by Betsy Atkins
Improve commercial performance while minimizing risk
» Help protect companies from disruption that threatens shareholder value.
» Identify opaque and manual processes that would benefit from a digital overhaul.
» Direct IT to assess solutions to digitize these processes.
» Prioritize contract management as a way to accelerate business velocity while also mitigating risk.
» Use technology to save your company money, enhance compliance, mitigate risk, and drive profits to the bottom line.
A key role for compliance professionals is to help protect companies from disruption that threatens shareholder value. While we tend to think of large, publicly traded companies as extremely resilient, the reality is that 40% of companies from 20 years ago no longer exist. Some failed to respond to external disruption like Blockbuster, Borders, Circuit City, Motorola and Sun Microsystems while others fell due to internal malfeasance like Adelphia, Arthur Anderson, Enron, Parmalat and WorldCom.
Even companies that don’t go out of business can experience significant disruption that erodes shareholder value. In May, it was reported that Walmart was preparing to pay a $300 million fine1 for violations of the Foreign Corrupt Practices Act by their Mexican subsidiary. In 2015, Volkswagen posted its first quarterly loss in 15 years after circumventing emissions tests2 and having to recall millions of cars. And, of course, who can forget Nike who 20 years ago this year was rocked by a child labor scandal in its supply chain.
Unfortunately, knowing what disruption lies around the corner is difficult to pin down. Forward thinking compliance officers are finding ways to improve commercial performance while minimizing risk not by becoming better fortune tellers but directing management to create more agile systems that better manage risk and allow quicker response to changes regardless of where they arise.
In many parts of the businesses this has resulted in automation to streamline the business flow, capture efficiencies, and cost savings. One of the first major areas of business to be automated and digitized to drive efficiency and cost savings was the supply chain capabilities within the ERP system. CRM solutions have fostered similar improvements in customer management. Contract management represents an emerging area to capture similar efficiencies and cost savings, but maybe more importantly, improve compliance and mitigate unplanned risk.
Traditionally, contract management has been a manual and opaque process managed by disparate systems across the enterprise. This has resulted in slow or inconsistent contracting cycles impacting revenue recognition and procurement. It also raises the risk of maverick contracting that uses non-approved language and clauses. Changing regulations and accounting standards can trigger time consuming and expensive contract reviews. In addition, lack of digitization and automation can make tracking even simple items like contract expiry dates and auto renewal terms difficult.
Increasingly, companies are beginning to recognize that a technology-enabled approach to contract management holds the potential to transform the commercial foundation of the business and provide an insurance policy against future damages from rogue actors in several ways:
- An automated contract management system mitigates the risk of FCPA violations and protects the company assets and brand.
- Turning contracts into valuable corporate assets through insight into contract compliance and obligations.
- Optimizing the value of commercial relationships by accelerating sell and buy side processes.
- Identifying, assessing and mitigating risk through automation and standardization.
Airtel, the third largest mobile provider in the world with operations in more than 20 countries, is an example of a forward-thinking company that is proactively addressing this area.
Airtel outsources a majority of its critical business operations and generates a large number of complex contracts. Not monitoring supplier service level agreements (SLAs) stringently could impact infrastructure, revenue and customers and expose the company to lawsuits through malfeasance on the part of its sub-contractors.
Airtel has deployed a contract management solution that allows it to define SLA terms, capture SLA data from contractors and evaluate that data against contract targets. It can also create custom alerts to flag any SLAs at risk of getting off track. This allows them to drive better operational performance while increasing contract visibility and ensuring compliance in their subcontractor network.
Genpact, a multinational IT services company, with $2B in revenue, is another example. Genpact provides business process outsourcing services to Fortune 500 companies. Most of its MSAs and SOWs are long-term agreements with very detailed terms and KPIs. Before deploying a contract management platform, their process for capturing, tracking and identifying potential problems with these commitments was manual which resulted in a lack of visibility and long cycle times, slowing speed to market and delaying revenue recognition.
Genpact’s contract management system allows contractual commitments to be automatically identified and assigned to the correct business owner. They can be tracked until fulfillment, with proactive alerts and escalations on potential delays and noncompliance. The executive team receives a consolidated and continuously updated risk assessment at both the contract and customer relationship level. They’ve also decreased their contract cycle time by more than 50 percent allowing them to increase their speed to market.
With Airtel and Genpact as illustrative examples, compliance professionals looking to protect their companies from internal and external disruption should start by:
» Identifying opaque and manual processes that would benefit from a digital overhaul.
» Directing IT to assess solutions to digitize these processes.
» Prioritizing contract management as a way to accelerate business velocity while also mitigating risk.
» Using technology will save your company money, enhance compliance, mitigate risk, and drive profits to the bottom line.
Having a digital director on the board can help raise awareness of these key macro trends.
- “Walmart Is Reportedly Getting Ready to Settle a Bribery Probe for $300 Million,” Fortune, May 9, 2017. Available at http://for. tn/2f2BLmj.
- Russell Hotten, “Volkswagen: The scandal explained,” BBC News, December 10, 2015. Available at http://bbc.in/2xuS6rI.
Betsy Atkins is CEO of Baja Corp and a Director on the Board of Volvo Cars, Schneider Electric, and Cognizant.