A centralized, global approach
Regional localization and local language capability
Ease-of-use and advanced search capabilities
Extensive document creation and management
Ability to include product lists and discount information in contracts
Extensive workflow
Contract milestone and performance monitoring and user alerts
Advanced management and reporting functions, including risk, compliance, and perform-
ance management.
HP issued the RFP to all the leading CLM solution providers. Off-the-shelf functionality was a re-
quirement for HP, as long as the system could configure and scale to meet HP global requirements.
HP established an internal solution evaluation team that included members from the global con-
tracts group, information technology (IT), and functional sales, marketing, legal, and finance repre-
sentatives from corporate, regions, and business units. Huix said this cross-functional/cross-

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Best Practices in Contract Management

enterprise team approach was critical to ensure proper alignment and buy-in from the businesses at
the outset of the project.
The evaluation team executed a thorough review, demonstration, and analysis of all the leading
CLM solutions, evaluating each on their ability to meet the above criteria, service quality and re-
sponsiveness, availability of an off-the-shelf product, competitive total cost bid, solid customer
references, and product functionality roadmap and upgrading. HP eventually selected Upside Soft-
ware because of the solution capabilities and product support, the cost of the application and im-
plementation, and the companys financial stability.
HP began with a limited deployment, giving select users within different regions and business units
the opportunity to do hands-on testing of the Upside solution. Huix said his group took input from
these early users and pushed Upside to incorporate requested user-interface and functionality
changes prior to fully rolling out the system. This early testing also helped the global contracts
group better understand the business, regulatory, and cultural requirements of each individual re-
gion and business unit.
Next HP identified and trained super-users in each region and business unit. Functioning as the
local champions for contract management and resident experts for the Upside system, these super
users are responsible for supporting training, support, and user adoption. HP has since defined a
library of contract templates for specific product and service types. These templates also include
variations that support local requirements and business regulations.

Results
Giving business stakeholders an active role in solution selection and deployment has been a vital
component of HPs contract management success. Just two years after implementing the Upside
solution, HP is on track to manage 70% of all its sales and marketing contracts within the Upside
system by October. Huix anticipates that 90% of HPs sales and marketing contracts will be man-
aged through the system within the next 12 months.
Approximately 200 employees regularly use the system to collaborate on contract creation, review
customer accounts, or manage contracts. The number of system users will grow to 1,600 by Octo-
ber as HP brings other stakeholders online, including partner operations. Huix expects that 2,500
users will be using the system worldwide by next summer.
Contract lifecycle management has helped HP achieve streamline its contracting process and miti-
gate risks within customer contracts. However, Huix says the greatest benefit of CLM has been im-
proved insight into customer obligations and performance. Winning in sales requires you to have
as much customer information as possible, said Huix. Just having our customer contracts in a sin-
gle location that is easy to search and report on has the potential to dramatically increase our sales
because we now have better knowledge of our obligations, performance, and the customers needs,
likes, and how they want to be sold to. This information was simply inaccessible to our [sales and
customer representatives] in the past.
For example: since consolidating sales and marketing contracts within the Upside system, HP has
shrunk the time for running a consolidated report on its global obligations to a specific customer to
as short as about an hour, down from four business days, on average. Standard reports on the terms
and performance on individual contracts or pre-defined groups of contacts are accessible on de-
mand by approved business users. Now our people can easily access information that they require
to make the right business decisions, said Huix.

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AberdeenGroup
Best Practices in Contract Management

He added that consolidating contract information and operations within a single system has signifi-
cantly reduced the costs HP incurred previously for using and maintaining 14 disparate and proprie-
tary contracting applications across the company.
All of this put together has provided major cost and time savings to HP, said Huix, The global
contracts group can now incorporate more contracts information into the system at a faster pace and
keep the quality constant.

Lessons Learned
The leading recommendation Huix has for other firms considering transforming their contract man-
agement operations is to secure input and buy-in from the process stakeholders and system users
early and often. The people on the frontline that are the ones that are going to be interacting with it
on a daily basis, said Huix. Their feedback and support is invaluable.
Huix also strongly advise an off-the-shelf software approach to contract lifecycle management. In-
ternal information technology groups can do a great job to responding for home grown system re-
quests, said Huix. But their core competency is not developing leading-edge applications for spe-
cific business processes. The dedicated contract management application providers have done their
homework and built out the necessary functionality correctly already. Using an off-the-shelf solu-
tion can get you greater value, quicker, and, more often than not, at a lower cost than you can do
internally.
Thats not to say that contract management solutions are alike. On the contrary, Huix strongly rec-
ommends that companies take the time to clearly define their internal process and system require-
ments and to thoroughly evaluate and test commercially available contract management solutions.
You need to find the solution that can best fit for your needs with as little customization as possi-
ble, said Huix. Price alone should not drive the decision, but be one of a number of factors used
to make the award.

Future Outlook
Moving forward, HP plans to use the Upside application to automatically track service and revenue
milestones in contract agreements with customers and partners. The intent is for the system to either
alert appropriate stakeholders or trigger required actions when predefined milestones are met or
exceptions occur. Such proactively monitoring and alerts will help HP optimize contract value, en-
hance customer satisfaction, and lead to shorter order-to-cash cycles. Huix also expects contract
monitoring to better position HP to quickly access accurate financial details such as revenue exe-
cution and recognition to satisfy regulatory reporting requirements of the Sarbanes-Oxley Act.
HP also plans to enhance customer relationships by permitting customers to directly access their
own contracts to determine the details and status of their HP relationship. Says Huix: The ultimate
goal is to use effective contract management as an enabler for continuously increasing business
with existing customers, boosting productivity, and bringing new sales to HP.

Aberdeen Conclusions
When it set out to transform its contract management operations, Hewlett Packard crafted a strategy
that aligned corporate sales and contract goals and leveraged technology to improve visibility into
customer relationships and obligations and to standardize and streamline contracting procedures
globally. The company was careful to involve key stakeholders in defining contracting procedures
and templates and selecting and deploying a contract lifecycle management solution. This attention
to detail, has helped HP gain better insight into its customer relationships, enhance its reporting and

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AberdeenGroup
Best Practices in Contract Management

compliance capabilities, and position itself continually improve customer satisfaction and drive
revenue growth.

