COVID lessons on contract management

COVID has completely shaken up the business ecosystem. The market has experienced an unparalleled reduction of demand in certain areas, while in other business areas the demand has exploded. COVID has shown that being dependant on a “just in time economy” might be riskier than many of us thought. Next to that, it has also shown that not understanding your entire supply chain could easily turn into a disastrous situation. Let us take a deep dive into the execution of business strategy in times of uncertainty while still leveraging on all parties in your ecosystem.

Forget size, focus on impact

When it comes to agreements, organizations need a fundamental change in their thinking. Do not stare blind on single contracts, but approach the set of contracts as a whole. It is about the sum of contracts. However, not every agreement merits the same kind of attention. There are contracts that are vital to your business, yet small. And some contracts are huge, but easily exchangeable. For me that is probably the most important lesson from the COVID crisis. It is not size that matters, it is impact that matters.

Now the most difficult thing is how to find the parties that truly impact your core. For this you need to return to your top level KPI’s as an organisation, plus add ‘continuity’, the one that is usually not there as an KPI as it sounds so logical. Your continuity and KPI’s give direction in finding the vendors or clients that are most relevant to you. This might sound strange, but being part of any chain makes you both a supplier and a vendor. Managing your ecosystem goes all directions.

Key Performance Indicators

Here is a list of the most common KPI’s deriving from the overall organisation strategy:

• Business Continuity
• Customer satisfaction
• Employee satisfaction
• Innovation
• Your footprint
• Revenue
• Costs

It is not a difficult list. It is a list any decent MBA could tell you, but as is the problem with most MBA’s it is about the detail, the decision and focus. So let’s take a closer look.

Business continuity

Do your really know which factors influence your business continuity? While developing the CATS-CM® methodology, we found out that there are quite a lot of factors. Re-evaluate your risk assessment and look how your vendors or customers are aligning with your core KPI’s. Usually a classification along the axis of impact versus risk helps you to plot this. Do not make the mistake to do this on the aggregated level of supplier or customer, assess this per contract. In the end customers and suppliers usually have multiple contracts and therefore the risk should be aggregated from the bottom up and not from the top down.

Customer satisfaction

We have found that organizations that know where the key differentiators of their customers are, the satisfiers so to speak, also know where they need to address their suppliers and customers. Analyzing the customer journey is crucial in this; verify the touchpoints per contract.

Employee satisfaction

Understanding the dynamics in your workforce is an element that is usually overlooked. Some of the organizations that have implemented CATS-CM® analysed the origin of their employees and found that a large part joined their organization by working for a supplier or customer before joining. Next to that, creating a healthy work environment benefits all parties and can therefore be used to drive value for all in the ecosystem.

Innovation

Being innovative is a business imperative. However, usually you are not unique with your problem and both your supplier or your vendor have seen things out there that you may have missed. Having a joint agenda on innovation, based on ‘open’ and based on contractual agreements is definitely a driver of value for all. In order to capture the true value in your process, it is advisable to do the innovation based on an ecosystem as close to the operation and as close to the contract as possible. Aggregating innovation usually does not drive maximum success.

Your footprint

We are all part of this planet. You can do your utmost to be as carbon neutral as possible, be as diverse as possible or any other kind of footprint, but if you do not understand how your materials are brought to you and do not know what happens after you, with the next step in the value chain, you will never be a truly responsible organization. Managing that is difficult, but can be done by applying this as a point in your agreements.

Revenue

Revenue is something all businesses strive for. Optimizing revenue is not the same as charging your clients more. Here is where innovation, business improvement and operational management meet each other. This is why it is important to really manage the realization of every contract and agreement based on the scenario you need for that. We have found that using a framework to actually co-create and find and realize revenue works for all involved, both in supply and demand.

The traditional field of play in contract management is procurement. That area is for a larger part about cost. Reducing cost is off course something that needs to be done, but that should be a result of doing all the things above. If your drive for value, you will earn more in the end, instead of driving for cost or revenue.