In this episode of The Contract Lens Podcast, Anne Moore, Senior Solution Consultant at Malbek, chats with Paul Branch, CTO at World Commerce and Contracting, about friction points within the contracting process. Paul begins by explaining what a friction point is and the negatives as well as the unexpected benefits that can result from them. Then, using fresh research from WCC as well as his extensive experience, he describes how bringing process, people, and technology together can help reduce the negative friction points within the CLM process. Paul also shares how a quality CLM solution that offers agility and contract automation can further help reduce the costs associated with friction in the contract management process, and what to look at to prove the benefits. So grab a glass of wine, and let's talk contracts!
Intro:
Welcome to the Contract Lens Podcast, brought to you by Malbek. In this podcast, we have conversations with contract management thought leaders, and practitioners about everything contracts and its ecosystem. Today's episode focuses on ways to reduce friction in contract lifecycle management. We are joined by Paul Branch, CTO of World Commerce and Contracting, a global nonprofit organization in 180 countries promoting standards and raising capabilities in commercial practice. Equipping its more than 70,000 members with knowledge and networks that support successful contracts at commercial relationships. With over three decades of experience in the complex IT services sector, Paul is considered an expert in post award contract management. So, now it's time to relax, grab a glass of wine and let's talk contracts.
Anne:
Hi everyone and welcome to the Contract Lens podcast. I'm Anne Moore with Malbek, and today we're joined by Paul Branch. Hi Paul, it's great to have you here today.
Paul:
Hello Anne. Pleasure to be here. Thanks for inviting me.
Anne:
We're so glad to have you here. Paul, today, we're going to talk about friction points in contracting, and how technology plays a role in resolving them, and you have such a wealth of knowledge and experience that I know you have many insights to share with us on this topic.
Anne:
You're currently the COO and CTO of World Commerce and Contracting. And prior to this role, you spent many years at BT, where you were responsible for their most complex contracts and the technology to support that contracting process. So, with all of this experience, I would say you have firsthand knowledge of the friction points in contracting, would you agree?
Paul:
That's totally yes and the battle scars to prove it.
Anne:
We might have listeners today who aren't as familiar or maybe newer to legal operations. So, that'd be great if you could kind of define for us what you would say a friction point is.
Paul:
Sure. Friction points, aware there's a slowing down in the CLM process. So, our research has shown that throughout every step along that way, there are things that slow things down, now that slowing down on the face of it may be a bad thing. And often these friction points causing this slow down, it is a bad thing.
Paul:
They are corrosive in nature, particularly those ones that occur post award. But sometimes, friction is a good thing. If you're spending time with your internal stakeholders identifying what the opportunities are, and what you really need the other party to do, that's all to the good. If you're sitting down and you're working through those same requirements with a supplier to ensure that they really understand what you need, that's all goodness.
Paul:
In the same example, though, if you're spending and spinning your wheels, getting your stakeholders engaged, trying to get them to a meeting, trying to get them to read and to comment on documentation so that you have that clarity, that's an example where the friction is less beneficial, and where you can absolutely deploy technology to really help you in that whole process end to end.
Anne:
I feel like at this point in time, we're at a place where it's not going to really be a choice to not automate and bring technology. And I still talk to many organizations doing things very manually today, but they realized they need to do something now.
Paul:
That's a really good point. And another data point that really struck me was, again, as a result of some recent research we've done, we surveyed over 500 organizations, and 81% of the folks surveyed, and this was post COVID, 81% said that within the next 12 months, they're going to make a material investment in automation, be that replacing something that they've got that doesn't work or dipping their toe in that CLM automation opportunity and deploying technology.
Paul:
But it's not just technology. Technology is certainly moving so fast that it's hard to keep up for sure. But there are two other components that really do need to come together to make this work. We've talked about one of them already, and that's the CLM process, making sure that you have a process that's well honed and supports the business that you're in. The second leg of this three legged stool though are the people. Now, if you do it right, you've got a transaction-based process that has very few risk and uncertainty in delivery of deliverable.
Paul:
You can automate the people out. Our research shows that in the next five years, 60% of the job that our commercial contract manager does today will be replaced by a machine. Now, "Oh, my word, we're all going to get out of a job." Rubbish, absolute tosh. What it does mean, is that as commercial and contract management professionals, we're going to be able to focus on the piece where we really add value.
Paul:
So, you can see that perfect storm of hugely advanced in technology, for sure, but a quality CLM process and capable people. Often, we have to raise the skill and capability of those folks to meet the challenge. But bringing those three things together, process, people and technology, is a winning combination. Leave one out, and my experience is, well, certainly it's suboptimal, and I would go as far as to say that it doesn't work.