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AberdeenGroup
Best Practices in Contract Management

Interpolis Uses Contract Management to Improve Bottom Line

Executive Summary
As one of the largest insurance and pension com-

Best Practices in Contract Management


panies in the Netherlands, Interpolis is adept at Company Name
assessing risk. Through an examination of risk
Interpolis Verzekeringen
within its own business, Interpolis identified a
need to reduce costs in order to fend off new
Solution Provider
competition and meet changing regulations. The
company viewed supply management as a key Upside Software
lever to mitigate these risks, but struggled inter-
nally with a hodgepodge of systems and manual
Business Challenge
processes for negotiating and managing supplier
contracts. Improve competitiveness through better
In 2001, Interpolis standardized its contracting control of supply costs and risks
procedures and controls and adopted a contract
lifecycle management solution from Upside Soft- Strategy
ware. The results to date: Interpolis has doubled
spend under management, increased compliance Use contract management as the foundation
by 5%, and cut total spending by 6%. for procurement improvements

Business Challenge Value Achieved


With annual revenues of 5 billion euros and pro-
Doubled amount of spend under manage-
curement spend of over 200 million euros, Inter-
polis is one of the largest insurers in the Nether- ment within a two-year period
lands. In the late 1990s, Interpolis faced increased
competition and changes in insurance and finan- Increased contract compliance by 5%
cial regulations. To remain competitive the insurer
knew it would need to expand its service offerings Cut procurement costs 6% via increased use
and reduce its operating and supply costs. of preferred suppliers and pricing
Achieving these cost reduction goals would be
challenging. At the time, Interpolis had a decentralized procurement operation, with many buying
decisions made at the local level. Each region and site used its different procedures and terms for
negotiating and contracting with suppliers, and the company had no central repository for storing
and accessing all supply contracts. Interpolis corporate procurement department had developed a
simple contract management application using a Microsoft Access database, but this system was
only used to manage facilities contracts and did not automate or enforce standard contracting pro-
cedures.

Contract Management Strategy


Interpolis corporate procurement group understood that effectively contract management would be
core to improving supply performance and costs. This belief was reinforced when an internal inves-
tigation of Interpolis contract management competencies and risks yielded strong recommendation
for immediate improvement in how the company negotiated and managed supplier contracts.
Interpolis defined a three-stage strategy for overhauling its contract management operations:
1. Create a central repository for the aggregation, search, and analysis of all supply contracts.

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AberdeenGroup
Best Practices in Contract Management

2. Establish and enforce formal contracting procedures, terms, and templates.


3. Adopt a contract lifecycle management solution that could automate and streamline con-
tracting procedures, improve contract visibility, and enforce controls.

Contract Management Solution Selection and Deployment


Interpolis adopted a structured requirements engineering methodology for evaluating and selecting
a contract lifecycle management (CLM) solution selection. A cross-functional team including rep-
resentatives from procurement, information technology (IT), legal, and finance jointly developed a
business case for investing in contract automation. Key anticipated benefits included a reduction in
maverick buying and lower supply costs and greater access to rebates due to increased use of sup-
plier contracts.
This cross-functional team examined existing solution providers and collaborated with internal
stakeholders to define optimal contract process and system requirements. Key requirements in-
cluded breadth of functional support for Interpolis defined contracting processes, access and search
capabilities of the contract repository, ease-of-use, total system costs, and system implementation
and support services. Interpolis selection committee was also adamant that the system require little
customization. We wanted as much of the functionality available out-of-the-box as possible,
said Marco Sichtars, Manager Interpolis Corporate Procurement, indicating that this would help
speed time to value towards Interpolis goals.
These requirements were compiled into a detailed request for proposal (RFP) that was issued to
seven leading solution provider candidates, including five pure-play CLM solution providers and
two major enterprise resource planning (ERP) vendors, which both are used for other functions at
Interpolis.
After fielding initial proposals from six vendors, Interpolis used Web-based system demonstrations
took narrow the list of potential solution providers to three finalists, who were invited to the com-
panys Netherlands headquarters to provide more in-depth presentations. Following an in-depth
evaluation, which included customer-reference checks and a financial viability analysis, Interpolis
selected Upside Softwares UpsideContract solution because, according to Sichtars, Upside simply
met our requirements the best. Interpolis was impressed with Upsides Microsoft .Net architecture
and integration into Microsoft Word. The Upside solution is very flexible, user friendly, and scal-
able to our needs. We also found Upside to be solid company financially and their team was pre-
pared to assist in any and every way.
Deployment of UpsideContract began in November 2002 with full go-live in March 2003. Interpo-
lis managed the rollout two phases:
1. Phase one was to prepare the contract database, including uploading Interpolis existing
contracts from an Access database into the Upside system.
2. Phase two included a pilot of the full UpsideContract application with Corporate Facilities
Department, followed by a rollout to other business units and departments.
Interpolis took great care to keep stakeholders involved during the selection and deployment proc-
ess. The selection team shared project plans and details through the companys intranet and steering
committees within each of the businesses. The team also held regular information sessions and
presentations on Interpolis contract management strategy and process changes, and the solution
deployment to keep stakeholders informed and drive adoption of the Upside solution.
Interpolis has also established a project champion within each department who is responsible for
evangelizing the benefits of contract management, providing support and training for the Upside-

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AberdeenGroup
Best Practices in Contract Management

Contract system, and driving system adoption within their business. While positioned in the busi-
ness unit, this champion is the linking pin to Interpolis Corporate Procurement group, and is also
responsible for ensuring that the units supply contracts abide by company policy, are accessible in
the UpsideContract system, and are enforced within the business.

Results
With the UpsideContract system in production only a year, Interpolis now has more than 40% of all
supply contracts centrally managed in the system. The company has established common contract-
ing procedures and a central repository for supply contracts.
Interpolis has realized their business case expectations of reduced maverick buying, a more than
5% increase in the use of contracts, resulting in about 6% supply cost savings. Most importantly,
Sichtars reports that his companys contract management strategy and system deployment has
helped double the amount of spend under control of the procurement department to more than 60%
of Interpolis total spend.
Such improvements have led Paul Frishert, a member of Interpolis Purchasing Support Depart-
ment, to estimate that Interpolis realized full return on investment (ROI) on the UpsideContract so-
lution in about seven months.
Other improvements derived from system deployment include reduced cycle time for contract crea-
tion and changes, improved user access and visibility, and enhanced contract performance tracking.

