Best Practice - Contract Management

AberdeenGroup
Best Practices in
Contract Management
Strategies for
Optimizing Business Relationships
September 2004
Sponsored by
Best Practices in Contract Management
Key Takeaways
Executive Summary
Economic uncertainty and regulatory requirements have put contract management on
enterprises strategic agendas.
Contract lifecycle management automation delivers measurable improvements in financial and operational performance.
Leading contract management programs use standard contract language and welldefined protocols for contract administration coupled with automation and strong executive support.
aced with lingering economic uncertainty and heightened regulatory requirements,

businesses are under ever-increasing pressures to develop and execute strategies to
continuously improve performance, mitigate risk, and ensure fiscal accountability.
Aberdeen Group was among the earliest research groups to identify contract lifecycle
management as a primary lever for achieving these objectives.
Contract lifecycle management is the process of systematically and efficiently managing
contract creation, execution, and analysis for maximizing financial and operational performance and minimizing risk. Aberdeen has benchmarked enterprise contract management strategies and the use of supporting technologies for several years. Our research has
quantified the positive impact contract management automation can have on revenues,
costs, compliance, and operations.
To better understand the strategies required for contract management success, Aberdeen
spent the first half of 2004 examining enterprise contract management initiatives at more
than 35 companies. Our research clearly found that effective contract management requires enterprises to employ a holistic approach to creating and managing trading and
partnership agreements.
The most successful contract management programs include the use of standard and riskassed contract language and well-defined protocols for contract administration supported
(and reinforced) by CLM automation and strong executive support. Specifically, the following 10 practices were common among the enterprises achieving the greatest value
from their contract management programs:
1. Audit internal contract management processes, systems, and controls before investing in a contract management solution.
2. Create a compelling business case with both benefit and crisis.
3. Ensure proper executive and stakeholder support for both contract management
initiative and automation investment.
4. Define detailed functional requirements for a contract management solution
and stick to them.
All print and electronic rights are the property of AberdeenGroup 2004.
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5. Dedicate and empower a contract management program champion.

6. Establish a contract management governance council to ensure support from
functional and business unit leaders.
7. Clearly define and communicate procedures and protocols for the complete contracting and contract administration.
8. Where possible, use templates to streamline contracting cycles, minimize risk,
and maximize compliance.
9. Measure program performance and market results.
10. Identify areas for continuous improvement.
This report highlights these contract management success strategies and provides detailed
case studies of enterprises demonstrating best practices in contract management initiatives supported by CLM automation. Table 1 lists these winning enterprises in alphabetical order, and indicates their supporting CLM solution providers.
Table 1: Best Practices Winners and Their Solution Providers
Enterprise Winners
Burlington Northern Santa Fe
Solution Providers Used

Upside Software
Firemans Fund Insurance Company
Nextance
General Motors
Covigna
Hewlett-Packard
Upside Software
Honeywell
I-many
Interpolis Verzekeringen
Upside Software
Qualcomm
CMSI
Time Warner
Determine Software
Toyota Motor Sales U.S.A
CMSI
United Asset Coverage
Oracle
Source: Aberdeen Group, September 2004
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Table of Contents
Executive Summary .............................................................................................. i
Chapter One: Issues at Hand...............................................................................1
Contract Lifecycle Management Defined ....................................................... 1
Contract Lifecycle Management Delivers Results.......................................... 3
Chapter Two: Key Business Value Findings .........................................................4
Key Business Drivers..................................................................................... 6
Chapter Three: Best Practices and Recommendations........................................7
Automation is Key to Best-in-Class Contract Groups .................................... 7
Contract Management Best Practices ........................................................... 9
1. Audit processes, systems, and controls first..................................... 9
2. Create business case with benefit and crisis..................................... 10
3. Ensure proper executive and stakeholder support ............................ 11
4. Define system requirements and stick to them............................... 12
5. Empower a contract management program champion...................... 12
6. Establish a governance council......................................................... 13
7. Define contract procedures and protocols......................................... 13
8. Use contract templates whenever possible ....................................... 14
9. Measure program performance and market results .......................... 14
10. Identify areas for continuous improvement...................................... 14
Chapter Four: Best Practices in Contract Management Profiles of Winners ...... 16
BNSF Taps Contracts to Drive Supply Management Success..................... 17
Executive Summary .............................................................................. 17
Business Challenge .............................................................................. 17
Contract Management Strategy ............................................................ 18
Contract Management Selection and Deployment ................................ 18
Results .................................................................................................. 19
Lessons Learned................................................................................... 19
Future Outlook ...................................................................................... 20
Aberdeen Conclusions .......................................................................... 20
Contract Management Insures Supply Management Turnaround at FFIC... 21
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Table of Contents
Results .................................................................................................. 23
Lessons Learned................................................................................... 24
Future Outlook ...................................................................................... 24
Hewlett Packard Controls Contracts to Support Sales................................. 25
Solution Selection and Deployment ...................................................... 26
Results .................................................................................................. 27
Lessons Learned................................................................................... 28
Future Outlook ...................................................................................... 28
QUALCOMM Uses Contract Management to Dial Up Savings and Control 30
Results .................................................................................................. 32
Lessons Learned................................................................................... 32
Future Outlook ...................................................................................... 33
Time Warner Taps Contract Management to Improve Spend Management 34
Results .................................................................................................. 36
Lessons Learned................................................................................... 37
Contract Management Drives Compliance and Improvements at Toyota ... 38
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Table of Contents
Results .................................................................................................. 40
Lessons Learned................................................................................... 40
Future Outlook ...................................................................................... 41
UAC Ups Contract Management Skills to Meet Growth............................... 42
Results .................................................................................................. 44
Lessons Learned................................................................................... 44
Future Outlook ...................................................................................... 44
Featured Sponsors............................................................................................. 46
Sponsor Directory .............................................................................................. 49
Author Profile ..................................................................................................... 50
Appendix A: Research Methodology .................................................................. 51
Appendix B: Related Aberdeen Research and Tools.......................................... 52
About AberdeenGroup ...................................................................................... 53
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Figures
Figure 1: The Contract Management Lifecycle.....................................................2
Tables
Table 1: Best Practices Winners and Their Solution Providers............................. ii
Table 2: Benefits of Contract Management Automation........................................3
Table 3: Contract Lifecycle Mangement PACE.....................................................4
Table 4: Attributes of Contract Management Excellence ......................................8
AberdeenGroup
Key Takeaways
Chapter One:
Issues at Hand
Contracts are a staple of business, but poorly managed by most companies.
Contract lifecycle management provides a systematic approach for improving contract
performance and compliance.
Automation can accelerate contract management improvements by providing contract
visibility, streamlining contracting cycles, mitigating risks, and maximizing performance and compliance.
ontracts are the foundation of the business world. Between 60% and 80% of all
business-to-business transactions are governed by a formal trade agreement, with
the typical Fortune 1000 company maintains 20,000 to 40,000 active contracts at
any given time1. These agreements dictate the terms, pricing, and service levels of a
companys customer, partner, and supplier relationships. Contracts also provide a framework by which a company measures its operation and financial performance and compliance with business obligations and regulatory requirements.
Unfortunately, Aberdeen Groups 2003 assessment of enterprise contract management
operations found that many businesses lack the processes, systems, or corporate governance required to optimally manage customer, partner, or supplier contracts. Aberdeens
examination found that most companies continue to manage contracts with a mix of
manual, paper-laden, and informal processes; fragmented business systems; and ex post
facto audits and analyses. This hodgepodge strategy limits visibility into corporate contracts and performance, exposing enterprises to inflated costs, diminished negotiation
leverage, missed revenue opportunities, poor compliance, and regulatory backlash.
Contract Lifecycle Management Defined