Paul:
A lot of our members come back and say, "We invested in this CLM solution, but it didn't deliver the business benefits." Time and time and time again, we hear that that's a criticism that comes back, and there are important lessons to learn from that around how you should go about it.
Paul:
We have some of our pitfalls, stakeholder engagement is an obvious one, where you have to make sure that you have all your folks are engaged and supporting. Engaging with the right stakeholders, engaging with the legal team, engaging with your IT team, engaging with your user community, and engaging in that selection of a vendor for your CLM solution that's really going to stick with you as a business, and most importantly enable you to be agile.
Paul:
Agility is the name of the game. We've seen that time and time again. It's a fascinating industry to be in, fascinating discipline. I mean, I've been in commercial contract management for 30 old years, but now it's such an exciting time. Things are moving so fast. There's so much going on, driven, it is true, driven it's extensively by technology. But just the application of some of these more modern techniques, artificial intelligence, natural language, machine learning, have really changed the landscape of what we can actually achieve in this portfolio analytics, risk analysis, obligations tracking, and jeopardy management. So, just to name a few things.
Anne:
It really is an exciting time, and I'm newer to this space certainly than you are and it's very exciting.
Paul:
Are you saying am old?
Anne:
No am also old. I just switched.
Paul:
That's so funny.
Anne:
Well, I know the research that you'll have done if shown, there can be as many as 40 or more friction points in one contracting process. So, if you had to kind of pick some of the low-hanging fruit, if you will, that technology could help resolve, what are some of those key friction points that you've seen technology solve?
Paul:
Really, really good question. There's a couple of drivers here. There's the position where you are in the CLM cycle. So, pre award, a lot of the issues causing friction are things like rights to terminate, agreeing responsibilities. A lot of which sometimes we get wrapped around the axle on intellectual property rights. Risk allocations is another things, so that's all pre award.
Paul:
Post award, and these, as I said at the beginning, I think these post awards ones are often much more corrosive, damaging the relationship and the ability to deliver. It's around the key things, they'd be surprised, managing change, how you manage price changes, how you manage changes in scope and delivery. Specifying what those scopes and goals are in terms of a specification. Invoice is how you handle late payments, how you manage service levels. The devil's in the detail with the SLA's and the service level guarantees.
Paul:
I've been involved in engagements where the contract says, "We deliver hundreds of performance metrics a month." And that's hugely time consuming on a supplier perspective.
Paul:
And then it goes into a big black hole and six months later having churned through all this gut wrenching stuff, you go back to the customer and they say, "Hell yeah, we don't actually look at that, we don't use that. That's all detailed stuff. Now what we really look at are these three things. So well, can we come to an arrangement that we don't, contractually, we're obligated to provide these things to you, but let's just focus on those three key things and let's focus our energy on making that work."
Paul:
So, you see how pre award and post award, there's some friction there. Another important dimension though, is the type of contract. What we've seen is that long-term services agreements outsourcing, things where there's, like in the construction industry, where there is long-term deals and material risk and high levels of uncertainty in what's going to get delivered and how it's going to get delivered.
Paul:
That's where you see a lot of friction in that cycle. And that friction costs an inordinate amount of money. Our estimates show that even for a simple contract, it can cost $5,000 just to review and process a low complexity agreement.
Paul:
Complex contract though, talking about $50,000 or more. I mean, I've been engaged in some deals where the deal that the bid activity exceeded a million dollars. I mean, this was a major deal, obviously, major outsource engagement, but it was a million dollars and it took me nearly a year to negotiate. If you can reduce that cycle time by half that's a good night out.
Paul:
Now, many corporations will look at that very positively as being a material improvement to their bottom line. So, how do we go about doing that? This is where, as you said down in the intro, this is where you can really really start deploying technology.
Paul:
So, I mentioned before, rights to terminate and intellectual property. These sorts of items that are clearly dependent on the principles and the standards that were adopted. Opportunity there to go to an unbiased organization, like World Commerce and Contracting and adopt our principles and our standards. If you do that, 70% or 80% of the negotiation is done before you actually sit down at the table. What role can technology play? What technology can enable us to have an effective clause library? A library of clauses that we have that have proven that are consistent with these principles and these standards, that enable us to offer alternatives as we go through the negotiation cycle that have already been approved by the stakeholders, by legal, by the service guys, by our operations folks.