Lessons Learned
Sichtars and Frishert have identified the following key lessons from their contract lifecycle man-
agement strategy and deployment:
Ensure executive champion: Sichtars said Interpolis decentralized infrastructure and lack
of a CEO or Chief Procurement Office (CPO) slowed rollout and system adoption. We
could have gone much faster with the right support and organizational structure in place,
said Sichtars.
Secure a dedicated project team: Solution selection is less than half of the task, said
Frishert. System rollout and organizational alignment are much more time-consuming.
Armed with this experience-based insight, Frishert recommends that companies secure suf-
ficient resources for a dedicated project manager and team at the outset.
Make contract management a companywide initiative: Both Sichtars and Frishert empha-
size the need to keep all internal stakeholders involved at all stages of the project. Such in-
volvement ensures alignment and buy-in of contract management strategy and solution
among the constituents that matter most users on the frontline. The critical emphasis
must be on the process, not the solution, said Sichtars. The ultimate rule is to constantly
communicate with the businesses.
Avoid scope creep: A major lesson we learned is to stay within the scope of the project,
said Frishert. He recommends that enterprises investing in a CLM solution clearly define a
roadmap for deployment and stick to it.

Future Outlook
Interpolis will extend UpsideContract deployment to other areas of the organization, including
sales, which is interested in using the system to control and monitor contracts for pension and su-

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AberdeenGroup
Best Practices in Contract Management

perannuation programs. Interpolis parent company, Rabobank, is also examining whether to use
the UpsideContract solution.
Interpolis will also continue to create standard process and contract templates to address specific
spend categories and other agreement types across the organization.

Aberdeen Conclusions
Faced with a goal of reducing costs and risks, Interpolis Corporate Procurement group focused on
improving visibility and control of supply contracts. To ensure success, Procurement involved key
stakeholders in defining contracting processes, selection a CLM solution, and enforcing solution
adoption and compliance. This collaborative approach to contract management has already deliv-
ered significant cost and performance improvements after just one year of deployment. A true in-
novator, Interpolis is now looking to leverage CLM to improve other areas of the business, includ-
ing growing top-line revenue.

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AberdeenGroup
Best Practices in Contract Management

QUALCOMM Uses Contract Management to Dial Up Savings and


Control

Executive Summary
A global leader in developing and deliver-

Best Practices in Contract Management


ing innovative digital wireless communica- Company Name
tions products and services based on the
Companys CDMA digital technology. QUALCOMM
QUALCOMM has built a business on help-
ing companies track and manage mobile Solution Provider
assets. However, internally, the company
was challenged to access let alone manage CMSI
many of its IT, supplier, and customer con-
tracts. Business Challenges
Priding itself on fostering an entrepreneu- Lack of visibility into contract data
rial working environment, QUALCOMM
Overpayment on maintenance fees
had decentralized contracting and procure-
ment operations, with each major division Inability to avoid redundant contracts
empowered to execute its own procurement
and contracting decisions. The telecom- Unable to measure vendor performance
munications giant lacked consistent con-
tracting procedures and had limited visibil- Strategy
ity into contract data. The result:
QUALCOMM overpaid on maintenance Select a communications vehicle for the
for IT equipment and software, had dupli- enterprise and use the selection and imple-
cate contracts across divisions, and strug- mentation as a catalyst for change
gled to measure contract and vendor per-
formance. Value Achieved
In response, QUALCOMM initially
adopted a contract lifecycle management Within the first 6 months, saved $100,000 on
solution from CMSI to improve manage- unnecessary IT hardware and software
ment of procurement and IT contracts. maintenance
Early success drove rapid adoption across
other divisions. Today, QUALCOMM Eliminated overpayments and penalties
manages more than 10,000 supplier and
customer contracts in the system, resulting Leveraged spending for improved pricing
in the elimination of unnecessary fees, im-
proved pricing, and process efficiencies. Coordinated M&A data across enterprise

Business Challenge
Looking for ways to maintain its edge in the increasingly competitive and global tele-
communications marketplace, QUALCOMM identified management of Corporate and IT
procurement contracts as two key areas for improvement. At the time, the company
lacked visibility into these operations, but anecdotal evidence indicated that they were
both paying for assets they werent using and overpaying for services and assets that they
were.

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AberdeenGroup 1
Best Practices in Contract Management

An internal review of these contracts revealed four major challenges:


1. lack of clear visibility into contract terms and milestones
2. payment for maintenance on equipment or software no longer owned
3. redundant agreements across business units
4. lack of processes to systemically measure vendor performance
5. It was later revealed that similar challenges were also impeding QUALCOMMs
management of customer contracts.

Contract Management Strategy


Corporate and IT procurement were the pioneers within the organization, developing a
detailed business case that identified the adoption of a contract lifecycle management
(CLM) system as a primary method to achieve the following benefits:
Proactively manage contract deliverables and milestones through online alerts
Streamline creation, collection and distribution of knowledge of all contractual
relationships to all relevant stakeholders
Improve management of nested company-to-company relationships, partnerships
and alliances
Enhance reporting of critical legal obligations across procurement, marketing,
logistics, finance, and legal teams.
Once word of this successful implementation spread to the business units and divisions,
the system administration and management team quickly focused on developing a strat-
egy that would support anticipated growth. QUALCOMM wanted to maintain the com-
panys entrepreneurial spirit, which meant that the business case had to be compelling
enough to ensure strategy and system adoption without corporate mandates.
QUALCOMM created two steering committees made up of senior managers and group
administrators: one for procurement (buy-side) contracts and another for customer
(sell-side) contracts. With the help of the steering committees, the team developed a
strategic vision and a set of core values which they used to guide the growth of the sys-
tem from a single-solution for two procurement teams to the enterprise-wide implementa-
tion that exists today.

Contract Management Selection and Deployment


In 2002, QUALCOMMs procurement team conducted a three-month evaluation of eight
CLM solution providers, beginning with a detailed RFP reflecting the requirements. A
core requirement was to support a General Counsel mandate that there would be only one
contract database to store and manage all QUALCOMMs contract data.
The company eventually selected CMSI due to its ability to support its functional re-
quirements for management of procurement contracts and to extend to support future
needs for managing customer contracts. QUALCOMM conducted a final build versus
buy ROI analysis, comparing the packaged CMSI application versus potential modifica-
tions to its existing asset management system. The company also put the CMSI systems
architecture through a rigorous technical evaluation to ensure scalability and upgradeabil-

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2 AberdeenGroup
Best Practices in Contract Management

ity. The results reconfirmed QUALCOMMs decision to license CMSIs Contract Man-
ager.
QUALCOMM deployed the Contract Manager application across its Corporate and IT
Procurement groups within four weeks, going live with just 300 contracts in the system.
This go-live gave QUALCOMM immediate (and much-needed) visibility into existing
supply agreements, allowing procurement to identify redundant agreements and stop
payments on maintenance contracts for software and equipment it no longer owned or
used. This newfound intelligence prepared QUALCOMMs procurement group to aggre-
gate spending and execute supplier rationalization initiatives where synergies existed be-
tween business units. The system also provided a foundation for QUALCOMM to con-
sistently measure contract compliance and supplier performance across the enterprise.
News of these early successes spread quickly, and within a year, 12 functional groups
within QUALCOMM were using the Contract Manager System to manage both buy- and
sell-side contracts. Today, QUALCOMM manages over 6,000 sales agreements and
4,000 procurement agreements within the system, with an additional 3,000 legacy con-
tracts in queue to be converted into the system.