Contract lifecycle management also referred to as enterprise contract management -- is
the process of systematically and efficiently managing contract creation, execution, and
analysis for maximizing operational and financial performance and minimizing risk. An
examination of enterprise contract management practices across multiple industries and
geographies has led Aberdeen to identify the following phases of the contract life cycle
(Figure 1):
Creation, including final negotiations and collaboration; document redlining and

markup, and signatures; ensuring use of standardized contract templates and
clauses; and enforcing business oversight and controls.
Institute for Supply Management
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Activation, including establishing a central repository of all contract information.

This repository should be searchable and integrate directly with key transactional
systems in order to make contracts active.
Compliance, including proactive tracking of internal usage of preferred suppliers

and contracted pricing; tracking of term, pricing, rebate, and service-level compliance for customer and supplier agreements; and monitoring and auditing of
contract terms, changes, and performance to ensure regulatory compliance.
Analysis, including the active enforcement of spending against budgets; balancing orders between preferred suppliers to optimize usage and returns; and assigning resources for the optimal management of the most profitable products and
customers. Also, term analysis of contract performance and attributes to determine future sales, budgeting, sourcing, supplier management, and risk strategies.
Companies that utilize such standardized processes and controls across the contract management lifecycle have realized reduced procurement expenses and operation costs, increased revenues and customer satisfaction, improved order-to-cash and order-to-pay
cycles, and enhanced compliance (Table 2). These
Figure 1: The Contract Management Lifecycle
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Contract Lifecycle Management Delivers Results
The primary business drivers accelerating adoption of contract management improvement initiatives and technology investments are examined in detail in the
next chapter. However, a clear driver for such investments is that, when coupled
with appropriate processes and controls, contract management automation delivers measurable benefits in the form of revenue improvements, cost savings, process efficiencies, and performance enhancements.
Aberdeens examination of enterprise contract management programs clearly indicates that optimizing contracting and contract administration operations requires effective alignment of processes, governance, and contract management
automation. Most commercially available contract management solutions provide
a centralized repository for contracts, templates, and clauses; collaborative contract creation, redlining, and audit trail capabilities; activation of key contract
terms; compliance monitoring and management; and contract performance analysis.
Specific benefits achieved from contract management automation appear in Table 2.
Many enterprises have achieved full ROI from their solution investments in less
than a year thanks to improvements in contract compliance, access to pricing discounts and rebates, and enhancements in revenue capture and acceleration. Contract management solutions have also proven valuable in assisting companies in
complying with regulatory reporting requirements.
Table 2: Benefits of Contract Management Automation

Improvement Area
Performance Impact
Compliance management
Improve compliance 55%
Rebate/discount management
Improve 25% - 30%
Material/service costs
Reduce 2% - 7%
Contract renewal rates
Improve 25%
Revenues
Improve 1% - 2%
Evergreen contracts
Eliminate evergreen contracts
Contracting cycles
Cut contracting cycles in half
Procedures and terms
Standardize processes and terms to mitigate risks, ensure proper

approvals, enforce polices
Contract analysis
Analyze and maximize performance
Administrative costs
Reduce 25% - 30%

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Key Takeaways
Chapter Two:
Key Business Value Findings
Contract lifecycle management initiatives and system adoption are being accelerated
by continued pressures to improve financial and operational performance, new regulatory requirements globalization, increased contract volumes and complexity, and eroding value of enterprise business application investments.
berdeen has encapsulated the primary drivers for enterprise contract management
into the following PACE (pressures, actions, capabilities, and enablers) framework (Table 3).
Pressures: External forces that impact an organizations market position, competitiveness, or business operations
Actions: The approaches that an organization takes in response to industry drivers
Capabilities: The business process competencies required to execute corporate

strategy
Enablers: The key functionality of technology solutions required to support the

organizations enabling business practices
Table 3: Contract Lifecycle Mangement PACE

Priorities
1
Prioritized
Pressures
Continued
pressure to
reduce costs
Prioritized
Actions
Improve compliance with existing
supply contracts.
Ensure accurate
pricing. Access
volume breaks,
discounts, and rebates. Eliminate
evergreen contracts. Accelerate
sourcing cycles
Prioritized
Capabilities
C-level emphasis on
supply
management; advances in supply
management
knowledge and discipline;
increased spend
under procurement
groups control.
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Prioritized
Enablers
Central and searchable repository for
supply contracts.
Integration of contract pricing and
terms with transactional systems.
Online contract negotiation capabilities.
Priorities
2
Prioritized
Pressures
Pressures to increase revenues
Prioritized
Actions
Accelerate and
maximize revenue
accrual of existing
customer and partner contracts. Increase contract
renewal rates.
Speed order-tocash cycles.
Prioritized
Capabilities
Improved access to
contract information
and approved templates.
Prioritized
Enablers
Central and searchable contract repository. Standard, riskassessed contract
templates and
terms. Proactive
alerts for contract
milestones and renewals.
Increased regulatory reporting requirements
Establish standard
procedures, controls, and reporting
contractual obligations, execution,
and performance.
C-level focus and

increased budget for
compliance infrastructure improvements.
Central and searchable contract repository. Standard, riskassessed contract

templates and
terms. Performance
measurement and
reporting.
Increased
volume and complexity of trading
agreements
Enhance legal, negotiation, and contracting skills and

resources, particularly for international agreements.
Foster knowledge
sharing and retention. Improve risk
analysis.
C-level focus on
global expansion,
licensing, and strategic partnerships.
Increased budget for
global and strategic
expansion.
Standard, riskassessed contract

templates and
terms. International
capabilities. Advanced analytics for
risk analysis.
Eroding value
from procurement,
customer relationship management,
and enterprise
resource planning
technology investments
Extend value and

usability of existing
business systems
and improve data
accessibility to empower frontline employees to efficiently execute
processes and informed decisions.
Hosted and ondemand application

and service models.
Availability of packaged contract management solutions
with advanced contracting functionality
and data management
capabilities.
Central and searchable contract repository. Data and process integration of

contract activities
and terms into
transactional systems. Advanced
reporting and analysis tools.
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Key Business Drivers

