Building a Business Ecosystem with Contract Methodology

So it all becomes transparent, but when the stuff becomes transparent, it also means that you need to start acting on it.  

 -Arjen Van Berkum

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 is all about how to use contract methodologies to create a business ecosystem. We are joined by Arjen Van Berkum, Chief strategy Wizard at CATS CM, a Dutch contract management methodology company. Arjen has been in the contract management field since 2008 and uses his extensive experience to push organizations to embrace a technology-focused future. He uses his unique position to bring innovation, disruption and business together with exciting new technology. His focus is on driving value from complex business ecosystems whilst never forgetting to consider the impact of human process. So now it's time to relax, grab a glass of wine and let's talk contracts.

Matt:
Hello and welcome everyone to another episode of our podcast series, Contract Lens. Today, I welcome Arjen to join us on a lively discussion about contracting methodologies and processes. Arjen, welcome.

Arjen:
Thank you, Matt. Nice to be here.

Matt:
Excellent. So Arjen, if you can tell our audience a little bit about yourself and your organization.

Arjen:
Yeah, sure, of course I can. I'm Arjen, Arjen van Berkum. I'm, I think a dinosaur in this domain working since the beginning of the zeros in all kinds of stuff relating procurement, and since 2008 heavily involved in the field of contract management, really looking on how to capture value for organizations. I do that for CATS CM, and I also do that as a regular teacher at some universities. But my main focus is rolling out a standard methodology so we start talking the same language in contracts, not the legal part, but the operational part.

Matt:
That's great. Excellent. We'll have a great conversation on methodologies today. And my name is Matt Patel, co-founder COO at Malbek, and in a way also a dinosaur in this space. Been with contract management solutions and this landscape for over 15 years now.

Matt:
So let's start off with the first topic. Organizations today are either torn between calling contracts and enterprise asset being more optimistic, or enterprise risk. There's a reason for both. I try to look at it as an enterprise asset because there's tremendous data and value in the contracts if managed well, but it could also become risky if not managed well. So Arjen, your thoughts on is contract the enterprise asset or a risk.

Arjen:
I believe that actually, if you look at it from a more holistic perspective, contracts are the lifeline of an organization. In the day and age where we live today, there isn't an organization out there that can do it alone. There isn't an organization out there that has more smart people outside their organization than in their organization. So that means that actually, in order to survive, you need to be part of a business ecosystem. You need to be aware on where you are, what you are doing. And you need to have that from an asset management point of view, so knowing what you're doing, where you're doing it, how you want to proceed, and how it fits into your strategy. But at the same time, of course, there's also a risk. But let's be honest, doing something usually means taking a risk.

Arjen:
So for me, it's a bit of both, but actually it's a step higher, it's vital. And the vital part comes from the fact that speed of innovation, speed of technology, speed of changing customer demands is so high that having just contracts is not going to be enough for you as an organization to survive. So actually it's a lifeline. If you don't do it, it's going to kill you in the end.

Matt:
And it only gets worse, right, because as organizations are growing, the contract volumes and complexity is growing.

Arjen:
Actually, I don't consider that to be worse because if you look at the tendency of a hyper-specialized market, it usually means that the cost of a total value chain goes down using hyper-specialization, but the number of parties involved in the value chain explodes. If you, for instance, take the value chain from grain to bread, 3000 years ago it was relatively simple. You were your own farmer, you milled your own grain, you baked your own bread. And if you look at that value chain today, there's over 30 parties in there. But the funny thing is we need now less grain to make bread than we used before, because we have taken out so much spillage, waste by having these hyper-specialized companies out there.

Arjen:
So I believe not only there's the pressure from doing it cheaper, there's also going to be the pressure on doing it with less resources to achieve the same results. So for me, it's much more than a growing thing. I think it's part of any enterprise strategy is to really look at how you are part and how you are coping with the world around you. And everything you do with the world around you usually means you have a contract. And if you have a contract, it means you need to manage it. It's as simple as that.

Matt:
So when managing these contracts, the obligations, the terms, and again, as you said, the complexity of the supply chain, so many parties are involved in getting it from grain to bread, a great analogy, methodology comes into play. How do you handle the process? What is your methodology for getting contracts not only created, but managed post signature? And of course technology is also part of it. But overall, what is the methodology, and how does the process and the technology fit in? I know you do a lot of work on methodology, so please share some of your insight.

Arjen:
Yeah. Well, the interesting part is that if you talk about the methodology, and methodology is a framework, it gives you all kinds of things you should think about, it gives you generic steps in what any process will look like. And what we see is it's kind of like [Itel 00:07:13]. Every organization does Itel, but no organization does it the same. Yet, they all use certain elements of the framework.