Results
QUALCOMMs CLM initiative has delivered improvements in several areas:
Eliminated unnecessary maintenance agreements on IT equipment and software.
Cut costly auto-renewals on unused equipment, software, and services.
Avoided renewal penalties and late fees.
Secured improved pricing by leveraging existing master agreements.
Coordinated merger and acquisition (M&A) information across the enterprise.
The new system has also allowed QUALCOMM to mitigate contracting risk and expo-
sure by standardizing on approved contract language, where possible. For example, all
payment terms are now net 30 days, with only the CFO allowed to approve exceptions.

Lessons Learned
Key contributors to the success and rapid adoption of QUALCOMMs CLM program
include:
Strong executive sponsorship: QUALCOMMs initial effort into CLM was spon-
sored by the CIO. After the program began to expand beyond the management of
IT and procurement contacts, QUALCOMMs Corporate Legal took over spon-
sorship, driving the program and system adoption across all business units.
High involvement by the businesses: QUALCOMM drove adoption within indi-
vidual functions and businesses by assigning a power user per constituency to
ensure contract data entered into the system is accurate and clean, and to men-
tor other business users within their organization. There are more than 40 such
power users across QUALCOMM today.
Established a change control board: To progress the CLM initiative,
QUALCOMM established a change control board or steering committee that

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AberdeenGroup 3
Best Practices in Contract Management

ensured alignment across the functions and business units and kept the program
on schedule. Even today, the steering committee still meets with the functional
leads periodically to mitigate issues and drive continuous improvements for the
CLM initiative.

Future Outlook
QUALCOMM currently has three separate teams investigating how CMSIs Deal Man-
ager module might be used to help the company comply with reporting and document
management requirements of the Sarbanes-Oxley Act.
As the QUALCOMM implementation matures, the CM user communities are focusing
on process improvement initiatives; by partnering with finance, sales support, and export
compliance teams the users are finding ways to make the CM data more beneficial.

Aberdeen Conclusions
QUALCOMM is a prime example of how a well-constructed contract management initia-
tive can drive rapid adoption by simply delivering measurable value to its user base.
Known for its entrepreneurial spirit, QUALCOMM was able to roll out CLM company-
wide without harsh mandates. Instead, the company drove success by making functional
stakeholders active participants in the selection and deployment CLM process. And the
company has seen big returns for its efforts.

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4 AberdeenGroup
Best Practices in Contract Management

Time Warner Taps Contract Management


to Improve Spend Management

Executive Summary
One of the worlds leading media and entertain-

Best Practices in Contract Management


ment companies, Time Warner has the same spend Company Name
management challenges of many multi-national
conglomerates: highly decentralized, globally dis- Time Warner
persed operations made it difficult to gain visibil-
ity, control, and leverage of supply spending. Solution Provider
As part of a larger collaborative sourcing initiative, Determine
Time Warner focused on improving visibility and
control of its supply contracts. At the time, the
Business Challenge
company had few standardized cross-divisional
contracting processes & Ts & Cs. And contracts Highly distributed purchasing organization
were housed in multiple systems or locations provided insufficient visibility of supply con-
throughout the company. Time Warner elected to
tracts and inadequate leverage of corporate
deploy a contract management solution from De-
termine to establish a central contract repository spending.
and leverage standard processes and controls
where applicable. Strategy
Having successfully completed phase one of the Build central repository for supply contracts.
program, Time Warner has established an online
searchable repository of supply contracts for its Standardize contracting language, proc-
most commonly used spend categories that is ac- esses and compliance management.
cessible by the different business units. The result:
enhanced spend visibility, increased compliance,
Automate contract management processes.
identification of redundant contracts, and mitiga-
tion of erroneous payments. Building on this suc-
Value Achieved
cess, Time Warner will begin using the Determine
system to automate and enable standard procedures Reduced rogue and redundant contracts
and contracting language and processes and inte-
grating contract terms with broader supplier man-
Improved spend visibility and leverage.
agement procedures and systems.

Business Challenge Mitigation of overcharges and erroneous


payments.
Like many multi-national firms, Time Warner has
many geographically dispersed business units, Improved compliance with critical contract
each operating autonomously, with its own pro-
terms and service level agreements.
curement standards, procedures and business sys-
tems. To drive opportunistic spend leverage and
synergies across divisions, the company created a procurement council, consisting of rep-
resentatives from each business.
Beginning in April 2003, Time Warner made collaborative sourcing a strategic initiative.
The divisions requested resources and leadership to help coordinate cross-divisional ef-

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AberdeenGroup 5
Best Practices in Contract Management

forts. After an analysis of current operations, it became clear that Time Warner had lim-
ited visibility into existing supply contracts and spending.
Adding to this challenge was the fact that the Time Warner business generated a host of
different contract types (e.g., talent agreements, product agreements, asset leases, global
real estate, IT procurement), each of which was negotiated and managed differently by
the business units. These supply contracts stored in different formats, systems, and nu-
merous locations across Time Warners affiliates and subsidiaries. This fragmented con-
tract environment frustrated efforts to measure compliance, and more efficiently leverage
Time Warners vast spending volumes.

Contract Management Strategy


The core tenants of Time Warners supply contract management strategy can be summed
up as follows:
Establish a central repository for all supply contracts.
Standardize contracting language, procedures, and compliance management.
Automate contract management processes.
Due to the size and autonomy of Time Warners divisions, the procurement council knew
that rapid and quantifiable benefits to the individual business units were needed. The
group defined a well-calculated contract management transformation program that began
with improving contract visibility to enhance Time Warners ability to aggregate, ana-
lyze, and leverage its spending. This first phase would not require the businesses to
change their processes mitigating any change management hurdles -- but would be able
to deliver quantifiable benefits to the businesses in the form of cost reductions and better
contract terms.
Time Warners procurement council believed that phase one of the program would also
whet the businesses appetite for spend management improvements, making it easier to
transition to phase two, which would involve increased use of standardized contract
terms and procedures and automating contract processes and improving compliance.