Aberdeen research indicates that the following market conditions are making contract
lifecycle management a corporate priority:
Uncertain global economic conditions and continued pressures to reduce costs

and improve financial and operational performance.
New regulations such as the Sarbanes Oxley Act require companies to establish and document business controls, procedures for tracking and reporting material business information, procedures and systems for ensuring compliance and
auditing.
Globalization is increasing the types and complexity of contracts as well as the

risks inherent in trading relationships.
Outsourcing, licensing, and channel agreements are growing both in number and
complexity.
Insufficient human resources and systems infrastructure to effectively locate,

execute, and optimize contract performance.
Increased availability of packaged enterprise software applications designed to

automate and improve contracting, contract administration, and contract compliance and analysis processes.
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Key Takeaways
Chapter Three:
Best Practices and Recommendations
Aberdeen research of more than 200 enterprise contract management programs,
including more than 35 contract management automation deployments identified 10
leading strategies for success.
Attributes of best-in-class strategic contract management programs include welldefined contracting and administration procedures, strong corporate governance and
support, reuse of approved terms all reinforced through supporting contract management automation.
o better understand the strategies required for contract management success, Aberdeen Group spent several months examining contract management processes,
governance, and supporting technology systems at more than 35 enterprises. Aberdeen evaluated contract management competence of each enterprise using several criteria, including breadth of contract management program and system deployment; percentage of total trading relationships under contract; compliance with contracted agreements;
cost and revenue improvements; contracting process efficiencies; and the alignment and
integration of contracting and contract administration with broader business strategies.
This most recent research effort followed Aberdeens previous examination of contract
management operations at 200 enterprises.
Automation is Key to Best-in-Class Contract Groups

Table 4 summarizes the differentiating attributes of best-in-class contract management
operations. One key defining attribute is the use of automation to streamline, support, and
reinforce contracting processes and contract access and compliance management companywide.
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Table 4: Attributes of Contract Management Excellence

Laggards
Process
Organization
Knowledge
Technology
Industry Average
Best in Class
No standard contracting
or compliance management procedures. Laborintensive processes.
Contracting processes
defined at the business
unit or division level; but
not vigorously enforced.
Ad hoc compliance enforcement. Templates
established for some
contract categories but
sporadically applied.
Contracting processes
standardized companywide. Proactive compliance enforcement. Formal templates established and enforced for
all practical contract
categories, clauses, and
terms.
No formal contract group

or administrators. Contracting decisions made
at site- or functional
level.
Contract administrators
within select functional
groups (e.g., IT). Contracting decisions coordinated at division or
business unit basis.
Some coordination between contracting, legal,
procurement, and/or
sales.
Contract administrators
within all relevant functional groups and
aligned enterprise wide.
Contracting decisions
coordinated companywide. Contracting is integrated phase of
source-to-pay, order-topay, and partnering
processes.
No repository for contracts. All contracts

stored in paper format or
on personal PCs. Little,
if any, ability to locate
contracts. No ability to
track contract milestones
and compliance.
Formal contract repositories established on business unit or division

basis. Able to search
contracts. Some ability
to search header information. Some ability to
track key milestones and
compliance. No ability to
search specific clauses
or terms.
Central contract repository shared companywide. Able to search all

contract information.
Proactive alerts of contract milestones, compliance, and violations.
Able to search and assess clauses and terms
Contracts created using

basic word processing
tools. Negotiation via
mail, fax, and phone.
Manual compliance reviews and analysis.
Contracts created using

basic word processing
tool supported by rudimentary homegrown
system. Compliance
review and analysis by
spreadsheet and/or database application.
Some reporting capability.
Customer, partner, and

procurement systems
integrated with a contract management system that supports authoring, collaboration,
monitoring, analysis, and
reporting.
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Laggards
Performance
metrics
Industry Average
Compliance and performance measured

sporadically. >33% of
purchases noncompliant.
Compliance and performance measured on

quarterly basis. 20% of
purchases noncompliant.
Best in Class
Compliance and performance measured in
real-time. <10% of purchases non-compliant.
Contract Management Best Practices

Aberdeens Best Practice research project identified 10 factors as key strategies for contract management success:
1. Audit internal contract management processes, systems, and controls before investing in a contract management solution.
2. Create a compelling business case with both benefit and crisis.
3. Ensure proper executive and stakeholder support for both contract management
initiative and automation investment.
4. Define detailed functional requirements for a contract management solution
and stick to them.
5. Dedicate and empower a contract management program champion.
6. Establish a contract management governance council to ensure support from
functional and business unit leaders.
7. Clearly define and communicate procedures and protocols for the complete contracting and contract administration.
8. Where possible, use templates to streamline contracting cycles, minimize risk,
and maximize compliance.
9. Measure program performance and market results.
10. Identify areas for continuous improvement.
1. Audit processes, systems, and controls first
The most successful contract lifecycle management programs begin with a detailed (and
sometimes painful) audit of existing contracting and contract administration infrastructure and competencies. Areas to examine include:
Contracting and administration processes: Start by following a contract from

initial negotiations through post-signature administration, analysis, and end-oflife or renewal. Different types of contracts will likely have different processes
and approval requirements at the granular level. It is also likely that these processes will vary by division or group. Many of these unique nuances will continue
to need to be supported. However, the goal should be to define a common process methodology at the high level so the entire enterprise has a shared understanding of the procedures and phases of the contract management lifecycle.
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Organizational structure and alignment: Examine how your company organized

for contract management. Detail the functions and people involved in contracting
(e.g., sales, legal, finance, etc.). It is likely that involvement will vary by contract
type or even size. (For example, legal will be heavily involved in strategic contracts, but less so with high-volume, non-strategic contracts.) Determine if roles
and involvement changes as a contract passes from the initial contracting phase
to post-signature contract administration. Assess the effectiveness and efficiency
of this organizational structure to determine if realignment or additional dedicated resources are required to effectively manage contracts.
Contract visibility: Assess accessibility of contract information (e.g., pricing,

terms, templates, terms and clause libraries, and complete contracts) to business
stakeholders responsible for creating or managing a contract as well as those impacted by a contract. Determine what information is required for each party to effectively execute their duties. For example, stakeholders need regular access to
the entire contract. Instead, most parties only require access to header information and key terms that need to be tracked and managed. These actionable contract details are also what need to be exposed and tracked against transactional
systems.
Contract system infrastructure: Map the information technology systems and applications used to manage contract data and processes. Expect to find multiple
and varied automation and information management approaches across the enterprise. Aberdeen research revealed that contract management systems often
vary by internal business function and division, with each stakeholder group creating its own method (often a Microsoft Excel spreadsheet or Access database) to
track and manage key contractual obligations, terms, and pricing tables.
Performance metrics and performance: Determine which, if any, areas of contract management performance your company consistently measures. Identify areas not currently measured that should be. Be sure to define measures for contract performance (e.g., pricing, service levels, revenue accelerators, etc.) and
process performance (e.g., contracting cycles, use of approved terms, renewal
rates, etc.).
2. Create business case with benefit and crisis

