Archive: July, 2015
What’s this got to do with business processes you ask? Simple: your processes should be more like fast food than home cooking. You’re not trying to satisfy your in-laws, you’re striving for consistency, quality and repeatability – uncontrolled variation between steps is undesirable as it inevitably exposes risk. These ideas are articulated in George Ritzer’s book, “The McDonaldization of Society.” Ritzer’s premise is that society is becoming more and more rationalized. The four essential components of McDonaldization apply equally to what we strive to achieve with our contracts:
- Efficiency – the optimal way to get the job done. For fast food chains, this is getting customers from hungry to satisfied as rapidly as possible and then moving them on. For business processes, efficiency means minimizing the time spent on each step.
- Quantification – knowing how long things take and how much they cost. It’s hard to improve your processes without something measurable. Fast food chains know exactly how long every step in their processes takes – usually to the second. Every step in the process life-cycle needs to be understood and quantified in order to improve and rate its efficiency. The concept of a contract risk score that can be tracked across your entire portfolio over time takes this to the next level.
- Control – having strong, well established processes and using technology over manual labor wherever and whenever possible. There is no place for originality or creativity for common orders.
- Predictability – achieving the same quality product every single time. Automation facilitates predictability both for fast food and business processes.
So while in some areas of life – such as the dinner table – variation and uniqueness are important, business process is not one of them.
So how do your business processes compare to fast food? What about your contract processes? Are they consistent and up to date or are they more like a home made souffle – they sometimes flop?
I’d love to hear from you at @liptonj or leave a note in the comments.
Justin Lipton is CFO and Co-Founder at Exari
Really? How much is that costing you?
I recently heard a story of a services firm that generated contracts from “passed around” Word templates. At some point, somebody actually read through the contract and realized the entire liabilities and indemnification section had been deleted.
This contract form had been used for 2 years.
I’m not sure why so many people trust Word for drafting their contracts, especially multi-page agreements with complex terms. Sure, everyone thinks it’s easier for drafting and sharing with counter parties, but can you afford the risk? And we’re not talking about a click-through contract for an iPhone app (bet you don’t read those either).
The fact is there are thousands of contracts drafted in Word that are inaccurate, incomplete, the wrong version and probably putting your company at risk. These agreements bind your company for years and are typically only discovered during some important event where value has to be determined, such as an acquisition.
So a Word to the wise; know what is going into your contracts before they’re signed. It could save your company millions.
Contracts are the backbone of every organization. They define and contain every aspect of all corporate relationships; with employees, customers, vendors, partners and stakeholders. Managing your contracts efficiently amounts to managing your business efficiently. And the same holds true whether your contracts are sales contracts, insurance policies, or financial documentation such as ISDA Master Agreements.
As pressures rise to reduce costs, safeguard against risk and improve compliance, a high quality contracts solution is becoming a “must have.” The cost of NOT implementing these efficiencies and safeguards is too high. IACCM President, Tim Cummins, has been quoted as saying, “Organizations which don’t manage their contracts effectively will be at a tremendous competitive disadvantage.”