Are contracts the domain of an organisation’s law department or its procurement group? There’s no correct answer, but over the past two years, more and more procurement organisations have been obtaining the budget to acquire contract lifecycle management software and set up contracting centers of excellence. Some who know the amount of hard work required for a complete contract management program may wonder, Why? Why is an organisation chartered with acquiring products and services in support of a company’s core operations driving an initiative increasingly viewed as an enterprise-wide endeavour?
Procurement professionals are typically measured on category management dimensions, such as reducing organisational spending on particular products and services (establishing supplier relationships, pricing structures, or other means). Increasingly, supplier diversity has become important and incorporated into the quantitative metrics applied to procurement departments. None of that seems all that relevant to contract management.
However, dive a little deeper, and the answer to the above question starts to take shape. On the one hand, procurement professionals have historically focused on key performance indicators centered on procurement itself (price, quality, etc.). But contracts impact the commercial performance of other parts of a company. They also create legal risks (around, e.g., data privacy, cyber security, and compliance). And increasingly, procurement departments are being held responsible for these dimensions of contracts, even though they are not intimately involved with those elements. So, procurement leaders have decided that they want to control their destiny. That is the principal driver behind why procurement is leading contract management initiatives.
In a future post, I will share specific steps for procurement departments to take in leading these initiatives. Stay tuned!
More and more procurement organisations, rather than law departments, are starting to lead the charge to acquire contract lifecycle management software and set up contracting centers of excellence. But why? Mostly, because procurement organisations increasingly find themselves held responsible for contracts' strategic business impact and the range of risks contracts generate.