Most enterprises have gross misconceptions about their contract management competence. And in most cases, enterprise executives fail to understand the magnitude and impact insufficient contract management is having on their companys financial and operational performance. An internal audit helps bring these issues to light. However, securing
sufficient resources and budget for improving contract management operations will require development of a well-defined business case that accomplishes the following:
Defines and baselines existing contract management performance, including both

strengths and weaknesses the internal audit uncovered in the areas process, organization, knowledge/visibility, technology, and performance metrics.
Quantifies the current costs of underperforming areas of your contract management program. Such costs include the costs of missed contract milestones
(e.g., overpayment, penalties, inaccurate prices, missed revenue accelerators);
10 AberdeenGroup
costs of risky contract language (e.g., elongated payment cycles on customer

contracts, short payment cycles on supply contracts, evergreen renewals, inadequate intellectual property (IP) or brand protection, maverick contracts); costs of
inefficient processes and controls (e.g., long contracting cycles; lagging contract
execution, missed renewals, and regulatory violations and fines).
Details a blueprint for contract management improvements, including prioritization and timeline of actions, resource, systems, and budgetary requirements, protocols and governance requirements.
Estimates the financial and operational benefits of executing such improvements.

Such calculations can be developed by leveraging benchmark information from
third-party sources, such as industry associations, such as the IACCM, industry
analysts, like the Aberdeen Group, and contract lifecycle management solution
providers.
The quickest way to garner support (and budget) for a contract lifecycle management
initiative is to link the business case to a pending crisis, such as impending regulatory
reporting requirements, such as the Sarbanes Oxley Act, or financial issues, such as lost
revenue, elongated order-to-cash cycles, or unnecessary waste or cost.
For General Motors Corporation the Block Exemption Regulation (BER), which required
re-contracting with 14,000 dealers across 15 countries within a one-year period, provided
more than sufficient crisis to create a compelling business case and garner executive
alignment and budget for a contract lifecycle management initiative and solution investment.
3. Ensure proper executive and stakeholder support
The fact that contract management is one of the few business processes that touch the
entire enterprise from sales and procurement through legal and finance is both good
and bad news.
The good news is that every stakeholder understands the importance of having rapid access to the data and tools required to maximize contract compliance and value. The bad
news is that every stakeholder has a different view of the proper processes, governance,
and systems required for effective contract management.
These differing perceptions will become readily apparent during the initial auditing
phase. However, designing and executing an effective contract lifecycle management
initiative will require buy-in and ongoing support from two key constituencies:
1. Top line executives who can free up budget and align performance metrics and
incentives to reinforce contract management goals, principles, and systems
adoption.
2. Business-line managers and frontline employees who will be responsible for
complying with new corporate policies and systems for contract management.
Leading performers, such as BNSF, Time Warner, and Toyota attribute a large portion of
their contract management success to their decision to secure early support and alignment
of key stakeholders and executives. Such early cross-functional involvement helped these
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enterprises mute the significant change management issues that can accompany a contract
management initiative.
For example, FFIC established a cross-functional team of supply management, information technology (IT), and finance professionals to map out the optimal to-be state for
an end-to-end contracting and procurement process. The team solicited input and requirements from business line managers that would be responsible for issuing contract
requests and releasing orders against supply contracts. Armed with these requirements,
the selection team defined a specifications blueprint for the processes and governance
structures required for effective contracting and administration as well as the supporting
functionality required from a contract lifecycle management solution.
4. Define system requirements and stick to them.
Contract lifecycle management is one of the few business application areas where the
functionality and breadth of commercial packaged solutions often exceeds the requirements of the enterprise. (Or, more precisely, available solution functionality in a contract
lifecycle management suite is often too much for an enterprise to digest in a single deployment project.) As a result, a system requirements and deployment plan should be
based upon the prioritized goals and timelines detailed in the enterprises business case
for its contract management improvement initiative.
Project leaders must guard against the siren song of excess solution functionality or risk
elongated deployment cycles, lagging system adoption, and delayed time-to-value.
In the words of one contract management program executive: Where companies fail is
when they allow new features to distract them from their core goals. Dont try to use all
the features that they put in these systems, becauseyou defeat the purpose of what you
really want to do. Once you achieve your initial goals, you can then begin to see what
else the system is capable of doing.
5. Empower a contract management program champion
Establish a contract lifecycle management program manager or group that is responsible
for the following activities:
Communicating and ensuring alignment on program goals and milestones.
Ensuring proper training on contracting and contract administration protocols,

