HOW TO SHRINK YOUR SALES CYCLE THROUGH SMART CONTRACT MANAGEMENT Best Practices in Contract Management Table of Contents The Seven Best Practices of Contract Management ............................................3 1. Find a Leader .........................................................3 2. Understand the Best Way to Implement ..................4 3. Focus on Quick Wins..............................................5 4. Measure .................................................................5 5. Benchmark ............................................................6 7. Say NO to Managing Technology and YES to Managing Contracts ....................................6 Compare Cloud Solutions with On-Premise Software .................................................7 Case Study: Successful Contract Automation .............8 In today’s tough economic times, every business manager has the same question: How can I increase revenue without adding more sales staff? Every organization today faces a volatile economic landscape. Navigating the twists and turns of a sale across that terrain can challenge the best of sales teams. What if you could streamline that often-arduous process? What if you could speed the sales contract process, track all of the iterations and negotiations, secure signatures, and book the order signiﬁcantly faster than you do today? How many more orders could you book this year? Would that change your organization’s revenue stream? Would you be better positioned to weather this economic cycle? This white paper describes six practical best practices any organization can implement to close deals faster and more efﬁciently. You Have Control of the Sales Contract Process If you can achieve even 50 percent improvement in the contract cycle, your sales cycle time will reduce by 9 percent. This means you can close 11 percent more deals with the same resources. Sales contract volume affects not only the sales account executives who are directly negotiating, and the rest of the sales team (administrators and management), but the speed and success of the process will be directly impacted by ﬁnance and legal departments. Managing sales contracts properly can help shrink the sales cycle, improve cash ﬂow and reduce the risk of litigation and penalties. According to an Aberdeen’s research report, an average 18 percent of an enterprise sales cycle is attributed to contract creation, negotiation, and approval. If you handle highly negotiated contracts, the rate could be even higher. The good news? You control most of the sales contract process because the majority of steps occur inside your company. If you can achieve even 50 percent improvement in the contract cycle, your sales cycle time will reduce by 9 percent. This means you can close 11 percent more deals with the same resources. © 2012 SpringCMSM 2 Common characteristics of a challenging sales contract lifecycle include: • Contracts are highly negotiated, involving many different terms that make it difﬁcult to stay on top and strike the best deal when there are many contracts being processed. • Many external and internal parties need to interact, creating delays as multiple people review each change and you wait for the prospect’s team to do the same. • Contracts are typically closed in a time crunch atmosphere. Despite everyone’s best efforts, most deals get ﬁnalized at the end of the month or quarter. All of a sudden every deal needs legal review, executive approval, or must be approved by ﬁnance for revenue-recognition issues. How effectively you manage this process can determine if the key deals get closed and the company achieves its targets. • Contracts use a manual and cumbersome process to track email, fax, revision, and signature. Perhaps you rely on emails, faxes, and shared network drives to manage this complex business ballet. The resulting confusion over the correct contract version to edit and lack of visibility into the process kills the efﬁciency. • Compliance requirements add risk for ﬁnance and legal teams. Compliance requirements require a speciﬁc review as well as an audit trail that veriﬁes each review step. If you use email as an audit trail, this can increase your legal and ﬁnancial risk in case of contract non-compliance. Traditional contract management software is expensive to install and customize and requires lengthy and expensive implementation. Large companies with big budgets have traditionally adopted technology to address the sales contract process challenges. Analysts have identiﬁed some signiﬁcant beneﬁts from automation. For example, Aberdeen reports that best-in-class companies have experienced a 21 percent reduction in Days Sales Outstanding (DSO) with automation. However, the real challenge to streamlining sales contracts lies not with technology but with people and processes. Traditional sales contract management software is expensive to install and customize and requires lengthy and expensive implementation. Because these software solutions are so expensive, companies try to implement the whole process (to get the full value of their investment) all at once when that process is not well understood or agreed upon. The result is poor process automation, not streamlined contract management. The Seven Best Practices of Contract Management Fortunately, there is better way. The following best practices for sales contract management were built using IACCM’s and Aberdeen research as well as practical real-world success stories from the front-lines of sales and business development at companies of all sizes. These best practices provide guidance to overcome the typical sales contract challenges and will put you on the path to success. 