Arjen:
So a good methodology should be holistic, should be used by both selling companies and buying organizations. It should help you really structure the information you're going to get from it in a certain way. It should help you really drive your governance, really help you find the right interdependencies. It should help you aggregate the risks by making them tangible from each contract.

Arjen:
But most of all, a real good methodology allows you to really understand where to put which contract management effort. Because if you have like any organization, thousands of contracts, it's actually definitely not the best way to give every contract the same amount of attention. There are things that are more vital to your business. There are things that are even mission critical to your business. And understanding them does not automatically mean that you need to manage the biggest contracts, the most intense. You should manage the ones that add the most value to your company's objectives, or have the highest risk of damaging those realization of those objectives.

Arjen:
So we really work and we really believe that a methodology like ours should be focused on getting your objective done. And your objective is not buying something. Buying something or selling something is a result because you want to achieve an objective. If you're able to align your contracts to your strategic objectives, then you also know which one needs the most attention. And therefore you then also know where to manage most. And where does data come into play and intelligence come into play is actually we're coming from a day and age where let's be honest, we needed to trust a supplier [inaudible 00:09:22] report to know if it was really done to a day and age where with the help of artificial intelligence, we can actually see what's happening.

Arjen:
So it all becomes transparent, but when the stuff becomes transparent, it also means that you need to start acting on it. And this translating that what you see into action, we have translated into a certain group of buckets where you can put these activities in. And then based on these buckets, you can see what you need to do. Some contracts really need internal stakeholder management, some contracts don't. Some contracts are so vital that your supplier happiness is vital. So some contracts you need to run a great place to supply engagement. In others, you probably need to run a great place to sell construct.

Arjen:
And in order to get there, it means you need to have a clear vision, a clear mission, translate that into a clear policy in how you want to do stuff with contracts. That policy you then translate to actually what are we going to do and how are we going to manage contracts, which actually then translates into operational activities. And that then boils down to what we consider to be the three big building blocks. There's contracts, there's policy and procedure, and there's people and systems. And you need to have all three of them at a certain level in order to be successful. And that's what a good framework gives you, actually the ability to execute on all these levels and really understanding what do I need to do where, when, in time, and how to manage it.

Arjen:
That's actually what we from a methodology perspective bring, and we try to do it as holistic as possible. So we don't care if you sell microchips or you buy cars, or you are a bank, or you are a government agency, or if you want to run for instance, a complex business ecosystem to make sure that the joint strike fighter keeps on flying. That is what a methodology helps you with. And nobody does it the same way, but they all use the same building blocks.

Arjen:
And that's what a methodology is a good set on fantastic building blocks, where everybody starts speaking the same language, and that's not a legal language. It's that everybody knows what a meeting structure is, that everybody knows what it should contain on the tactical, the strategic, and the operational levels, and what to discuss.

Arjen:
You need to fill that with the right data, because the data will give you the information, and the information will then give you the knowledge and the wisdom to actually act. And that's what we always see. It usually starts with, I'm a contract manager, I want to do my contract management better. And it usually ends with how do I capture the value in data and bring it into my structures and my procedures and policies.

Matt:
So in that sense, you mentioned something about legal speaking the same language, business are speaking the same language. I often see, it's amazing when we're implementing our CLM technology at Malbek for our customers, legal will speak their language from a legal perspective, sales will be coming in from their own perspective. And oftentimes, there's a disconnect. They don't speak the same language, as we say.

Matt:
Then you bring in IT where they have their own requirements, whether it's from a process standpoint to be compliant, or for audit reasons. Or if it's a CLM tool, then they have their own requirements in terms of what kind of data security is applied, and the proper checks are in place when a contract is executed.

Matt:
So all of these folks, even procurement, you bring them in and they're dealing with a lot of third party paper, procurement sales, legal, finance, IT, everyone has to speak the same language, understanding each other's perspective, and respecting each other perspective. Because if this is again, as we mentioned earlier, it is not just a contract, it's not just a legal problem. It's a company-wide challenge to manage.

Arjen:
Yeah, for sure. But the interesting part is, is if I would take a step back, then for me, departments like IT and procurement and finance and HR is what Mr. Minsburg used to call the staff departments. At the end of the day, it's about the business. It's about how to make sure that you capture and realize the desired business outcomes. Because if you don't start with that, everything else becomes second grade. It's always about making sure that you realize the strategic objectives of the organization. And let's be honest, the strategic objectives of an organization are not the same objectives as a legal department has, or a procurement department has, because they all have their separate goal sets.

Arjen:
So we always try to talk from the business realization, and then based from the business realization, actually, you derive what's in there and what's not in there. And then you start talking the same language. Because what we see is if you help the business formulate not just their need from what they want to have solved, but actually formulate how they think this should all act in concert to realize the objective, and yet you start using the same frameworks, for instance, like governance, and everybody has a different opinion on governance and how it looks like and what it really is about.