governance, and systems.
Measuring contract management process performance and system adoption.
Reporting performance results to governance council and key stakeholders.
Providing recommendations for continuous improvements.
Leading enterprises align this program champion with support champions or super users within specific functional groups or business units. Such alignment provides a clear
channel both to communicate new policies and system enhancements and to receive
feedback and performance information from the field.
For example, HP identified and trained super-users in each region and business unit.
Functioning as the local champions for the overall contract management program and
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resident experts for system adoption, these super users are responsible for supporting
training, support, and user adoption.
6. Establish a governance council
Create a contract management governance council that includes the leadership of major
business units and functional stakeholders across the organization, including contracts,
legal, procurement, sales, business development, finance, and information technology.
Such coordination provides a structured environment to identify and secure alignment on
contract management protocols, governance, and systems requirements. It also facilitates
the exchange of internal best practices and encourages company leaders to take an active
role in protocol and/or systems adoption and ensuring compliance with negotiated contracts. The governance council is also vital for ensuring continual communication and
reinforcement of contract management goals.
7. Define contract procedures and protocols
It is highly likely that an internal audit of contract management infrastructure and processes will uncover a myriad of approaches and semi-formal processes and procedures for
creating, communicating, and governing corporate contracts. As noted above, these procedures will likely vary by division, function, and contract type. The highest variances
will likely occur in the contract administration processes i.e., the activities for monitoring and managing contract compliance and value after signature.
Aberdeens examination of enterprise contract management programs consistently finds
that, while many companies have defined processes and protocols for contract negotiations, few have well-defined roles, responsibilities, or processes for contract administration. In fact, in many cases, contracts and related compliance are only reviewed as the
contract comes to term. Such ex-post-facto approach to contract administration leads to a
myriad of factors including, incorrect pricing, late payments, missed service milestones
and revenue opportunities, insufficient certifications and insurance, and increased risk.
It is unlikely that a single process will address the unique aspects of different business
units or contract types e.g., procurement contracts differ from licensing contracts.
However, the goal should be to define a common process methodology or guidelines at
the high level so the entire enterprise has a shared understanding of the procedures and
phases of the contract management lifecycle.
For example, one large enterprise established a bifurcated process methodology for ensuring contract administration:
For strategic and/or high-dollar contracts, the company would establish a contract launch meeting, pulling together a cross-functional team that included those
negotiating the contract, legal, and those responsible for administering the contract. The purpose of this meeting was to gain a consistent understanding of the
contract milestones, terms, and intent. And to assign specific roles and responsibilities for administration of the contract.
For non-strategic, standard, or high-volume contracts, the company had predefined roles and responsibilities. The company also established an online termsdefinition library to assist contract administrators in interpreting the intent of a
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particular milestone or term, and recommended approaches for ensuring compliance with this term.
8. Use contract templates whenever possible
Internal audit will likely identify significant waste and duplicative efforts across the enterprise. For example, Aberdeen research has revealed that management, legal, and finance groups spend an unduly large portion of their time reviewing contract terms and
conditions that are frequently used across the company. Likewise, business managers
spend an inordinate amount of time recreating contract terms and variances for agreements that should be standard across an entire category of trading relationships. In many
cases, these activities and reviews are unnecessary, lengthening contracting cycles and
hindering productivity.
Leading enterprises are streamlining the contracting process by creating libraries of contract templates and clauses that empower approved stakeholders to construct a contract
using pre-approved pricing, terms, and conditions all while mitigating the use risky
contract language. These templates are defined for specific and generally highly used
contract categories or types, such as contingent labor agreements.
For example: HP has defined a library of contract templates for specific product and service types. These templates also include variations that support local requirements and
business regulations. Result: HP reports shorter contracting cycles and improved compliance.
9. Measure program performance and market results
Contract management leaders continually measure contract management performance.
Key areas for measurement include:
Transactional compliance: Be sure to measure internal operational compliance

(e.g., employees use of preferred suppliers, pricing accuracy, service execution,
payment accuracy) as well as trading partner compliance (e.g., on-time payments
from customers, on-time delivery and accurate pricing from suppliers, etc.).
Process compliance and performance: Be sure to measure compliance with preestablished protocols, governance, and pre-approved contract language. Measure
total contract volume throughput. Also measure the efficiency and accuracy of
contract process, such as contracting cycle times by contract type and group and
completeness and accuracy of records in your contract database.
Regulatory compliance: Be sure to track all financial, environmental, and industry-specific regulations and reporting requirements. Ensure that contract language, administration, and reporting comply with these regulations.
To maintain program alignment and support, establish clear channels for communicating
and reviewing contract performance at regularly scheduled intervals.
10. Identify areas for continuous improvement
The most successful enterprises view contract management as a continuous improvement
process. These companies use performance measurement information to not only rein-
14 AberdeenGroup
force program and system adoption but also to identify new areas of opportunity for improvement.
Phase two improvements might include expanding a library of contract templates, improving integration between contract management and transactional systems, adopting
advanced tools for reporting and analysis of contract performance, or building a portal to
extend access to select contract information to approved trading partners.
To drive such improvements, these companies leverage pre-established channels and
training programs to continuously communicate and reinforce the processes, expectations, and goals of the improvement initiative. Program champion, super users, and the
governance council function as vital channels for defining and driving continuous improvement in contract management operations.
AberdeenGroup 15
Key Takeaways
Chapter Four:
Profiles of Winners
Aberdeen research of more than 35 contract management programs and system deployments has identified the following enterprises as demonstrating best practices in
contract lifecycle management:
o
Burlington Northern Santa Fe (BNSF)
Firemans Fund Insurance Company (FFIC)
General Motors
Hewlett-Packard
Honeywell
Interpolis Verzekeringen
Qualcomm
Time Warner
Toyota Motor Sales U.S.A.
United Asset Coverage (UAC)
Case studies of most these vendors follow in this chapter. Remaining case studies will be
published in an ongoing series.
Case studies of seven of these enterprises follow in this chapter. Remaining case studies
will be published on an on-going series during the month of October with the final report
complete by October 31, 2004. Please check www.aberdeen.com after that date.
16 AberdeenGroup
BNSF Taps Contracts to Drive Supply Management Success

Executive Summary
As recently as 2001, BNSF relied on multiple systems and distributed, manual processes to negotiate and manage supplier contracts. As a result, the railroad lacked clear
visibility into supply contracts, impeding its
ability to control costs and performance.
In 2002, as a part of a supply management
transformation initiative, BNSF deployed a
contract lifecycle management solution
from Upside Software Inc., to automate and
streamline day-to-day contracting and compliance activities for its services contracts.
Today, the railroad has cut contracting cycles by 60%, and is executing 50% more
contracts with 10 fewer people. Most important, BNSF has mitigated supply risks
by ensuring formal contracts and proper
insurance documentation are in place. .
Business Challenge
As one of the largest railroads in North

America, The Burlington Northern and
Santa Fe Railway Company (BNSF) knows
the importance of reliable performance. The
$9 billion railroad has made significant investments to ensure that its freight trains
run on time across its 32,500 miles of
routes. But, like most businesses, BNSFs
performance is linked to the quality and
reliability of its suppliers.
Company Name
The Burlington Northern and Santa Fe Railway Company (BNSF)
Solution Provider
Upside Software Inc.
Business Challenge
Labor-intensive contract management processes led to poor visibility, lengthy cycles,
high costs, and increased risk from noncompliance with standard terms.
Strategy
Automate and streamline contract management process.
Enforce common contract language and
procedures.
Align contract management with broader
supply management initiative.
Value Achieved
Mitigated millions of dollars in potential fines
by ensuring suppliers are properly insured.
Cut contracting cycles by 60%.
Improved worker productivity.
Eliminated FTEs.
Achieved full system ROI in 62 days.
Three years ago, BNSF was relying on a