Paul:
So that you know, if there's a slightly changed term, you can drop in, you can dramatically improve the cycle time, delight the other party because you can demonstrate that you're being a fleet of foot, and yet you're doing it within a well controlled and lower risk environment.
Paul:
So, using technology to do those things, to do your clause library, to analyze the responses that come back using some form of artificial intelligence. So, to use workflow management, to use the electronic signature to speed up the negotiation and authorization. Going back a few years now, in major outsource deals, you have what's called local services agreements. Now these are mechanisms that basically allow local entities to bill each other. So, the supplier local entity in Poland can bill the client local entity in Poland. And you might have one, if you're lucky, or you might have hundreds in Poland, then because you want to do separate invoicing.
Paul:
In a past history, we used couriers to courier out each of those agreements, those local services agreements. There were literally thousands of the things. It took years, it took us years to do. Now using electronic signature where you can do parallel processing and execution in parts and all the modern things, you can do that in a couple of hours. Just see how technology can really support us in that sort of engagement.
Paul:
I work with clients routinely, those that have deployed CLM technology and done it effectively, they can take negotiation cycles that are 90 days, and they can cut them down to with the target was 14, with the client I'm thinking of, and they actually did it in seven. So, just think 90 days, all that friction in that process now reduced to a cycle of seven. Just think what that means for your business in terms of certainly cash, absolutely.
Paul:
But since just think how responsive you can be in that marketplace, and then get a positive spiral or reputation as being a corporation that's easy to do business with. That's what you need, come to these contracts or the lifeblood of business. If you get in that contracting process really humming well, you're going to succeed in any market, any market.
Anne:
Let's talk just a moment about technology adoption, because it's in my nature that I like to automate things, I like technology, any job I mean, I'm going to want to do that. Is there any difference that you see in legal groups versus other parts of the business where there's a more of a hesitation to change or implement technology?
Paul:
My experience, I mean, about 30% of our membership at World Commerce and Contracting are legal professionals. And I would say the majority of those fit into let's say the good camp. To me, good legal talent, are now focused on the business, the business priority.
Paul:
How do you do the same for less? How do you take advantage of improvements in technology? And how do you give to your user community the flexibility to be able to get on with their job without having to come back to legal for every five minutes? That's one sort of legal talent. They're the ones that are going to be around in a few years time. That the diminishing group though, but those that are still focused on my way or the highway, it's my words, not yours. I'm really focused on getting the very best words down on a piece of paper, whether they reflect what is actually the business need or not is irrelevant, it's much more important for me to rubber stamp my limitation liability provision and to take forward the most risk averse position that I can force on the other party. But fortunately, that is a dwindling community and those very narrow focused views are something of the past.
Paul:
So, the positive thing though, is that that first community that I spoke about, they are so well positioned. Legal teams typically are the linchpin. They bring disparate parts of an organization together. They bring sales, they bring operations, they bring finance, they bring audit, they bring governance all together. And really it's within the contract that all these things come together, and the legal folks have a pivotal role to play, not just focused on that single transaction, but with a much more strategic view about how commercial and contract management can be deployed for competitive advantage within the organization. And it's not just pre award, it's not just getting through the negotiation cycle, our research shows that about half of the issues have a root that's pre award. The other half or slightly less have a root in things that we do post award.
Paul:
There's growing awareness to the importance of post award management, particularly around the things we talked about earlier. Change management is one thing, the ability to manage obligations tracking, to do jeopardy management on that obligations, because an obligation that goes off track by definition is a risk.
Paul:
Technology enables many of those things to come together. We've talked about the pre award, post award. If you have a technical solution that can analyze a contract, pull out all the time bound, the triggered, the unbound obligations and getting them into a system so that they can be effectively managed, just think how powerful that sort of analytics could be. And it's going to be the obvious things, it's going to be quite often the issues that we see are around those things we talked about, managing change, managing scope, scope creep, late payment, invoices, liquidated damages, managing service levels.
Paul:
Very, very rarely, in fact, I can't think in my career, have we ever gone to court on the limitation of liability provision? No, no, no, no. The disputes with a capital D, are always around those delivery service change management related items, regulation changes in the environment and how you respond to those. And most importantly, for a longer-term contract, how you deal with innovation.
Anne:
And managing those kinds of obligations that can get you in trouble if you don't really require technology. And it's almost impossible to do that manually.
