Throughout our conversations on Contract Heroes, we have often focused mainly on contract processes, how to go about bettering them before implementing tech solutions like contract lifecycle management (CLM) tools, but one key aspect of the contracting realm that we have yet to fully cover is people. After all, the employees working throughout the different departments of a company are the ones who make the contracting process possible, so we decided to center our attention on understanding the importance of people and building cohesion across the entirety of the business.
Cohesion Across Departments
We kicked off our discussion by posing our usual opening question to Kim: “Why do you think the contracting processes of every organization need attention?” She explained that processes make up the foundation of the business. They provide an outline of how people should be doing their jobs and what roles they need to play both within their own business units and as a part of the larger company. The best way to facilitate a deep understanding of this foundation is to find a sense of commonality across all the different business units. By creating consistency among processes in each unit, you can make sure employees are always aware of their roles and are able to adapt even when switching to or collaborating with another unit.
For organizations that do not yet have that consistency between units, there are two ways to go about creating it: roll out the new strategy to each unit one at a time or try to incorporate the entire organization in one large move. Choosing between these two possibilities depends on your company’s risk level. It is often much riskier to try to implement strategies in one “big bang” motion. If the strategy is ineffective, then carrying it out across all the units was a waste of time and resources. Kim advised instead to focus on individual business units first. Test the strategy on a smaller scale and make sure it works, then roll it out in broader terms so you can minimize any disruption. Depending on the size and scale of the company, you can either incorporate the new strategy unit by unit or move from location to location.
Finding Your Strategy
Building from Kim’s discussion of incorporating a company-wide strategy, we next asked her to explain how to begin developing that unique strategy. Understanding your contract processes and the way you interact with customers and suppliers is key. Essentially, finding your strategy will act somewhat as a maturity model as well. Mature contracting organizations have their supplier strategies in place, have well-defined processes, and have talented people who understand how contracting truly works. Once a company reaches that point of maturity, then they can begin utilizing strategic contracting.
Strategic contracting is based on three main types of contracts: performance-based, relationship-based, and vested outsourcing. Each one will be used differently, so it is important to understand your relationship with each customer or supplier in order to choose the correct contract moving forward. Kim outlined these three types of contracts as follows:
- Performance-based contracts: Typically used for critical or strategic suppliers. Focused on how you are going to perform to meet the end state of that contract instead of just quality and delivery. How are we going to support the customer after we’ve delivered the product?
- Relationship-based contracts: Typically used for strategic suppliers. Focused on how you will work together to achieve a certain endstate. Establish terms based on the relationship and how you will ultimately satisfy the customer’s needs. Approach from a trade-off perspective. Keep in mind who will be doing what in the relationship and how you will act in order to achieve the end deliverable.
- Vested outsourcing: The most collaborative model for strategic suppliers. Focused on building out the relationship together. Understand and agree on the risk profile that both companies will engage in and develop the actual contract jointly.
Since vested outsourcing sounds like the best solution for most cases, we asked Kim to give us an example of when that type of approach might not work. She explained that forming contracts using the vested outsourcing strategy requires a great deal of trust and for both sides to understand each other’s risks. If the relationship between the two companies is at all contentious, then this strategy most likely will not be a good choice.
Picking the Right People
As we mentioned, we wanted to hear more about contracting from the perspective of the people involved in it rather than just the processes themselves and the tech used to automate them. We asked Kim to help us understand the best way to go about finding and selecting the right people to fit into each aspect of the contracting process and help the company really function at its highest potential. She stated that not only is it important to create a culture within the organization that breeds the correct type of people who want to be involved with that culture, but it is also a necessity to try to incorporate employees early in their careers.
Contracts are, of course, inherently based in the law to some extent, as they always have to account for risks and what to do when something goes wrong. However, it is extremely important to make sure contracts do not cater only to the legal side of the relationship, but also to the business side. After all, the goal of contracts is to enable business. Kim explained that people who are hired into contracting positions must be able to understand both sides of the contract as well as how to create and develop meaningful business relationships with customers and suppliers. Apprenticeship programs in college allow young employees to become exposed to different types of contracts in various industries and help prepare them to build these comprehensive contracts that are risk-balanced and use appropriate language to support the legal and sales perspectives equally.
To wrap up the show, we asked Kim to give us some tips that people who are just starting their search for a CLM tool can use while wading through the countless options available on the market. From her perspective, it is important to keep in mind that technology is the enabler people use to make their jobs easier and more efficient. You should aim to find a holistic solution that uniquely fits your business strategy and creates a flow across all departments while also allowing room for long-term growth.
For more exclusive chats with expert guests in the contract lifecycle management sphere along with valuable legal-tech advice, check out past installments of Contract Heroes and be sure to subscribe so you don’t miss an episode! If you have any questions for our guest, Kim Miller, she is available via email at kim.miller@L3Harris.com.