staff of 14 full-time employees to manage
supplier service and purchase contracts in a
centralized, but manual, 16-step process
that took an average of 30 days to complete. Supply contracts were negotiated through a series of time-consuming manual exchanges between a central contracts group, the field, and suppliers. Often, contracts
would not be in place until some time after the supplier arrived on site, which placed
BNSF at risk from an insurance perspective.
If a supplier is coming on our property to perform a service, they have to have a contract
and they have to be properly insured, said Leigh Ann Vernon, assistant vice president
Strategic Sourcing at BNSF, adding that, in the past, BNSF had no formal way to ensure
AberdeenGroup 17
that a supplier on property had an approved contract. Without a contract or any assurance that they have the proper insurance, our whole company is at risk.
BNSF also struggled with an outdated contract management system. One director, three
full-time contract event negotiators, and ten clerks had been using a mainframe SAS system to support their efforts, but when the companys Technology Services Department
stopped supporting it, they relied mainly on a cut-and-paste method using word processing documents, limiting visibility into supplier contracts and use.
We couldnt see what we were spending, said Vernon. We didnt even know how
many contracted suppliers we had.
Contract Management Strategy
As a part of a larger supply management transformation initiative, BNSF identified three
key areas to leverage enabling technologies: strategic sourcing, supply contract management, and procure-to-pay processes.
BNSF identified contract management as core to success across all these initiatives, helping the company better leverage its spending in sourcing engagements and drive ongoing
compliance. The railroad viewed contract lifecycle management (CLM) automation as
key to streamlining contracting cycles, reducing manual procedures, and improving audit
controls and compliance. BNSF also viewed CLM as vital to establishing a central contract repository and to standardizing and enforcing contract procedures and language.
Contract Management Selection and Deployment
BNSF began by establishing a cross-functional team to conduct a thorough build-versusbuy analysis, assessing its internal requirements and development capabilities and measuring these against available capabilities of commercial contract management solution
providers. BNSF placed particular emphasis on automated contract request, collaboration, and creation capabilities, viewing this functionality as vital to its goal of speeding
contracting cycles and reducing administration costs. Unfortunately, their market analysis
found that, at the time, most CLM applications focused on terms tracking and compliance, but lacked contract creation capabilities.
Other capabilities identified for assessment included:
Ease of use
Automated event management, review, and approval workflow support
Ability to monitor, analyze, and manage contract compliance and performance
Integration with financial systems for invoice reconciliation and payment
Support of electronic interactions with suppliers
BNSF selected Upside Softwares UpsideContract solution, due to its contract creation
capabilities, ease of use, and integration with Upsides invoice management capabilities.
Andy Manthei, BNSF director, Contract Services, said the decision was also based on
Upsides favorable record of performance, financial stability, and customer references.
BNSF intentionally began its deployment with a limited pilot of UpsideContract, training
and testing select groups of users in the field. This trial approach allowed BNSF to elicit
18 AberdeenGroup
early feedback on system features and training methods. The implementation team used
this input to encourage Upside to incorporate system enhancements and to determine the
most effective means for training and driving system adoption.
The implementation involved a number of integration points, including BNSFs ERP;
GEAC Millennium; Upsides billing module, dubbed FAST Track eAP; BNSFs corporate records database; and BNSFs FileNet document management system to incorporate
scanned images of contracts already in place. Upside also developed software conversion
routines to extract metadata from BNSFs SAS system into UpsideContract as appropriate. Another key integration hook was to a third-party service that ensures suppliers have
valid insurance certificates.
Results
BNSF went live on the Upside system a little over two years ago. Today, the company
manages over 3,000 contracts in the system, representing about 85% of its service
agreements. The railroad has also rolled out the system to more than 200 users and is using it to manage contracts in a number of other categories, including fuel, transload, public projects, intermodal drayage, intermodal/automotive facilities and asset sales.
The solution has allowed BNSF to streamline its contracting process from a 16-step
manual, paper-based procedure to seven automated and fully auditable steps. This automated process has allowed BNSF to cut contract creation cycles from the time a contract is requested until the time the contract is sent to the supplier for signature -- from an
average of seven days to about a day. Overall, BNSF has shaved the total contracting
process lifecycle from 30 days to 10 days or less.
Such efficiencies have allowed BNSF to increase its contract creation throughput by 50%
while reducing its dedicated contract management staff to four FTEs.
Equally important, BNSF has mitigated potentially millions of dollars in insurance liability risk by speeding contracting cycles and providing assurances that contracted suppliers
have requisite and valid insurance coverage.
In the past, the contracting organization unit of BNSF was often notified of the need for
a contract when a contractor was already on site, said Manthei. Now we can turn the
request around quickly to ensure that we are covered.
These improvements contributed to an impressive full return on investment (ROI) on the
Upside application within the first 62 days of deployment.
Lessons Learned
BNSF identified the following factors as major contributors to its contract management
success:
Secure executive support: Sponsorship at senior levels is paramount, said

Vernon. You need to have senior buy-in, or the rest of the organization wont
follow.
Make all relevant stakeholders part of the process: Vernon said the early and
frequent involvement of cross-functional team members from the outset is important for early buy-in and ongoing adoption. She said that her group has created a
formal feedback loop with the original team members to get ongoing adoption
AberdeenGroup 19
and functional updates. BNSF also took a train the trainer approach to educating key employees on the system so users would have a local resource for assistance.
Communicate early and often: A key component of BNSFs early and ongoing
success has been to clearly define project objectives and communicate execution
against these with the end-users across the organization, including surveying user
feedback on an ongoing basis.
Future Outlook
Today BNSF is looking to begin tracking industry and supplier performance metrics in
the Upside solution so it can be more responsive to market dynamics. The railroad plans
to leverage this information for supplier performance scorecards and assessments, and
compliance analysis.
In addition, BNSF is evaluating linking the Upside solution to online sourcing tools
such as electronic request for proposal (eRFP) to enable a fully automated source-topay process. In this scenario, contract terms negotiated online can be used to automatically populate a contract agreement, eliminating the need for final offline contract negotiations or for re-keying data. BNSF could also use the terms and conditions of an existing contract to auto-populate an eRFP or trigger a reverse auction event.
Aberdeen Conclusions
BNSF has made contract management the foundation of its supply management transformation. By automating the contracting process, the railroad has already realized measurable improvements in the form of reduced process cycles and administration costs, and
mitigated supply risks. The company is now using contracts to drive improvements in
supplier performance and spend compliance. BNSF stands as a prime example of how
contract management can be used as a lynchpin for supply management success.
20 AberdeenGroup
Contract Management Insures Supply Management Turnaround at