Paul:
A commercial contract manager and the guy running the deal came to me and said, "I need a obligations matrix." To which my response was, "What's that?" And he said, "Oh, it's time-bound triggered an unbound obligations across the entire agreement." Now this was a major outsource agreement that was probably five or six inch stack of papers on the desk, and I need it in 48 hours.
Paul:
So, that was a manual page turn, cut, copy, paste into Excel. Fortunately, that is no longer required. How error prone that sort of extraction is. The ability to use technology to do the obligation extraction using natural language and machine learning to understand the semantics of the meaning of the provision, one, and the allocation of ownership, so you can go through an agreement and you can identify based on who you allocated it to last time that the operations obligations go to the operations lead, the service delivery to the service delivered, the finance ones, the reporting ones, you can get a really robust set of obligations, responsibilities, and then make sure they get assigned to the right team.
Paul:
Now, just take a quick pause on there. Think if you could do that before the contract signed, then you can go to those key internal stakeholders and say, "We're about to sign up to this deal. Is it what you wanted? If it commits us to do this sort of thing, can we actually do that service in three hours?" They say, "Yep." You have that confirmation within the tool that you then have the evidence, the audit trail that said, "Hmm, before we sign up to this, you said that you could deliver this clear within three hours, yet it's taking us five. What's up? Why are we doing five when we said we could do three?" Then you can have that detailed conversation based on facts.
Paul:
That is the hallmark of a really quality organization. And I'm glad to say that many of our members are doing those things right now, supported it is true with some really really good technology.
Anne:
So, what about organizations who are still trying to do things manually? I'm talking to large and small organizations every week that really are struggling with the manual processes and they're ready to do something, but they know they need to automate, but there are things they need to do before they can just put a system in. So, do you have advice as they're beginning this journey of what they need to have mapped out and figured out first, before they can just start implementing this petition?
Paul:
Certainly, it begins and ends with the process. You need to have a really clear idea of what your CLM contract lifecycle management process really is. In World Commerce and Contracting, we have the obvious, it starts with evaluate, approve, draft, negotiate, implement, manage, close, status steps. But beyond that, you need to understand how that will interact with the personas that you have within your organization. That is driven by organizational design, as much as it is by the theory of effective commercial contract management.
Paul:
So, it's bespoke to a particular organization. So understanding the CLM process, that is going to support the contracting frameworks that work for your organization, that's mission critical. Key understanding, we hit on this before, but understanding who your key stakeholders are, so that you can do effective stakeholder engagement involving the right parties, supporting the development of a quality business case, identifying what the benefits of that case are so that you can demonstrate to the powers that be, that you've actually done something that's really moved the dial in terms of the performance of your organization.
Paul:
Which goes back down to metrics. Often, I bump into folks who say, "We've got this really good CLM tool that's really helped us." And they have lots of anecdotal evidence that shows that things are better, but when you start drilling into it, and you say, "Okay, so what was your negotiation cycle time?" "Oh, it was 90 days." That's a good start. "Oh, it dropped down to, well, not 14, but actually to seven." That's the whole mark of an organization who really analyzed the problem.
Paul:
You start asking those questions, you get the, "Well, I'm not really quite sure how bad it was to start with." Then you're on a stickier wicked. So, you've got to have a clear idea, a benchmark of how you're performing today in terms of some of the basics. How many contracts? How long does it take on average? How many people are involved? How many review cycles do you go through typically in a negotiation? When the red lines come back, what are the process steps that you go through to review? How does that work? How would you like it to work? Let's re-engineer the process. Because one of the pitfalls, if you like, is taking a broken process and bungling it into a machine, you just get a broken process running faster and generating more impact on value negatively.
Paul:
So, given some thought to that process, end to end, engaging the stakeholders, understanding where you are and be agile. I mean, I'll be honest, one of the mistakes that I made in one of my implementations was in trying to predict everything. It took us about two years to capture all of the requirements, and get a really good requirements spec together. By the time we got that into the market and got it solutioned, we were probably three years at drift.
Paul:
Then of course, by the time we delivered the thing, the requirements were completely surpassed. So, being agile has really, really helped here, and let's face it, the price point, the costs of entry into a quality CLM solution, and now much orders of magnitude lower than they were when on-premise was the only solution.
Paul:
So, moving into the cloud has really dropped down the price points. There's a plethora of really good CLM vendors out there. Let's face it. So, if you can't find one, a solution that meets the majority of your requirements, you need to look again because I can guarantee there'll be a vendor out there. But as I said, this is moving real fast. Even a year ago, standalone CLM was okay, post pandemic CLM that's monolith, and just stands alone doesn't really get you onto the playing field.