Contract Management Selection and Deployment


To gain buy in from the businesses, the council established a cross-divisional and cross-
functional solution selection team that was responsible for gathering contract manage-
ment system requirements and preferences from each division and communicating the
intent and progress of the program. The initial information gathering process generated
more than 600 functional requirements, which the selection team winnowed down to 10
core buckets that were incorporated into the initial RFI.
Starting in April 2003, the team researched and evaluated 25 contract lifecycle manage-
ment (CLM) solution providers, before selecting two finalists for the final phase of the
selection process. During this proof of concept phase, the finalists were required to
configure and deploy their systems within 45 days. Time Warners selection team tested
the systems using use-case scenarios that reflected their 10 core requirements. The media
company eventually selected Determine due to its functional ability to meet its core re-
quirements, including advanced capabilities to scan and load structured and unstructured
contract information and contract hierarchies to support multi-tiered contract structures.

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6 AberdeenGroup
Best Practices in Contract Management

Sean Harapko, director of business process and technology in Time Warners Procure-
ment Services Office (PSO), said the Determine solution also offered advantages in the
areas of flexibility, extensibility, and price.
To support Time Warners calculated strategy for program adoption and success, the De-
termine solution deployment was segmented into two phases:
1. Aggregation and Analysis -- involved transitioning and classifying legacy con-
tracts into a secure, central and searchable contract repository. To maximize
alignment across the company, Time Warners procurement group focused ini-
tially on supply contracts for large and high-impact spend categories that were
common to each division. A team of Determine, Cap Gemini, and Time Warner
employees loaded these contracts into the system first. Once contracts were
loaded, Time Warner was able to configure rule-based triggers to alert key stake-
holders of contract events, such as terminations and renewals. The system also
allowed users to create on-the-fly reports on any or all fields within any contract,
including matching contract terms against purchase orders (POs) and invoices.
Time Warner also used the system to configure reusable contract templates for
specific contract types and spend categories.
2. Automation and Compliance currently underway, this phase will focus on us-
ing the Determine system to automate and standardize contracting processes and
language, and to drive compliance. Business managers will be able to use the
system to track cost, performance, and compliance across both active and in-
process contracts. Time Warner also plans to drive proactive compliance by con-
figuring event-based alerts and custom compliance reports.

Results
Time Warner completed phase one of its rollout within 90 days, activating more than 150
users and 2,000 of its most impactful supply contracts on the Determine system. The
company anticipates that 5000 contracts will be on the system within a year.
With its supply contracts in a central repository, Time Warner has been able to improve
its ability to analyze spend data, monitor key contract events and improve contract com-
pliance. The company has achieved the following benefits to date:
Access enterprise-wide supply contract management data in real-time
Analyze contract spend by type and commodity
Aggregate contract spend
Analyze contract templates and establish standard terms to increase efficiency
Implement key alerts for managing contract dates and compliance events
With these new capabilities, Time Warner has been able to identify redundant contracts,
identify expired contracts and erroneous on-going payments, and detect overcharges and
improve compliance of critical contract terms and service level agreements.

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AberdeenGroup 7
Best Practices in Contract Management

Harapko said the system has also helped the procurement council identify new savings
opportunities and elicit cross-divisional participation in sourcing and online reverse auc-
tion events that maximize Time Warners company-wide spending efficiency.

Lessons Learned
Harapko said Time Warners rapid-deployment experience delivered some valuable les-
sons for any company considering a large scale contract management solution deploy-
ment:
Secure executive buy-in at the outset, and reinforce this support across the life of
the program. Harapko said executive support is critical to securing necessary
funding and resources as well as for driving organizational alignment and deci-
sions.
Make solution selection and deployment a company-wide initiative. Harapko at-
tributes a large part of the success of Time Warners supply contract manage-
ment system deployment to the active participation of key stakeholders across
the company. Future Outlook
A phased strategy and approach was critical to success. Harapko adds that fo-
cusing on visibility first gets past some of the traditional hurdles associated with
business process re-engineering and change management.
Determine is currently working with Time Warner in implementing Phase II, which will
include configuring the system to support the media companys custom processes from
contract request through creation and automated approval routing. This may also include
integration with the individual divisions ERP systems. Time Warner also plans to inte-
grate the Determine solution to its other supplier management systems.
In Phase II, Time Warner will also define and measure key performance indictors (KPIs),
including cycle time as an indicator of cross-divisional efficiencies, contract compliance,
and time savings by using standard templates and contract language.

Aberdeen Conclusions
Time Warner has made contract management a cornerstone of its collaborative sourcing
initiative. The media giant has wisely taken a measured approach to contract manage-
ment, beginning with a discrete goal of creating a central repository to improve visibility
and analysis of its supply contracts company-wide. This calculated method has helped
Time Warner better analyze and manage its global spending and deliver measurable and
rapid value to each of its business units. Having secured support from the businesses,
Time Warner is now positioned to standardize, and automate contract processes and lan-
guage to drive continuous improvements across it contract management operations.

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8 AberdeenGroup
Best Practices in Contract Management

Contract Management Drives Compliance and


Improvements at Toyota

Executive Summary
Selling more than 1.8 million automobiles

Best Practices in Contract Management


in the U.S. last year, Toyota Motor Sales Company Name
(TMS) U.S.A. is one of the fastest growing
automakers in the states. As the sales, mar- Toyota Motor Sales U.S.A.
keting, distribution, and customer service
arm of Toyota, Lexus, and Scion, in the Solution Provider
United States, the Torrance, Calif.-based
division directs the promotion, MSRP pric- Contract Management Solutions Inc.
ing, and delivery of vehicles across the 49 (CMSI)
continental states and transfer of cars to
Central and South America. Business Challenge
TMS procures over $500 million in exter-
nal goods and services annually across Identify IT and software assets to assess to
more than 7,000 vendor contracts. In the Y2K risk
late 1990s the group managed these con-
tracts using inconsistent manual and paper- Drive continuous improvement to support
laden procedures. Prompted by the Year kaizen directives
2000 (Y2K) mandate, TMS undertook an
initiative to institute a common platform to Establish procedures, controls, and reporting
gain better visibility into information tech- to support contract compliance
nology (IT) and software, hardware, main-
tenance, and services contracts, and to Strategy
automate and streamline contract manage-
ment procedures in its IT operations. The Implement a centralized repository for con-
IT department deployed Contract Manage- tracts to support procurement optimization
ment Solutions Inc. (CMSI) to support its
activities and enhance compliance.
contract management strategy. The result
an estimated $14 million in hard dollar and
Value Achieved
cost avoidance savings and a whopping
571% return on its solution investment. Saved an estimated $14 million over five
The division is now poised to leverage its
years in improved prices, terms and condi-
success by replicating its automated con-
tract strategy and the CMSI tool across tions through enhanced visibility into con-
other Toyota business units. tracts and compliance, resulting in 571%
ROI.
Business Challenge
Anticipating the massive challenge of ensuring all of its information technology (IT) sys-
tems and assets were able to protect against potential Y2K failures, Toyota began assess-
ing its IT assets and contracts in the late 1990s. At the time, TMS IT did not have cen-
tralized policies or procedures for creating, storing, and managing IT contracts and also
lacked standard processes for negotiating with IT vendors.