1. FIND A LEADER The ﬁrst step is to ﬁnd a home for managing the process. Designate a leader, a process owner, who keeps everyone on track to ensure success. Decide who should own the project and who will provide the checks and balances. © 2012 SpringCMSM 3 The following chart of roles and functions can help you identify a process leader in your organization. IACCM created this chart using a case study of a major global pharmaceutical company. The company addressed the challenge of bringing people and processes together to streamline contract management. The information below describes a typical role/function matrix. Who Should Lead the Sales Contract Management Automation Process? Owner Pros Cons Sales Understands customer needs and has the ultimate motivation to get the process completed on time. Inherent conﬂict of interest as the rewards for closing the deal quickly may not necessarily help in striking the best deal. Finance Cares about ﬁnancial impact of terms on revenue recognition and meeting ﬁnancial compliance requirements. Traditionally thought of as removed from customer needs and less sensitive to sales pressure. Legal Understands risk exposures and importance of compliance issues. Removed from customer needs and less sensitive to sales pressure. Customer Service, Shipping, Operations Must fulﬁll terms of contract. Holds the product knowledge. Not close to customer. 2. UNDERSTAND THE BEST WAY TO IMPLEMENT You already manage contracts in a certain way. How will you create an effective contract management process and change people’s behavior? In many cases, change management will become the most challenging aspect of sales contract automation. Some organizations will want to tackle the process, end to end, all at once. Other organizations will want to take an incremental approach, perhaps starting with one aspect of sales contracts and then add functionality. Contract management solutions range from simple to extremely complex and sophisticated. Best practice dictates that the most successful implementations focus on getting started quickly, gaining sucess early, and proving ROI. Then rolling out further functionality to complete the sales contract automation process. For example, take a few important contracts that are still in the early stages. Automate these contracts to start. Alternatively, you can begin with contracts of one division or one product line in the company that will champion the cause. This will help you remove process kinks and focus on the contracts rather than be overwhelmed by the process. Get everyone’s feedback before you ﬁnalize the process. Make sure everyone on the team, including customers, knows that you are trying a new contract management process. © 2012 SpringCMSM 4 Unlike traditional software implementations, a cloud solution (also called Software--as-a-Service, SaaS, or web-based solution) enables you to begin sales contract automation with a small department, perhaps ﬁve invidividuals. Rather than spend excessive cycles on system planning and testing, a cloud sales contract solution allows your initial team to quickly set up the business rules and process and begin using the solution in less time than it would take to write a business requirement for a traditional software sytem. This enables you to know within a few weeks how well the cloud solution supports your needs and to assess potential ROI of the solution and how much it will reduce the sales contract cycle. As you assess ROI, look for four main beneﬁts delivered: Value to Sales: Deals will close faster. No longer will sales people have to chase people who have “sent” the document — everything will be waiting in their MS Outlook inbox. Value to Customer Service: Everyone in the company will be able to locate the contract and service the customer accurately as per agreement. Value to Finance: Reduced DSOs, better compliance and less scrambling during the hectic days of audits. Value to Legal: Better compliance and reduced risk exposure to the company. They will be perceived as people who help make the best deal rather than paper-pushers who keep saying “no.” © 2012 SpringCMSM 3. FOCUS ON QUICK WINS In the initial phases, focus on aspects areas where you are most likely to achieve quick wins. These include: • Ability to locate contracts quickly - What attributes should you track on the contract? Should it be terms under negotiation, contract number, amount, PO number, etc.? • Finding standard contracts and language quickly- Building a library of standard templates from which to work and making it easy for users to get the right one. Training users to start from the standard contract template and to create a new contract with the customer’s information using simple mail merge-like capabilities. • Automatic routing and alerting Avoid missed deadlines by using automatic routing and approval capabilities. This will also make sure that appropriate people in the company are kept in the loop and guarantees compliance. • CRM and ERP integration - CRM and ERP are important systems of records for sales and ﬁnance. Integration to these systems is critical for increasing adoption and achieving efﬁciency gains. • Electronic signature - Close contracts faster and always stay on top of which documents are waiting for signature instead of rummaging through piles of paper or e-mails. • Collaboration - Use special comments to highlight information that matters to ﬁnance, operations or customer service like a special billing term or an unusual shipping requirement. Develop simple protocols to highlight this information. Just doing the above will yield signiﬁcant beneﬁts and help you close deals faster, improve relationships with your customers. 