Arjen:
But at the end of the day, governance is something of a structure that helps you to work on a smart way from demand owner, to contract owner, to contract manager, to actually people that are doing the actual verification on the shop floor, what has been done. How do you structure that? And if you build structures like that, then of course, legal will still have points on intellectual property, IT will still have points on data security, procurement will still have a vision on what the price is going to be. But it's still part of the generic structure, which always starts with a demand owner.

Arjen:
And if you're selling, let's be honest, there you also have a certain demand because you want to sell certain goods and you have resources that you need to deploy. That's also a form of demand, but then the other way around.

Matt:
So in the final question then, Arjen, let's talk a little bit about the visibility into contracts these days globally, and everyone's paying more attention to something that, if I go back 10, 15 years ago, it wasn't the most visible thing in the company, corporate vision and mission. Everyone's focused on that. How do you align all of this and also handle regulatory pressure, depending on what industry you're in, what region you're in, and making sure you're compliant?

Arjen:
Yeah, that's a really good question, as I really believe that every organization at the top end has two major building blocks. One is the, let's call it contextual framework of the business. That's what you want to be, what you want to sell, et cetera, et cetera, et cetera. And the other one is about the license to operate the compliance framework, the regulatory world, and everything around it.

Arjen:
So if you take these two building blocks, they will lead to a strategy. If you are a bank, you have different rules of engagement than for instance, if you're a trucking company. But both of them have rules and regulations, both of them have a vision on what they want to be. So that will translate into an enterprise strategy.

Arjen:
This enterprise strategy will then be translated into what we like to call a vision on how you want to engage with the world around you and how you want to manage those contracts. And what we actually see is that organizations really understand that once they bring this into play, it actually helps them to understand where contracts are an asset and where they are a potential liability.

Arjen:
If you, for instance, take a highly regulated environment like the banking or insurance industries, actually there's a lot of counterterrorism kind of requirements coming from all kinds of legal authorities, which means that you need to take them into account the minute you start sourcing. And you also need to make into account that once these rules change, and let's be honest, legislators are pretty good in changing stuff like this every once in a while, that means you also need to be able to then execute this change in the chain of your contracts. And that means that for these kind of companies, compliance is part of contract management. But actually the ability to deal with a changing environment, to continue to stay compliant is as important as well. And you see that these kind of realizations, that it's not about being in control and then go to the beach and think I'm going to stay in control. Actually being in control and staying in control are two elements that are both in contract management.

Arjen:
So the first one is getting up to a certain standard. The second one is making sure you keep adhering to this standard. And this is where I believe that methodology and technology together can create success, because technology will be the way to actually feed the need for all kinds of information, to actually execute on the way you want to work. Because the one thing that we see when people implement technology but don't think on how it's going to work within an organization, you're never going to capture the value of what this technology can bring you. If only legal uses the tool, that would not be really smart. If only compliance uses the tool, that's not enough. If only your procurement uses the tool, it's not enough. If the business only needs the tool, it's not enough. Everybody needs to do it.

Arjen:
But that requires to actually everybody understands that it's not there to be an administrative function. It's actually a business continuity function. It's actually a business development function that actually helps you to be a winner.

Arjen:
And this is what I see when I talk to executives all over the globe about this topic. Actually more and more organizations are seeing that the path to winning is not by being alone, but by being together. And being together means that you need to make an agreement on that. And an agreement is a contract, and a contract needs to be managed.

Matt:
So these... I mean, I can continue on this topic for another hour. [crosstalk 00:21:32].

Arjen:
I'm happy too.

Matt:
Maybe we do a second session to dive deeper into that last part. But I do want to be mindful of the time for our audience and listeners as well. We will probably record a second half of this topic next time. And in closing, if you would like to share anything of where the audience can find you online, if you have a channel or any other places where they can see more about your posts.

Arjen:
Yeah, they can definitely do. Well of course, there is the more personal channels. You can find me on @arjenvanberkum on Twitter. You can find me on LinkedIn, of course, Arjen Van Berkum. But you can also visit our website, which is www.cats, C-A-T-S- cm.com. So cats-cm.com. And you can find all kinds of cool blocks and information and process overviews on what we do. And then there's of course the best seller. Yeah, we can call it like that. We've written a book about this, or at least my colleague has done that, Linda, and she's written an extremely cool book about this. You can find that on Amazon, it's called CATS CM Version 4. So yeah, it's not that difficult.

Matt:
Excellent. Well, that's great. And Arjen, very nice to have this conversation with you today.

Arjen:
Yeah, thank you.

Matt:
We look forward to further discussions. And thank you everyone.