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AberdeenGroup 9
Best Practices in Contract Management

Each [information systems] manager handled their own contracts, according to Sam
Barton, Senior Contracts Manager Information Systems at TMS IT. It was a challenge
to locate some contracts. When we did, we were often surprised at what we found.
Furthermore, as Toyota vehicle sales have significantly increased since the early 1970s --
with total units in operation in the U.S. expected to reach 21 million by 2006 Toyotas
IT investment had remained relatively flat and its systems were straining to support its
growing business, employee base, and projects adequately. The company recognized the
need to upgrade it capability and keep pace with both technology and the competition.

Contract Management Strategy


To ensure its software was Y2K-compliant, TMS knew it needed a better method for
storing and analyzing contract data. Toyota is also governed by a philosophy of continu-
ous improvement -- or kaizen in Japanese -- that encourages employees to solve prob-
lems and add value wherever they see the opportunity, and IT was identified as a worthy
initiative for improvement. Moreover, the company has realized that contract manage-
ment could impact performance beyond IT as well as provide the opportunity to optimize
its contract terms and conditions with better visibility into its contract pricing, terms, and
compliance overall.

Contract Management Selection and Deployment


Without time to develop a contract management solution internally, Barton chose the -
Contract Manager application from Contract Management Solutions Inc. (CMSI) of Win-
ter Park, FL in 1997. He noted there were few software applications available when he
initially investigated platforms, but Toyota re-evaluated CMSI a few years later when the
company contemplated migrating to a Web-based hosted application and issued requests
for information (RFI) to competing contract management systems providers to ensure it
was receiving the best functionality and value. After a thorough review of responses, col-
laboration with other companies, and market intelligence, Toyota elected to remain with
CMSI, feeling that the companys solutions led the industry in terms of functionality.
Following this evaluation, TMS IT deployed the Internet-based version of CMSIs Con-
tract Manager in 2000.
With assistance from CMSI, TMS migrated its legacy contracts and data into the new
Web-based system. The automaker elected to deploy the CMSI solution in hosted, appli-
cation service provider (ASP) mode so that all data and functionality could be easily ac-
cessed by Toyota employees and partners worldwide, requiring only an Internet connec-
tion, a standard Web browser, and proper authorization and permissions.
In 2003, TMS elected to deploy CMSIs Deal Manager, a Web-based negotiation tool
that, when integrated with Contract Manager, enables the automated transfer of deal
terms directly from RFI to negotiation to a finalized contract.
Today, TMS IT has more than 100 users accessing the system, with six contract manag-
ers authorized to make changes to the contract terms and conditions. Although initial
deployment supported IT contracts alone, the system now includes contracts for other
spend categories and is actively used by TMS procurement, Toyota Financial Services,
and the North American Parts Organization (NAPO).. All told, TMS currently manages

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10 AberdeenGroup
Best Practices in Contract Management

more than 7,000 contracts including 4,000 IT contracts that have an overall value of
$560million in procurement commitments through the CMSI system.

Results
TMS has calculated these improvement activities have saved Toyota $14 million in cost
avoidance and hard dollar savings over the first five years of the CMSI deployment.
Subtracting the costs of the CMSI license, implementation, and maintenance costs, Toy-
ota reports a return on investment (ROI) of 571% to date.
One of the chief benefits of the CMSI deployment is that it has facilitated best practices
in vendor and contract management across IT departments. Today TMS can ensure that
standard terms and conditions are used, and that volume is leveraged for better pricing.
TMS has also obtained better warranties, licenses and service terms.
For example, TMS has established a North American discount-pricing program to allow
all locations to access preferred suppliers and price cuts. In addition, it has been able to
eliminate MIPS in licensing and put caps in place for maintenance support.
Furthermore, with improved visibility into vendor progress against contract terms, TMS
is securing pay for performance deals with its IT vendors. The division also uses the
CMSI system to match invoices against contracts for accuracy and completed work mile-
stones before payment, and can reduce unauthorized vendor contact as well.
Toyota reports significant process efficiencies and administration costs savings from the
CMSI deployment. The automaker estimates that streamlined and automated contract
management operations has cut two to three hours of labor per contract by not having to
re-key information into the system. The system has also been able to mitigate risky trad-
ing terms and streamlined re-sourcing activities by leveraging standard contract tem-
plates. Last year TMS IT group processed 705 contracts, saving almost a full man-year
through automation.
Internal Audit has recommended that TMS extend the CMSI system to track the com-
panys supplier commitments and performance. Barton noted that part of Internal Audits
interest in contract management automation is being fueled by a desire to gain control of
major contracts across TMS and the need to improve purchasing efficiencies and reduce
costs throughout the company.

Lessons Learned
Barton advises companies to clearly define the goals and scope of their contract man-
agement strategies and solution requirements at the outset of the project. He also urges
companies not to waver from these goals.
Todays contract management solutions offer a wealth of functionality, said Barton.
Where companies fail is when they allow new features to distract them from their core
goals. Dont try to use all the features that they put in these systems, because you dont
need them all. If you try to use them all you defeat the purpose of what you really want to
do.
Barton recommends measuring performance against initial contract management goals.
Once you achieve your initial goals, you can then begin to see what else the system is
capable of doing.

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AberdeenGroup 11
Best Practices in Contract Management

Future Outlook
TMS is currently documenting its contract management processes in preparation to ex-
tend these across other Toyota business units. Since deploying contract management to
IT, procurement, Toyota Financial Services, and NAPO, TMS has opened up the applica-
tion to Toyota Canada, and Toyota Motor Manufacturing North America as well.
The goal is to identify software and IT contracts and negotiate volume discounts and ser-
vice levels across Toyotas businesses. Barton expects that contract management will
better support Toyotas sourcing strategies, portfolio management, and project prioritiza-
tions and delivery goals. In short, standardizing and automating contract management
operations fosters the continuous improvement spirit of Toyotas kaizen culture.