4. MEASURE Use the following metrics to ﬁnd bottlenecks, to track improvements and to identify areas for improvement. • Percent of deals closed on time vs. those that slip into the next period and the root cause. • Reduction in DSO. • Reduction in time taken to negotiate and close contracts. • Number of contracts by status and by individual. • Reduction in regulatory penalties, missed deadlines and lost sales. These metrics provide a good baseline for measuring improvement. As you become more sophisticated with the contract management process, you can focus on: • Finding out terms that are most negotiated. This can help you simplify the contracts and reduce the cycle. • The number of steps from creation to close. • Setting up a process to regularly learn from all the contracts that undergo negotiation. • Pick a solution that will give you insight into these metrics so you can share them with different groups and executives 5 5. BENCHMARK Benchmark your company against the best-in-class to see how you are progressing. As you can see, the end results can be achieved just through implementing simple procedures. The following benchmarks were developed by the research group, Aberdeen, in a study comparing best-in-class sales contract management automation against other ﬁrms with minimal or no automation. Key Performance Indicator Best-in-Class Other Contracts stored in a repository 82% 33% Contracts with non-standard language 17% 35% Reduction in days sales outstanding 21% 13% Compliance to service agreements 73% 58% Given the availability of risk-free, on-demand solutions that are easy to use and buy, there is no reason why you should hold back. Whether competing regionally, nationally or globally, your organization needs all the competitive advantage possible. By using on-demand services, you get to focus on creating better business results. 6. SAY NO TO MANAGING TECHNOLOGY AND YES TO MANAGING CONTRACTS If you work for a small- or medium-sized company or in a resources-constrained division of a large company, selecting and managing new technology presents a daunting task. Not only are budgets constrained, but today’s economy also makes adding new software and hardware difﬁcult if not impossible. In the past, implementing traditional sales contract automation software would have been an expensive, timeconsuming, and painfully complex process. You would have to spend countless hours researching different vendors, putting out an RFP, comparing products, building an ROI case, getting IT budgets assigned, and working through the purchase and implementation cycle. A cloud software solution means that you manage the function, not the technology. Cloud © 2012 SpringCMSM enables you to get started quickly, sometimes within a few days, and begin to actually use the solution to automate your processes, without the capital expense and the time intensity of traditional software. You can solve the business problems and to reap the beneﬁts, while leaving the technology challenges to others. A cloud solution offers many key advantages: • Easy to consider: Cloud requires no hardware or software purchases, no capital expense buget. The solution is made for business users to use with very little set up needed. the ﬂexibility to start with only a few users, keeping the system within limited budget, making it faster to get approved. This allows you to start with a core team and then scale and expand as you prove ROI and show results. • Rapid deployment: Cloud solution deployment happens in days or weeks, not months or years. Unlike on-premises software, you don’t have to wait for highpriced consultants to finish writing complex code. You can focus on the process and improvements and less on technology. • Easy to buy and affordable: Cloud solutions are offered as a monthly subscription. That means no capital expenditure. You have 6 COMPARE CLOUD SOLUTIONS VERSUS ON-PREMISE SOFTWARE Cloud On-Premise Easy to Consider Excellent. Solution can be conﬁgured quickley to match your business process. Poor. Usually requires a lengthy proof-of-concept. Easy to Buy Excellent (predictable) Poor (expenses are up-front) Affordable Excellent (pay as you go) Poor (high up-front costs) Up-time Excellent. Software up-time is a core part of the service, and cloud companies invest heavily. The cost is amortized over all users, hence you get better service at a fraction of the cost. Poor. Excellent service is very expensive for IT. For example, IT may have to purchase signiﬁcant hardware to ensure up-time just for 5-10 users. Latest Version Availability Instantly. On-demand companies upgrade all customers at once. The features are available instantly after each upgrade and are free of charge. Delayed (expensive) Upgrade Frequency Excellent (frequent releases) Years Vendor Success Based upon your success Service revenues Customization Fast. In a cloud