Paul:
You need to have open APIs into other elements within your IT infrastructure, so that you can pull together and all these things coming together into a consistent dashboard to enable, to give the commercial and contract folks the ability to drive these things.
Paul:
If you like, these are the table stakes and it wasn't even a year ago, but now the dashboard, the ability to understand how, it's something that we call commercial intelligence, if you like. It's all around content analysis. It's around that thing about self-service, providing automated access to advice and support from bid teams and bringing your engineers together and helping producing statement of works and all that sort of thing rather than, "Oh, we need a statement of work. Well, let's go to the last one we did and let's start hacking that around." No, no, no, no. There are much more efficient and system based mechanisms for doing that.
Anne:
That need for self-service and visibility for everyone across the organization into contracts is definitely a theme that I hear every day from those prospects that I'm talking to in my sales role here at Malbek, because we offer that in our solution, but it is definitely the desire that I'm hearing on every day.
Paul:
And just one further thing on that. The other thing that's really top of mind, and many tools are now working on is data mining, customer preferences, past performance indicators to streamline negotiations. The ability to analyze and predict risk, analyze and predict where the next opportunity is going to come from so that you can be ahead of the game. That is where the cutting edge of the application of artificial intelligence today.
Anne:
And Paul, you beat me to what my last question for you was going to be, because I was going to ask you to get out your crystal ball and tell us what you think the major forces for change are in contracting over the next couple of years. So, you may have already answered that, but anything else you would add?
Paul:
I would say around that commercial intelligence piece, table stakes are going to be transactional effectiveness or the obligations tracking the risk alerts and the value with the things we talked about earlier. Efficiency, the automated red lining, some of these are going to already table stakes, but are moving that way. Playbooks, automated playbooks, the ability to replace more and more of that negotiation cycle with machines rather than humans, that's certainly going to accelerate over the next six to eight months.
Paul:
But I think where I'm most excited is in data modeling, where we are using basically these advanced management dashboards to support commercial planning and risk opportunity and identification. I think that's a pinnacle, and it all then leads to why bother in the first place, value optimization. You end up with really top end portfolio analytics that help you to identify the characteristics of the best in breed high performing contracts.
Paul:
Let's face it, they drive improved profit, they drive material improvements in revenue growth if you're on the sales side or on the supply side reductions in burn rate and more efficient use of contract resources. That is the trajectory, it is just such an exciting time to be involved in commercial contract management, because you've got all these things happening. There's changes in the external environment for sure, but changes in the technology, advances in the application of artificial intelligence, for sure, but also recognition at the C-suite that this is important stuff.
Paul:
Post pandemic getting visibility into your supply ecosystem is mission critical. This on the foreheads of the CPO's, the COO's and the CX. The CEOs of major corporations now they get how important it is having seen the downside face-to-face in the pandemic. So, that's going to accelerate. Also there's a fine opportunity for folks to roll up their sleeves and learn from the experiences of others. No longer do you need to be a super scientist to be able to understand F1 scores and recall and precision and all that technical mumbo jumbo.
Paul:
You don't need to do that to be able to get the most out of some of this technology now. So, learning from peers through engagements, like these podcasts we're doing, I think it's such a great idea, where you're sharing the experiences of practitioners. Great thing. I think we are all going to see much more of this. One final thing, one final thought is changes in the commercial frameworks that work for major contracts.
Paul:
In my experience, IT services traditionally large outsource agreements multi-year seven, 10, 15 year agreements. Those are something of the past. The technology shifted to as a service and that changed the commercial models from time and materials into pay as you go sort of subscription type agreements or a fee for service.
Paul:
So, that hugely changed the underlying contractual engagements. That is where you need to have that agility that we talked about at the beginning. That's where you need to be able to flee to foot, to move from one commercial engagement to another using different commercial frameworks that work effectively in those environments. Wow, do not think that's going to be fun?
Anne:
It certainly is, and Paul, this has just been so insightful for me and I know for all the listeners, as we wrap up here, just could you share with everyone how they can learn more about you and the work you're doing at WCC?
Paul:
Oh, sure. I'd love to. Yeah, World Commerce and Contracting is a professional association and we're dedicated to helping our members drive consistent principles and standards. So, worldcc.com is our website and we're an international association and we welcome members. That's all I've got.
Anne:
Well, thank you so much, Paul, again, for your time today. It's been great talking to you and we've all learned a whole lot.
Paul:
Thank you, Anne. And it's some really great questions. And thank you for putting up with me. Enjoy your day.