Aberdeen Conclusions
Toyota Motor Sales U.S.A. is a prime example of how improvements in contract visibil-
ity and management can enhance multiple aspects of the business. TMS moves to cen-
tralize and automate contract management operations to address Y2K concerns have
driven benefits far beyond the companys initial intent. Thanks to its early investments
and focus on contract management efficiency, TMS IT has driven dramatic cost savings,
improve strategic sourcing capabilities, reduced risky agreements, and improved both
operational and contractual compliance. If the defining attribute of best practices is the
identification of policies, procedures, and programs to drive continuous improvement,
TMS has certainly achieved this title.

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12 AberdeenGroup
Best Practices in Contract Management

UAC Ups Contract Management Skills to Meet Growth

Executive Summary
United Asset Coverage has secured a very

Best Practices in Contract Management


profitable niche in providing fixed-price Company Name
maintenance contracts to companies that
have grown tired of spending a third of United Asset Coverage
their technology budgets on maintaining
equipment. Demand for such services has Solution Provider
been so great that UACs business grew
4300% in just five years. To keep up, UAC Oracle Corp.
knew it would need to overhaul the manual
and fragmented processes it used to manage Business Challenge
contracts.
High growth rates exposed internal chal-
An Oracle e-Business Suite user, UAC
elected to leverage this infrastructure to lenges with contract data access and integ-
establish a central contract repository, con- rity, response times, and billing accuracy.
tracting process, and management function-
ality that was tightly integrated into its cus- Strategy
tomer management operations. The result
has been enhanced contract visibility and Standardize contract language and adopt
control, improved customer satisfaction, and integrated business application architec-
and higher renewal rates returning an es- ture that included support for management
timated $2.5 million to UACs bottom line. of complex service contract and billing re-
quirements.
Business Challenge
As a leading provider of telecommunica- Value Achieved
tions and data-networking maintenance
services, contracts are core to UACs busi- Increased contract renewal rates
ness. The company lowers enterprise IT Enhanced customer service levels
maintenance costs by providing fixed-price Reduced contracting cycles
contracts for network maintenance services. Improved billing cycles and accuracy
To maintain top service levels and system Generated $2.5 million in improved revenue
up time at customer sites, UAC must inte-
and operational savings
grate contract commitments, service levels,
and pricing information into customer ser-
vice call centers as well as with the back-office systems that keep operations running
smoothly.
UAC initially attempted to manage contract commitments using an internally developed
system comprised of a Microsoft Access database, Lotus Notes, and Microsoft Excel. But
it soon became clear that this homegrown approach was inadequate, limiting UACs abil-
ity to efficiently access critical contract data and execute important business analyses.
The system also posed several operational challenges, such as an inability to capture pric-
ing history for a client or service (i.e. inputting new price replaced original pricing) or to
track key operational metrics, such as repair to revenue. The biggest issue was that the
homegrown system did not provide an effective means to arm customer service and sales

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AberdeenGroup 13
Best Practices in Contract Management

reps with contract details. It often took days to answer customer questions or generate
equipment-level invoices. As a result, UAC manually processed about half of outgoing
invoices, extending billing and order-to-cash cycles.
With business growing at nearly 1000% per year, UAC knew it faced a major customer
service crisis unless it could improve the way it managed contracts.

Contract Management Strategy


UAC laid out an aggressive contract management program designed to accomplish three
main objectives:
Guarantee integrity of contract data
Better understand service delivery costs
Improve billing accuracy and efficiency
A core tenant of UACs strategy was to acquire an enterprise business application infra-
structure that could provide a single integrated database to support the business that also
provided functionality to improve the efficiency and control of the contract management
process. The system would need to support service contracts for IT and network equip-
ment types and brands, each with potentially unique service terms and requirements.
Contract information would need to integrate to customer relationship management
(CRM) and call center systems to arm UACs service representatives with the informa-
tion required for fast and accurate responses to customer inquiries. The system would
also need to arm accounts receivable with the insight needed to provide timely and accu-
rate billing. Finally, the system would need to provide UAC with a better way to track
contract renewals.

Contract Management Selection and Deployment


With its end goals firmly defined, UAC organized a cross-functional solution selection
team and hired a project manager that had experience managing complex enterprise ap-
plication deployments. Having made the strategic decision to adopt a system to manage
the entire business, UAC evaluated enterprise business platforms from the three top en-
terprise resource planning (ERP) vendors. UAC eventually selected Oracle due to the
breadth and scalability of its integrated e-Business Suite and the ability of its contracts
module to provide support complex service and equipment level contracts.
Beginning implementation in January 2001, UAC established an internal rollout team,
consisting of business line and IT managers and supervisors. This approach tied the im-
plementation to the business, helping smooth out issues, such as converting unstructured
contract data and processes into a structured relational database and business application.
The cross-functional team also aided in overcoming initial change management issues,
ensuring adoption of the system and compliance with new process and data entry proto-
cols.
One of the major business changes was the adoption of a global contract template, which
includes standard and approved terms and conditions. This template functions as a con-
tract configuration engine, presenting with a library of contract terms and options that
have been pre-approved by UACs contracting, finance, and legal group. Terms falling

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14 AberdeenGroup
Best Practices in Contract Management

outside this scope are routed to UACs legal department for further evaluation and ap-
proval.
UAC went live on the Oracle e-Business Suite in August 2001, with 2,200 active cus-
tomer contracts.

Results
All told, UAC estimates that its integrated contract management and systems approach
has delivered more than $2.5 million in value in the following areas:
Improved efficiency and accuracy of new contract deployments
Increased contract renewal rates
Streamlined and integrated billing and collection
Reduced repair expenses
Improved accuracy of contract data
Reduced operational costs associated with contract and billing management
Through better data analysis, UAC now is able to measure critical key performance indi-
cators, including repair-to-revenue metrics, contract volumes, contract entry errors and
overall performance and renewal rates.
Jack Murray, UACs project manager for the rollout, reports that the companys new
business protocols and adoption of the Oracle e-Business Suite have improved both the
accessibility and quality of contract and customer data. Our customer service reps now
have real-time access to contract details, customer histories, and cost information, said
Murray. This has helped us dramatically improve the response time of our Call Center,
allowing us to be more responsive to our customers.
Murray adds that system adoption has also allowed UAC to handle the increasing volume
of customer contracts without adding staff.

Lessons Learned
UACs contract management deployment was not without hiccups. One of the key les-
sons learned from the experience is the need to dedicate sufficient resources to training
the enterprise on the system features and program intent. UAC also recommends that
others budget more time and resources to cleaning and structuring legacy data.
The time required for data cleansing was far longer than we originally predicted, said
Murray. Our legacy data needed a lot of work. This slowed us down a little on imple-
mentation, but it was well worth the effort. We did not want to go live on the new system
with bad data or data that was difficult to locate.

