With so much pressure on marketing departments to generate positive returns on the investments they make in channel marketing and channel programs, getting the most out of managing contracts often gets forgotten about. There is no clear return on investment calculation for contract management, and as a result it gets ignored.
Yet contract management needs to be the basis of any multichannel management strategy today. It’s not enough to just rely on the outbound marketing strategies anymore; looking instead at how to better use pricing discounts, arbitrate on pricing strategies, and how to better manage resellers to performance levels and goals all can be tied to the better use of contract management.
Looking at how Cisco was able to capitalize on putting contract management at the core of their channel management strategies is a case in point. Instead of allowing pricing discounts and opportunities for cost savings to expire, Cisco has create an enterprise-wide contract management system that is now core to their multichannel management strategies. Their ability to manage pricing, analyze contracts down to the clause level and also increase the profitability of their channel partners and in so doing add to their own is evident in the latest fiscal year figures reported. An astounding $4.8B backlog and 7% revenue growth illustrates how critical managing contracts with their many channel partners.
An Emerging Contract Management Maturity Model
The majority of companies rely on intensive contract management systems to manage their procurement and supply chain contracts, yet this same level of concentration and intensity needed for sell-side contracts as well. From several companies in the discrete manufacturing, high-tech, and process goods industries relying on contract management in their sell-side and multichannel management operations, the following maturity model has emerged from the companies spoken with:
Level 1: Stand-Alone and Siloed. The majority of these companies use sell-side contract management only for managing pricing exceptions and as a database for re-evaluating selling contracts. These databases often reside in Microsoft Access databases and also in Microsoft Excel. As a result, there is often a lag in terms of the accuracy of the data that leads to lost profit opportunities as well. From the research, approximately 70 – 80% of the companies researched are in this category. There are major opportunities for increasing contract management performance in multichannel management strategies.
Level 2: Minimal Integration leads to Margin Loss. This is the middle ground of the contract management maturity model, and is populated by companies who have integrated their sell-side contract management systems with sales operations, Accounts Payable (AP), Accounts Receivable (AR), and in the case of distribution-based businesses, their pricing and forecasting systems. On average these systems have two to four system integrations, most often through internally developed adapters or connectors their IT departments have created. Companies in this level of the maturity model have the ability to forecast and plan out the impact of taking discounts across their reseller base, create specific programs to help resellers get to their specific performance goals.
Level 3: Contract Management Platform. In companies including Cisco, Ingram Micro, Intel, GE, Microsoft and others, channel contracts are managed more as part of the broader Master Data Management (MDM) strategy, which are what SAP customers commonly use for managing their Supplier Relationship Management (SRM) contracts. Forward-thinking companies spoken with during a series of sales calls on sell-side contract management want to move their dealer and distributor contracts into their SAP MDM warehouses as well. Companies who have done this are capable of managing their multiple channels more profitably because the contracts can be accessed and used by anyone completing a marketing plan or evaluating a new marketing strategy.
Bottom Line: Instead of filling up filing cabinet with contracts, get them automated so they can be used for better managing your resellers and creating incentives for your channels to seller higher margin, more profitable products.