FFIC
Executive Summary
In 2002, FFIC applied these risk management principles to its supply agreements. At
the time, the insurer had no formal contracting procedures and controls, and contract information was distributed across
multiple business systems.
Looking to better leverage its spend and
mitigate risky contracting language and
supply relationships, FFIC established a
formal contract management organization,
defined standard contracting procedures
and language, and adopted a contract lifecycle management (CLM) solution from
Nextance. The strategy resulted in dramatic
process efficiencies, increased contract
visibility and control, improve leverage
with suppliers, and millions of dollars of
cost savings.
Business Challenge
FFIC has built a business on managing risk
for others. Unfortunately, FFIC lacked the
same rigor when managing its own supply
relationships. In 2002, the insurer struggled
with highly fragmented contracting procedures, with each of its eight businesses negotiating and managing supply contracts in
a slightly different manner. Contract information was distributed across multiple
business systems and Lotus Notes-based
databases.
A leading property-casualty insurance

company, Firemans Fund Insurance Company (FFIC) knows the importance of managing risk. For more than 140 years, the
$4.5 billion insurer has secured the homes,
lives, and assets of individuals and businesses across a range of industries.
Company Name
Firemans Fund Insurance Company
Solution Provider
Nextance
Business Challenge
Lack of standard contracting processes
Redundant contracts
Insufficient contract visibility and compliance
Fragmented contract information
Strategy
Establish central contracting group
Define and enforce standard contracting
processes and language
Adopt a CLM solution to support the complete contract management lifecycle
Value Achieved
10-fold improvement in contracting process
efficiencies
Saved millions of dollars by eliminating redundant agreements and improving compliance.
This fragmented contract management infrastructure limited visibility into contracts, hindered compliance efforts, and diminished FFICs ability to leverage its spending power
AberdeenGroup 21
with suppliers. Case in point: It was not uncommon for different FFIC divisions to negotiate separate contracts with the same suppliers, using different terms and conditions.
In September 2002, as part of a corporate turnaround initiated by then CEO Jeff Post,
FFIC identified supply management as a key area for improvement. The insurer began by
establishing a central Supply Management organization that was tasked with enforcing
common contracting and procurement procedures, better leveraging spend, and adopting
technologies to streamline source-to-pay processes across the enterprise.
While the charter for the new supply management group was clear, success would not be
easy. At the time, FFIC had thousands of disparate and often redundant supply contracts
each using different terms and conditions. Such variations were particularly problematic with FFICs complex service agreements, such as those for software development
and IT outsourcing, which included a myriad of performance milestones and payment
schedules.
To reconcile these discrepancies and improve insight into its supply relationships, FFIC
would need to overhaul existing procedures for negotiating, storing, and managing contracts. Supply management leadership established a central contracting group, defined
common contracting processes, and began the process of identifying a contract lifecycle
management (CLM) solution that could support its newly formulated contracting procedures.
Understanding that contract management success would require input and support from
all corners of the enterprise, FFIC established a cross-functional team of supply management, information technology (IT), and finance professionals to map out the optimal
to-be state for an end-to-end contracting and procurement process. The team solicited
input and requirements from business line managers that would be responsible for issuing
contract requests and releasing orders against supply contracts. Armed with these requirements, the selection team defined a specifications blueprint for the functionality and
support required from a CLM solution. Key criteria included: ease-of-use, central contract repository and advanced search capabilities, and the ability to support the request
and contracting of complex services, such as software licenses, outsourcing, and application hosting.
First round responses from the initial request for proposal (RFP) made it clear to FFIC
that no single vendor could provide a complete solution for all its source-to-pay needs.
The insurer divided its selection process into two areas: requisition-to-order and contract
management. After a thorough analysis of leading providers, FFIC settled on two vendors: PeopleSoft for e-procurement and Nextance for contract management.
Robert Neuhard, FFICs Senior Director of Contracts, said Nextance provided the requisite functionality and configurability required to support its newly defined contracting
and contract management process and the scalability to meet the companys expansion
plans. Neuhard also said that Nextance was selected for its strong leadership team and
product roadmap. A final benefit of the Nextance solution was its ability to integrate with
FFICs PeopleSoft implementation.
22 AberdeenGroup
FFIC began with a limited pilot that included 40 requisitioners, procurement, and contracting managers. Within 45 days, the company had managed 200 service request and
contracts through the system. The insurer solicited feedback from these early users and
worked with Nextance to incorporate user interface and functional changes into the system before full production.
From March 2004 through August 2004 FFIC handled a combined total of 1,000 service
requests, contracts and non-disclosure agreements in the Nextance system,, and continues
to upload its historical contracts. The insurer has established templates for more than 20
different contract types and a library of approved clauses, helping standardize contracting
language and shorten the overall contracting process.
The Nextance system allows front-line requisitioners to request a contract, guiding the
users through a series of questions and prompts to secure requisite specifications to enable FFIC buyers to source the requested product or service effectively. The system
routes these requests for departmental and financial approval simultaneously with routing
it into the procurement organization, providing constant visibility into contract information and request status. Once departmental and financial approvals are received, a contract specialist either selects an existing master agreement in place with a current supplier
to fulfill the requisition or issues an RFx with the appropriate best in class terms and
conditions attached from the agreement library. Terms and conditions, schedules and
scopes of work are negotiated through the system, tracking all revisions and mark-ups.
Prior to execution, the system automatically routes the agreement to the General Counsels office for approval and the final negotiated price is validated against the dollar
amount approved at the beginning of the process to ensure that the correct level of financial approval is in place. In June, FFIC integrated the Nextance solution to PeopleSoft
SRM, linking vital supplier, contract, transaction, and payment information. Ninety percent of the information needed to create a purchase order (PO) in PeopleSoft will be supplied from Nextance, said Neuhard. Transactions from PeopleSoft can be verified
against contractual terms and pricing in the Nextance system to ensure appropriate compliance and rebate capture. This will be important for our transaction compliance monitoring plans, said Neuhard.
FFICs supply management group also uses monitoring and reporting tools within Nextance to track and measure contracting cycle times, and process compliance.
Results
Since initial deployment, FFIC has saved more than $1 million by reducing redundant
contracts. The insurer estimates another $1.5 million savings from eliminating the creation of one-off or unnecessary contracts and off contract buying.
The [Nextance] system has dramatically improved our visibility into supply contracts,
said Neuhard. This has helped decrease the number of redundant contracts and improved our ability to leverage contract rates, discounts, and rebates.
FFIC also reports that automating its contracting processes has resulted in a ten-fold improvement in contracting efficiency.
Neuhard said the system has also enabled improved tracking of contractual rights and
obligations, reducing costs associated with erroneous payments for software that was
never installed or involved fewer seats or users than negotiated.
AberdeenGroup 23
Lessons Learned
FFICs supply management transformation reinforced the importance of setting clearly
defined requirements and responsibilities, validating assumptions and goals,, and constant communication. Communication was critical to the success of our system selection
and deployment process, said Neuhard. The two [selection] groups were able to clearly
communicate the status of system selection and deployment and were able to see the potential benefits of integrating the [Nextance and PeopleSoft] systems to meet the needs of
both supply management and FFIC overall.
Future Outlook
FFIC views stakeholder involvement as critical to its ongoing success. The insurer plans
to continually find ways to use the Nextance and PeopleSoft systems to empower frontline requisitioners with the ability to initiate requests for a larger portion of the goods and
services they need to do their jobs. To this end, FFIC is continually building RFP and
contracting templates for all spend categories. These templates will guide requestors
through the requisition process, ensuring detailed specification of requirements and driving compliance with standard contracting language.
FFIC made contract management the linchpin of its turnaround strategy for its supply
management operations. The insurer employed a calculated strategy that involved securing executive support, standardizing contracting procedures and controls, adopting CLM
automation, and incorporate all relevant stakeholders into the reengineering and solution
deployment process. The holistic focus on people, process, and technology allowed FFIC
to dramatically improve contract visibility and controls, achieve significant cost savings
and process efficiencies, and provide a foundation for effective supply management.
24 AberdeenGroup
Hewlett Packard Controls Contracts to Support Sales