Future Outlook
UAC is currently considering upgrading its Oracle 11i deployment to gain access to new
database and Call Center features available in the newer version of the suite.

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AberdeenGroup 15
Best Practices in Contract Management

Aberdeen Conclusions
Faced with the high grade problem of rapid growth, UAC wisely set out to improve its
contract management operations. The IT maintenance service provider adopted the Ora-
cle e-Business Suite not only for the breadth of its customer-facing functionalities, but
also its ability to support the types of complex service agreements on which UAC had
built its livelihood. This integrated business platform approach has paid off for UAC,
improving the efficiency of customer service operations, increasing contract renewals,
and delivering millions of dollars to the bottom line.

All print and electronic rights are the property of AberdeenGroup 2004.
16 AberdeenGroup
Best Practices in Contract Management

Author Profile

Tim A. Minahan,
Vice President and Managing Director
Supply Chain Research
Aberdeen Group, Inc.

Tim Minahan is vice president of supply chain management research for Aberdeen
Group, Inc., a Boston-based market research and positioning services firm. In this role,
Minahan provides analysis and assessment of software and services that automate and
streamline procurement, sourcing, design, and supply chain management operations.
Minahan specifically focuses on total cost management (TCM), which is an organiza-
tional and technological framework for managing the total cost of ownership of supply
relationships. Within TCM, Minahan tracks spending analysis, sourcing, procurement
execution, contract management, and supplier performance measurement technologies.
Minahan also covers product life cycle management (PLM) technologies and their con-
vergence with TCM. Minahan continually consults with early implementers of these ap-
plications to identify world-class supply management strategies and to determine the
strengths and weaknesses of technology solutions and services that are competing in this
market.
His current research efforts include Aberdeens quarterly E-sourcing Index (ESI), as well
as benchmark studies on e-procurement success strategies and spending analysis best
practices.

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AberdeenGroup 17
Best Practices in Contract Management

Appendix A:
Research Methodology

B etween January and August 2004, Aberdeen Group assessed contract lifecycle man-
agement automation implementations of more than 35 enterprises.
Enterprise contract management deployments were assessed based on the following crite-
ria:
Breadth and scope of contract management program and system deployment
Percentage of total contract managed under the program/within the system
Compliance rates
Process efficiencies gained through contract lifecycle management
Alignment and integration of contract management with broader customer rela-
tionship management, supply management, and business strategies.
Aberdeen began with an initial blind screening of nomination forms describing the scope,
solution selection, deployment, performance attributes of contract lifecycle management
programs. This initial screen was used to identify contracting and contract administration
best practice finalists. Aberdeen analysts conducted in-person and/or telephone as-
sessments of each finalist before selecting the final winning enterprises.
Solution providers recognized as sponsors of this report were solicited after the fact and
had no substantive influence on the direction of the Best Practices in Contract Manage-
ment Report. Their sponsorship has made it possible for Aberdeen Group to make these
findings available to readers at no charge.
Best practices case studies not published in this free report are available to qualified
members of Aberdeen Groups enterprise community and Aberdeen Group clients at
www.aberdeen.com.

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18 AberdeenGroup
Best Practices in Contract Management

Appendix B:
Related Aberdeen Research and Tools

Related Aberdeen research that forms a companion or reference to this report include:
Contract Management Center of Excellence (June 2004)
Best Practices in Spending Analysis (September 2004)
Procurement Outsourcing Benchmark Report (April 2004)
Seven Habits of Highly Effective Supply Management Groups (January 2004)
Contract Management Benchmark Report (July 2003)
Making E-sourcing Strategic (September 2002)
Information on these and any other Aberdeen publications can be found at
www.aberdeen.com or by e-mail at info@aberdeen.com.

All print and electronic rights are the property of AberdeenGroup 2004.
AberdeenGroup 19
Best Practices in Contract Management

About
AberdeenGroup

Our Mission
To be the trusted advisor and business value research destination of choice for the Global Business
Executive. A

Our Approach
Aberdeen delivers unbiased, primary research that helps enterprises derive tangible business value
from technology-enabled solutions. Through continuous benchmarking and analysis of value chain
practices, Aberdeen offers a unique mix of research, tools, and services to help Global Business
Executives accomplish the following:
IMPROVE the financial and competitive position of their business now
PRIORITIZE operational improvement areas to drive immediate, tangible value to their
business
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Aberdeen also offers selected solution providers fact-based tools and services to empower and
equip them to accomplish the following:
CREATE DEMAND, by reaching the right level of executives in companies where their
solutions can deliver differentiated results
ACCELERATE SALES, by accessing executive decision-makers who need a solution and
arming the sales team with fact-based differentiation around business impact
EXPAND CUSTOMERS, by fortifying their value proposition with independent fact-based
research and demonstrating installed base proof points

Our History of Integrity


Aberdeen was founded in 1988 to conduct fact-based, unbiased research that delivers tangible value
to executives trying to advance their businesses with technology-enabled solutions.
Aberdeen's integrity has always been and always will be beyond reproach. We provide independent
research and analysis of the dynamics underlying specific technology-enabled business strategies,
market trends, and technology solutions. While some reports or portions of reports may be under-
written by corporate sponsors, Aberdeen's research findings are never influenced by any of these
sponsors.

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20 AberdeenGroup
Best Practices in Contract Management

AberdeenGroup, Inc. Founded in 1988, AberdeenGroup is the technology-


260 Franklin Street, Suite 1700 driven research destination of choice for the global
Boston, Massachusetts business executive. AberdeenGroup has over 100,000
02110-3112 research members in over 36 countries around the world
USA that both participate in and direct the most comprehen-
sive technology-driven value chain research in the
Telephone: 617 723 7890 market. Through its continued fact-based research,
Fax: 617 723 7897 benchmarking, and actionable analysis, AberdeenGroup
www.aberdeen.com offers global business and technology executives a
unique mix of actionable research, KPIs, tools,
2004 AberdeenGroup, Inc. and services.
All rights reserved
September 2004
The information contained in this publication has been obtained from sources Aberdeen believes to be reliable, but is not
guaranteed by Aberdeen. Aberdeen publications reflect the analysts judgment at the time and are subject to change
without notice.
The trademarks and registered trademarks of the corporations mentioned in this publication are the property of their re-
spective holders.
THIS DOCUMENT IS FOR ELECTRONIC DELIVERY ONLY
The following acts are strictly prohibited:
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Copyright 2004 Aberdeen Group, Inc. Boston, Massachusetts

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This publication is protected by United States copyright laws and international treaties. Unless otherwise
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All information contained in this report is current as of publication date. Information contained in this
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