service, end-users conﬁgure options quickly rather than IT coding customizations. Poor (IT-driven, expensive and slow customization) Cloud enables you to get started quickly, sometimes within a few days, and begin to actually use the solution to automate your processes, without the capital expense and the time intensity of traditional software. • Pre-integrated with best-ofbreed CRM: A solution that is preintegrated with your CRM system, like Salesforce.com, facilitates sales team adoption. With familiar interfaces, sales needs not time to train. Integration puts all relevant information regarding the deal in one place. The integration with CRM also helps in measuring the impact of changes on key metrics and improving visibility by ﬁnding © 2012 SpringCMSM how much pipeline revenue is stuck in contracts by department and contract status. • High availability: A cloud solution is hosted in a SAS 70 Type II-certiﬁed data center that uses the highest standards of backup, protection from power outages, and disaster recovery. Most companies ﬁnd it costly to support this level of availability, which makes cloud even more reliable than many in-house systems with much better up-time than an on-premises solution. • Access to latest version: Because all customers access the same version of the cloud solution, upgrades are much more common with dramatically higher success rates. Should a ﬁx be needed, all users beneﬁt immediately. This ensures you are always using the latest and highest quality version. 7 • Fast innovation: Because a cloud solution uses a subscription model, as a customer you have immense leverage. Unlike on-premise software, where you implement the solution and perhaps never see the vendor again until your maintenance agreement comes up for renewal. Cloud product releases are made every 10 - 12 weeks to accommodate new business requirements from customers. This release cycle is critical because a cloud vendor understands that you don’t have access to IT resources but still need innovative software • Security: A good Cloud solution that is hosted in a SAS 70 Type II-certiﬁed data center with access over SSL (the same protocol you use when accessing online banking) makes the solution very secure. Most companies’ IT staff does not have the budget for such high levels of security. For a Cloud company, this cost is shared across thousands of subscriptions, making it affordable for all. Case Study: Successful Sales Contract Automation Sentinel Health Group, a Coloradobased medical stafﬁng agency, connects doctors with hospitals in need of shortand long-term personnel assistance. To make it easier to meet stafﬁng requests, Sentinel staff coordinates contracts between the doctors and hospitals, an often cumbersome and lengthy process. Jonathan Charles, senior account executive for Sentinel, joined the burgeoning stafﬁng agency and soon discovered that his employer’s biggest challenge wasn’t dealing with too few doctors or overstaffed hospitals. Instead, the lack of a contract management system prevented Sentinel from closing deals quickly and winning more business. “Nobody stored their templates in one place,” Charles said. “We wasted hours searching for templates that didn’t contain standardized language and required major revisions for each new opportunity.” From searching for contract templates to locating speciﬁc contract details, Sentinel had no automated process. “It took an hour to ﬁnd a contract. They weren’t organized by date, the name, hospital or any useful criteria,” Charles said. Sentinel chose Salesforce.com to organize its database of client and opportunity information. Next, the company turned to Salesforce’s AppExchange to find a sales contract automation solution that could solve their most severe challenges. They found SpringCM’s Sales Contract Automation Solution. SpringCM’s Contract Automation Solution enables Sentinel sales teams to streamline contract negotiation and approval without navigating away from the Salesforce.com integration.The SpringCM electronic signature feature delivers approved contracts and allows clients to e-sign contracts without a SpringCM or salesforce.com account. Templates and contract clauses stored in SpringCM expedite the creation of new contracts based upon best practices. BENEFITS: Slashed time needed to close the average deal by 75 percent. Request for e-signature shaved days off the contract approval process.Contracts and contract templates can be located in seconds rather than hours.Immediate access to contracts and CRM information from anywhere via internet. With SpringCM’s Sales Contract Automation Solution, integrated with Salesforce.com, the mixture of web-based contract management and CRM has produced an immediate ROI for Sentinel “We’ve found an affordable way to increase customer satisfaction and decrease the time it takes to close business,” Charles said. “To me, that’s invaluable.” SpringCM, as the leader in mobilized business content, provides the freedom, power, and control businesses need to go beyond simple file storage and document sharing to connect teams and those they work with to powerful content management applications that make content available anytime, anywhere and from any mobile device with complete synchronicity and security. SpringCM unleashes the power of anytime, anywhere content to change the way you work. ©2012 SpringCM | All rights reserved | www.springcm.com © 2012 SpringCMSM 8