Disruptive By Design: Contract Management Automation and Outsourcing—A New Spin on an Old Problem

June 1, 2015
By Dean Dastvar

Information technology companies, especially in public sector contracts, face one of the great curses of success: the need for speedier and more efficient key processes while controlling cost. One process involves the negotiation, management and preparation of contracts. Because the client—be it federal, state, local or even an international entity—won’t speed up, companies must speed up their contract life cycles and procurement-related activities.

To say contract management is a “paper heavy” process is a colossal understatement. Contract management systems suffer from bottlenecks and confusion because of too many factors. Growing review and negotiation requests weigh down the process, and data often is duplicated manually. Neglect, or a hasty overhaul of an existing process, compounds old problems and creates new ones. Meanwhile, business development teams cry for blood as the efficiency of the sales cycle declines and company growth resulting from an earlier victory becomes sluggish.

Thus, there is a clear need for automation in the public- sector contracts industry. “The impact of the expansion in procurement solution scope, enabled by these procurement emerging technologies, will be profound,” states Nigel Montgomery in Gartner’s 2012 publication on contract life-cycle management (CLM) titled, “Don’t Wait for the Power of Hindsight to Act on Contract Life Cycle Management, as It Might Be Too Late.”

“During the next three years, we foresee broad deployment of service procurement and commodity risk management, as well as CLM tools doubling spend under management in global private and public-sector markets,” the report continues. “Adoption of these tools will conservatively yield at least 2 percent or $24 billion in savings on $1 trillion of new spend under management.”

Incremental automation can be a good place to start to make a company’s contract management system and its operations leaner and more competitive. It’s important to outline the benefits and risks for decision makers before undertaking a long-term strategy change, as it requires support from the very top. Benefits, widely lauded by numerous leaders in the CLM field such as the International Association for Contract and Commercial Management, include improved sales cycle times through increased speed in processing; reduced risk through removal of human error and increased transparency; additional use of the wealth of data in contracts to map sales, human capital and resource demand cycles; and improved compliance through automated alerts.

But one size does not fit all, and automation does bear some risk. Michel Adar, now a software engineer with Google, wrote in a 2010 Oracle blog that the loss of the positive human elements such as learning and dealing with unique cases is a possible risk. “With automation, we are able to run the same process, again and again, sometimes repeating the same mistake, again and again.”

Rarely are two contracts the same. The more dynamic a company’s practices and business areas, the more powerful yet subtle the differences between contracts will be, even among niche players. Small differences that might be missed by an automation process still need to be caught by seasoned human eyes. As of yet, automation and artificial intelligence (AI) cannot replace contracts or legal professionals’ know-how and the subtleties of experience needed to solve companies’ unique problems or anticipate them before they arise.

Once executives decide to follow this path, the key is to listen closely to the stakeholders that make the system work and to free up talented human capital within the process to solve problems, develop long-term solutions and monitor incremental progress. Large and successful companies wish to harness talented individuals by introducing AI and automation to “amplify the potential of … people, freeing us from the drudgery of many repetitive tasks,” Vishal Sikka, CEO of Infosys, aptly stated when explaining his reasoning behind his company’s latest acquisition of the strong automation technology provider Panaya. Executives must invest in developing such a system earlier to do more with fewer human and financial resources.

The Importance of Continuous Improvement and Design

Decision makers should avoid the seduction of a one-time solution that isn’t cohesive with the rest of the existing processes. An out-of-the-box software solution or limited outsourcing plan for automation is unlikely to grow with the size, intricacy and direction of a company’s contract portfolio. It will not be able to stay agile with a company because it lacks business intelligence and know-how to accurately modify and customize the solution prospectively and continuously evolve. Thus, the system would fall into disrepair and its failure would prevent investing other resources in repair, forcing the company to continue plodding along the old course with an unusable solution. Contract management automation (CMA) can provide vast amounts of data, but systematic planning must shadow the company’s ambitions.

CMA is bound to disrupt the very DNA of companies’ processes. Undoubtedly, there will be difficulties in implementation, but sticking to the status quo might be a far larger risk, as the winners of today will lose the edge tomorrow.

Dean Dastvar is a government contracts and patent attorney. He currently serves as in-house counsel and contract manager at Infosys Public Services, a subsidiary of Infosys Ltd., a multinational information technology corporation based in Bangalore, India. The views expressed are his alone and do not represent the views and opinions of Infosys Public Services.

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