What Should Contract Management Learn from Facebook?

Jaan Apajalahti pitching at the Microsoft Investor Summit: the cost of mismanaged contracts is $153 billion annually

It’s a well-known fact that contracts are pretty hard to handle. Do you know anyone who has never had problems or issues with contracts? An Aberdeen Research article from a couple years back of states that mismanaged contracts cost businesses $153 billion annually.

Ineffective contract management results in overcharges, performance glitches, missed savings opportunities, dissatisfied customers, and unprofitable and risky business relationships.

Why is this so difficult? Most of these issues are due to the fact that contracts are mystified and they are often kept hidden, even from the persons that should use them in daily business.

A common scenario is like this: You have to remember to separately check the contents of each contract. You have to find the contract, read the contents, understand it and react accordingly. And if you have more than a couple of contracts, this can get really cumbersome. That’s why we usually do the check too late, after something has already gone wrong. Sounds familiar?

Let us make an unexpected comparison to Facebook

How did we keep up with our friends around the world before Facebook? We had to remember to call them each separately. What did Facebook change in that? Now you just tell how you are doing on Facebook, and your friends can follow up on your activities and this makes communication is much easier.

If you are responsible for contracts or there are contracts that are relevant to you somehow, wouldn’t it be great if you would have a single place where you can follow up on them? And if a contract needed attention, changes or comment you would get notified automatically, like following your friends in Facebook.

What else could contract management learn from Facebook? I believe that contracts could easily be made more understandable if they had a profile, similar to your personal profile. The profile would enable the contract to be found and followed up.

Simplify and demystify

Most contracts contain several similar clauses, like parties, validity, responsible persons, and related assets. These clauses might be written differently or they might be in different order, but the same stuff is in there.

By identifying the common elements in a contract type, you can make those contracts much easier to understand. That way you can profile the key information in contracts, get alerted on important dates, and get reporting on business data etc. This alone makes contracts much easier to understand and simpler to control.

My claim is that there shouldn’t be anything mysterious or secret about contracts within your business environment. You should enable contracts to be understood through simple profiling, and make them proactively available to the relevant people.

Contract management done right and easy can give your company great benefits. Research by IACCM shows up to 15 % improvements on bottom line results.

This is possible already today.