A new report by World Commerce and Contracting supported by Icertis, has identified the current state of commercial and contract management and what investments are needed to improve it. The report is based on a survey of over 750 organisations to provide a holistic view of the challenges faced across different functions within organisations, including legal, finance, procurement, and sales.
The respondents were from a mix of industries, including manufacturing, retail, public sector, and healthcare. Despite the sample size, the authors did not segment the findings by industry, inferring, though not stating, that there were few differences between the responses.
The 2023 Benchmark Report titled CCM: The Journey to Operational Excellence is a comprehensive look at contracting processes. The full report is twenty-two pages long and a mix of analysis, data points and visual representations of the data, which both vary and bring value to the report.
Bernadette Bulacan, Chief Evangelist, Icertis, commented, “Grasping the innate complexity of contract-driven processes across the enterprise and investing in the right technology is critical for businesses to stay ahead in their industries amidst shifting market conditions.
“Icertis is committed to partnering with organizations like World Commerce & Contracting to address unique contracting challenges and equip our customers with the insights, automation, and AI necessary to drive their enterprise forward by tapping into contracts as one of their most valuable assets.”
What is in the report
The report is divided into three broad sections. The first part contains a brief executive summary, followed by an introduction. It then looks at the current state of contract management, flagging both barriers to progress and the most used metrics.
The section finishes with a look at what companies are investing in and how organisational priorities are shifting, both up and down. It also contains a note on how to use the report and recommends that readers also have the WorldCC Benchmark Report 2021 and The ROI of Contracting Excellence 2023 report to hand.
Another report, World Commerce and Contracting/Deloitte Report,* supported by Icertis will be available soon to further strengthen the analysis. That report shows that governmental contracts lack the rapid data-driven insights and accurate management reporting needed to keep on top of – or ahead – of the regulatory landscape.
The next two sections provide information about how contracts are changing. It first looks at the two processes that contracts are categorised into: Portfolio Segmentation and Contracting lifecycle. Portfolio segmentation recognises that contracts are evolving both in terms of complexity and contract types, with there being a 25% in agile contracts since 2021. There is still a lack of clarity in the role and responsibilities within the contracting lifecycle, with little improvement since 2021.
The final and biggest section looks at five elements of contract management:
- Skills and Experience: Identified the challenge faced by organisations with a shortage of talent with the new skills required. Raising skills and attracting and retaining talent is a high to medium priority for 89% of respondents
- Organizational structure: Looks at the accountability and control of the CLM process and established reporting lines
- Digital Strategy: The importance of digital strategy, with 96% placing improving internal processes as a high or medium priority
- Technology and tools: What organisations have and are investing in and the barriers to investment
- Simplification: How organisations are standardising their approach and the development of standards
A conclusion completes the report and notes that the report draws three things from it.
- There is a shift in priorities as operational capability pushes strategic value into the background.
- The types of agreements have changed in the last two years
- Organisations have deployed significantly more technology
Current governmental contracts lack the rapid data-driven insights and accurate management reporting needed to keep on top of – or ahead – of the regulatory landscape.
The report is a trove of interesting statistics. Icertis called out several:
- 90% of executives understand the need for better contracts and more streamlined operations
- 40% of organizations to consider implementing a new CLM in the next 12 months
Over the last two years, priorities have shifted slightly. The top three priorities are now
- Improving internal processes (71%), 2021 (2nd – 64%)
- Increasing strategic relevance (6%), 2021 (1st – 68%)
- Upskilling staff while attracting and retaining talent (58%), 2021 (3rd – 51%)
Barriers to adoption remain the same, though with operational workload, budget and establishing data to demonstrate the value and contribution of the top three.
Value erosion is now 8.6% of contract value, down from its peak of 2020 (10.9) but still above 2016-2019. Despite this, respondents reduced the importance of reducing value erosion in purchasing new systems by 6 points to 39%, the lowest with overall visibility into contracts and data staying the same at 76%.
Surprisingly, with the rise in importance for sustainability and ESG, there was little impact on the responses, noting only one point rise from 13% to 14% in the Role of CCM resources in ESG adoption and roll-out. The authors chose not to include resilience within the report, an omission and one they should probably rectify in the next version.
Technology is increasingly important, with 38% of organisations looking to increase consideration of expanding the role of CCM resources. However, centralising contract data is an issue, with an average of 24 systems holding contract data. In terms of what organisations are investing in, there is little change from two years ago. Even interest in AI remains static, which is at odds with other reports.
Tim Cummins, President of World Commerce & Contracting, said, “Regulatory pressures, geopolitical risks, the impact of AI, and supply chain disruptions are just some of the factors motivating today’s business leaders to reevaluate critical capabilities like their contracting processes. Those who have already pursued digitally enabled commercial management operations are not only more competitive in their markets but also realize a substantial uplift in profitability according to our research.”
Enterprise Times: What does this mean
This is a fascinating report with a wealth of data points. The benchmarking is extensive. However, the changes in many cases are minor, and the report could have benefitted from greater trend data, as shown in the value erosion chart. There is also no qualitative element visible and no quotes from industry leaders that might have highlighted further insights into the data.
One thing that readers should be wary of is how the authors use percentages, notably increases. While the paper states that respondents have increased deployments of AI/Machine Learning by 75%, this is actually only a shift of 3% from 4% to 7%. Still remarkably low.