ECM 2.0: Why is the 'Why' so Important?
Ever wonder why the letters on a computer keyboard aren’t in alphabetical order? The answer has nothing to do with ergonomics, intuitiveness, or ease of use. There are numerous other examples in life, where we tend to blindly comply with or carry on a legacy of “if it ain’t broke, don’t fix it” processes, tools, and behaviors. Asking why each contract or activity is required and thereby getting to how it could help maximize profitability, minimize costs, and sustain a business advantage is imperative for each organization.
According to an International Association for Contract and Commercial Management (IACCM) report, bad contracts cost, on an average, 9.2 percent of a company’s annual revenue. An organization could have the best Cloud- and Big Data-enabled Enterprise Contract Management (ECM) in town, but if the why isn’t asked, or if there isn’t strategic leadership and processes around ECM, the costs will continue to bleed mostly on the “dark side,” unbeknownst to the financial department and many executive leaders.
The U.S. Government features a highly structured and dedicated contracting workforce, across hundreds of agencies that collectively handle more than $500 billion worth of spend. Even in this situation, the silver bullet isn’t in turning on a Cloud-based ECM tool or mining Big Data. These capabilities can be the means to a very significant end, but only after an appropriate strategy has been applied towards protecting the country and its people, maximizing return on taxpayer money and providing effective services to citizens. The need for strategic leadership and processes doesn’t go away. A simple why to a basic contract to buy a software license leads to many answers surrounding the need for strategic sourcing, unified lease agreements, consolidated service-level agreements, and renewals, among other important things.
I have attempted to ask why to the current capability of ECM and the answer leads me to the need for a wave of innovation in ECM 2.0.
Prediction: Enterprise Contract Management (ECM) will soon be subsumed by Enterprise Category Management (ECM 2.0?)
The concept of Category Management may have originated from the retail/supply chain industry but the why, the purpose, definition of roles, strategy, tactics, implementation, and value measurement apply to every business, including the business of the government. Strategic sourcing—a powerful concept that lends itself to spend analytics, market research, negotiations, contract management and continuous improvement—is but a part of ECM 2.0. To drive stronger business alignment, ECM 2.0 attempts to answer most questions pertaining to strategy, cost optimization, and performance. If a contract does not support any or all of the three, there is a serious business decision to make.
David Shields, one of the world’s leading experts in Category Management, adds “Category management ensures that total third party expenditure of an organization is aligned to its strategic purpose. This means all of the components of procurement whether that is spend/market and supplier analysis, sourcing, contract management, asset management or supplier relationship management have to be seen as critical elements to maximize the value that organizations can obtain through category management. To optimize value and ensure strategic alignment requires far more focus on total cost of ownership, ensuring sourcing activity is undertaken aligned to category strategies and have sufficient flexibility to drive continuous improvement. Ill-conceived poorly executed sourcing events lead to bad contracts, poor relationships and poor value for money for organizations. In this end-to-end view of procurement, we need to ensure we have the strategy, capability, processes, policies, data and technology that support holistic delivery.”
From Mr. Shields’ definition, it is clear that traditional ECM capability would need to plug itself into an enterprise-wide Cloud infrastructure. This configuration not only integrates capabilities across various business units and functions to make applications readily available and accessible, but also ensures all the dots are connected across pockets of data to measure performance of the business, and not just for a contract management silo.
As business management tools and capabilities mature, traditional ECM needs to mature to strategic sourcing and ultimately to ECM 2.0. If you are wondering if this maturation is happening, Gartner has been publishing their Magic Quadrant Report on strategic sourcing application suites for a few years, with the list of vendors that includes leaders, visionaries, challengers, and niche players. Contract management is reported as a module, and category management gets an ineluctable mention.
To get back to the original question, the letters on a keyboard were arranged to slow down the speed of the typist and reduce the impact on some commonly punched letters since the mechanical character arms got tangled or damaged fast. Asking why typically leads us to many places and usually to structure, profitability, and sustained growth in a business. I have attempted to ask why to the current capability of ECM and the answer leads me to the need for a wave of innovation in ECM 2.0.