How to gain competitive advantage from your sales contracting process
Sales contracting is an example of a cross-functional business process; one that involves multiple departments, often in different business units with conflicting agendas (and separate budgets). Sales will do whatever it takes to close the deal by the end of the quarter. Pricing’s sole focus is on profit margin. And Legal needs to avoid risk. Meanwhile, no one’s responsible for the end-t0-end process.
Because it cuts across functions, sales contracting causes pain for a lot of people in the organization. The corollary is it provides sustained competitive advantage for the few organizations that are able to fix the process.
So, how then can you turn sales contracting from a pain in the neck into a source of value?
1. Focus on a larger, overriding mutual objective
The first step is to identify a shared goal to get the various stakeholders pulling in the same direction. Consultant, Bob Henry, describes his approach in his article A Mission Statement for Sales Contracting: Close Contracts Quicker!:
“So, my challenge was to determine how I could meet the needs of the CEO, Sales, and Business Division leaders (and other stakeholders-Legal, Finance, Engineering, etc.). The first step was to create a mission statement for the CM [Contract Management] Team which was “to close contracts on a timely basis while at the same time caring for the interests of the company”. In order to achieve our mission we had to identify process improvements that could reduce the contract cycle time, while “not giving away the store.”
This doesn’t mean abandoning departmental priorities. Rather, the aim is for everyone to view them in the context of the overall corporate objective.
2. Get strong executive support
This is critical. And it’s often hard. According to the IACCM Contracts as a Source of Value report (accessible at the end of a blog post on the issue by Tim Cummins), most executives feel that contracting “is a necessary evil.” However, the report also provides a good counterpoint:
Lou Gerstner, former Chairman and CEO at IBM, was one of very few top executives who have seen contracts as fundamentally linked to brand image. He believed that good contracting – especially in a solutions and services world – confers competitive advantage. His support led to extensive re-engineering of the contracting process at IBM and is reflected today [in] the company’s leadership in both negotiation and contract management.
More than anything else, the level of (real) executive sponsorship will determine the success or failure of the initiative.
3. Start small
You need to start by working with a small group of people who share the vision. Your first phase should focus on a small, well-defined sub-process (such as a particular type of sales contract).
You will need to make decisions about approved contract wording, fall-back positions, risk weightings and approval processes. This is the key to accelerating cycle times without increasing risk. Once these are bedded down, you can use document assembly systems like Exari to automate and further reinforce the process.
Now it’s time to ‘rinse and repeat’. Showcase the results of the first phase to get broader buy-in for subsequent phases.
Fixing your contracting process involves change. Don’t underestimate people’s resistance. You need to invest time and effort to reduce that resistance to a minimal, manageable level. It takes time for people to adjust to new situations. There are no shortcuts.
According to the IACCM Contracts as a Source of Value report, companies that have taken a strategic approach to contracting have enabled greater efficiency and effectiveness in their contracting process:
They offer terms that are appropriate to the desired relationship. This does not mean that negotiation frequency has increased – in fact, the opposite is true. These organizations are selective about when they want to negotiate and then ensure that the topics for negotiation are productive. For agreements where there is no negotiation, they ensure that standard terms are appropriate to the desired outcome.
Isn’t it time you improved your contracting process?
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