In my daily work, I talk with companies of all sizes about contract management. One recurring theme is the ownership of contracts and contractual processes – or, rather, the lack of clear ownership. In this post, I’ll discuss why lack of proper ownership is a problem and what you can do about it.
Too many owners = chaos and inefficiency
Far too often companies have built impenetrable silos around their contracts. The sales organization handles sales contracts as they wish, procurement does things their way and HR naturally has their own solution and processes. What’s more, some contract types – like NDAs – don’t fall into any specific silo.
IT and legal both acknowledge that this siloed, multi-ownership model is not the optimal solution (in terms of information security and risk management, for example) but might feel changing the status quo is too difficult.
It’s good to note that contract management might actually work pretty well inside a specific silo. For example, customer contracts bring in the money and HR information is very sensitive in nature – that’s why these functions might have set up well-working solutions.
So, what are the key problems with contract silos on a company level?
Wild West of contract management: If there are no joint processes, it’s impossible to share best practices and develop processes further. Also, even if sales and HR have their contractual ducks sorted nicely, some other functions may completely lack proper tools and signed contracts are stored on personal computers, email inboxes or shady network drives.
No top-level visibility: In a siloed organization, it’s really difficult to get a holistic helicopter view of all contracts and contractual responsibilities. Hunting down a specific piece of information (such as a termination letter for a vendor contract) becomes time-consuming or next to impossible.
5 silos = 5x expenses: Lack of high-level ownership often means different technical solutions, too. So, instead of having a single, shared contract management system, a company might have several tools in place. Each comes with its own price tag.
Contracts that fall between the cracks: What about contracts that don’t fall into any specific silo, such as non-disclosure agreements? If no-one has ownership of these kinds of generic contracts, there’s a good chance that they are not managed at all.
Higher risks in information security: Contracts contain sensitive information, be it business secrets or personal information on employees. Having several solutions for managing sensitive information means more risks for breaches, loss of data or simply having the wrong people being able to access the data.
How did we get here – and what’s the way out?
As an organization initially grows, each department is quite naturally interested in performing to the very best of its own ability. This means adopting tools and practices that work best for that particular company function.
So, a mixed bag of contract management practices is often the result of years of inconsistent working methods in various company departments. No-one made a conscious decision to build the silos – they just took form and grew taller as the years passed by.
What should siloed organizations do, then? What’s the next step and who should take the lead? And, how can you motivate all departments to join the initiative?
Changing the status quo is always difficult. However, if the challenges listed in the previous section resonate with you and your company as a whole, it’s worthwhile to roll up your sleeves and get to work. After all, the challenges will not disappear on their own.
Own your contracts, share the process and tools
When you engage in dialog within your company, it’s good to realize that owning the content or resources can be separate from owning the process. Sales, procurement and HR can still own their contracts while following commonly shared processes and best practices.
The good news is that over the recent years, a lot of software solutions for contract management have entered the market. Today, you can build a contract management pipeline pretty much according to your preferences. You can define a flexible process that works for everyone.
From a tools perspective, my advice is to look at your contract management process in a reverse chronological order, starting from the post-signing phase and moving backward.
So, proceed like this:
- Where will the finalized contracts be stored? Look for a single-source contract archive that works for all departments with powerful sharing and access control features.
- How will the contracts get signed? Do some company functions have specific requirements for eSigning, such as strong ID verification in a particular market area?
- How are the contracts drawn up and negotiated? Is there a great tool for sales contracts with CRM integration or a HR tool integrated with the application process?
The reasoning is that in the post-sign phase, all company departments benefit from the same contract archive features. The same pretty much goes for the eSigning tool as well. In the pre-sign phase, there’s a greater variety of built-to-purpose tools that might offer individual teams with exactly the features they need.
When you start in a reverse chronological order, you can include as much consistency to your company’s tools as possible while getting the most bang for your back. Just remember to check that the tools come with flexible integration options.
Does your company struggle with silos and contract ownership? Let’s talk!
CEO at Zefort
+358 40 019 9528
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