The face of business is changing rapidly and the last decade has seen outsourcing come to the fore. Due to increasing competitive pressures, the concept of mass customisation and providing customised solutions for customers is now standard practice. International scandals are creating the need for tighter business controls and better corporate governance.
This is increasing pressure on organisations, large and small, to proactively manage their information and business processes. Accounting and ERP solutions are utilised to look after the financial aspects of running the business, CRM addresses customer interaction while supply chain management systems are attempting to squeeze every last drop of value out of the supply chain. Surprisingly, an area of business not effectively addressed through any means of automation is the area of contract management.
Contracts form the foundation of every business and without contractual agreements it would not be possible for organisations to conduct business at all. Contracts dictate the financial terms, operational terms and the nature of the relationship between parties as well as the time period of the relationship.
Many businesses do not manage their contractual agreements efficiently and there are a number of valid excuses for this. Contracts are still paper-based and are likely to remain so for a number of years. This makes it difficult to share or manage the information contained in a contract, and almost impossible where contracts are signed across different regions and offices. Renewal dates, escalation clauses and service level agreements are, as a result managed reactively if at all, with a direct impact on the financial and operational areas of the business.
Tony Maddison of Realyst, a company specialising in contract management solutions, states "The examples and case studies are frightening. One organisation spent over R30 000 on a fax machine that had been scrapped and was sitting in a cupboard for years, simply because the contract renewed automatically every year and no-one thought to cancel the agreement.
"One of our clients admitted that an international agreement had just cost them $35 000 for a service they no longer require simply because they didn`t abide by the cancellation terms of the contract stating that termination required 90 days written notice.
"The examples are endless," states Maddison, "and the impact of poorly managed contracts, while difficult to quantify, can be enormous."
There has been a lot of activity surrounding the King II report, the concept of good corporate governance, and what it means to business and shareholders. Shareholders and directors are placing more pressure on management to ensure that internal processes are adhered to. Maddison suggests: "One needs to look after the foundations of the business first, manage your contracts properly and suddenly financial management is easier, customers are happier and suppliers perform as they agreed to."
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