Executive Summary
To support sales operations for its computers, printers, and business systems and
services globally, HP works with a vast
network of direct sales people and channel
partners in more than 70 countries. Yet,
until two years ago, HPs customer and
channel partner contract information was
distributed across multiple online and offline systems, clouding the computer
makers ability to gather a complete view
of its trading terms with any customer.
As part of its initiative to improve contracting processes and gain a unified view into
contract and customer data, HP adopted a
contract lifecycle management (CLM) solution from Upside Software Inc. The investment is providing a single point of
truth for all contracts, enabling HP to
streamline processes, enhance service levels, and improve revenue renewals with key
clients.
Business Challenge
Hewlett Packard (HP) has come a long way

in 66 years, progressing from the original
garage start up to its current role among
the worlds leading consumer information
technology companies.
Company Name
Hewlett Packard
Solution Provider
Upside Software Inc.
Business Challenge
Sales and marketing contracts details were
distributed on paper and in more than a
dozen home-grown systems, precluding
easy insight into business and on-going
sales opportunities support.
Strategy
To implement a centralized contract management organization supported by an enterprise-wide system accessible to HP personnel and partners globally
Value Achieved
Streamlined the contract management process and developed a central repository of
contract detail. Reports that used to take
three to four days to complete now take only
a few hours.
HP is an indisputable global leader in multiple consumer and business technology

segments. However, to stay on top HP must
continually develop innovative new products, improve operational performance and efficiencies, and grow and enhance customer
relationships. Each of these initiatives rely heavily on HPs ability to gain accurate, complete, and timely insight into pricing, obligations, and service levels to customers.
As recent as 2001, HP struggled to locate customer contracts, let alone optimize these.
Information on customer relationships was distributed across different home-grown applications, each developed to address the unique requirements of a specific geographic
region or business unit. Contracting processes and terms also varied by region, business
unit, and contract type, with many contract creation and compliance procedures handled
entirely manually.
AberdeenGroup 25
According to Luis Huix, Contracts Operations Group Manager, it took as long as a full
week to create a single report that provided a consolidated record into all the contracts
HPs different business units had with a particular customer. If management wanted to
get all information on a specific customer, an employee would have to request a report
from several systems and databases and then manually coordinate this information into a
single report. HP knew that optimizing customer relationships would require drastic
changes to its contract management operations and systems infrastructure.
In 2001, HP set out to transform its contract management operations. The companys
strategy can be segmented into three key areas:
Create a global sales and marketing contracts group that has oversight of contract procedures and terms, is responsible for coordinating and aligning contracting with regional
and business unit leaders, and is tasked with driving compliance.
Define and enforce common contract management procedures, contract language, and
controls across all HP regions and business units.
Leverage automation to streamline contracting procedures, monitor and enforce compliance, and provide a single repository for all customer contracts and related performance
information.
HPs global contracts operations group was well aware of the change management issues
that would be involved in successfully executing its contract management transformation
strategy. To overcome this hurdle, the newly founded group began by developing a detailed and compelling business case on how customer and partner contract management
would impact the business units in terms of revenue, profitability, performance, and efficiency. The group then evangelized this message to sales leadership and stakeholders
within HPs various regions and business units.
Huix summed up the contract management value proposition in one sentence: We made
it clear to the businesses that with all customer information in one easily accessible place,
they would have an edge in selling to customers the way they want to be sold to.
Solution Selection and Deployment
With the proper contract management organizational structure and process definitions in
place, HP examined its options for a contract lifecycle management (CLM) system. The
company developed a formal request for proposal for a CLM solution outlining approximately 25 must have criteria, as well as preferred additional requirements. Key criteria
included:
A centralized, global approach
Regional localization and local language capability
Ease-of-use and advanced search capabilities
Extensive document creation and management
Ability to include product lists and discount information in contracts
Extensive workflow
26 AberdeenGroup
Contract milestone and performance monitoring and user alerts
Advanced management and reporting functions, including risk, compliance, and

performance management.
HP issued the RFP to all the leading CLM solution providers. Off-the-shelf functionality
was a requirement for HP, as long as the system could configure and scale to meet HP
global requirements. HP established an internal solution evaluation team that included
members from the global contracts group, information technology (IT), and functional
sales, marketing, legal, and finance representatives from corporate, regions, and business
units. Huix said this cross-functional/cross-enterprise team approach was critical to ensure proper alignment and buy-in from the businesses at the outset of the project.
The evaluation team executed a thorough review, demonstration, and analysis of all the
leading CLM solutions, evaluating each on their ability to meet the above criteria, service
quality and responsiveness, availability of an off-the-shelf product, competitive total
cost bid, solid customer references, and product functionality roadmap and upgrading.
HP eventually selected Upside Software because of the solution capabilities and product
support, the cost of the application and implementation, and the companys financial stability.
HP began with a limited deployment, giving select users within different regions and
business units the opportunity to do hands-on testing of the Upside solution. Huix said
his group took input from these early users and pushed Upside to incorporate requested
user-interface and functionality changes prior to fully rolling out the system. This early
testing also helped the global contracts group better understand the business, regulatory,
and cultural requirements of each individual region and business unit.
Next HP identified and trained super-users in each region and business unit. Functioning as the local champions for contract management and resident experts for the Upside
system, these super users are responsible for supporting training, support, and user adoption. HP has since defined a library of contract templates for specific product and service
types. These templates also include variations that support local requirements and business regulations.
Results
Giving business stakeholders an active role in solution selection and deployment has
been a vital component of HPs contract management success. Just two years after implementing the Upside solution, HP is on track to manage 70% of all its sales and marketing contracts within the Upside system by October. Huix anticipates that 90% of HPs
sales and marketing contracts will be managed through the system within the next 12
months.
Approximately 200 employees regularly use the system to collaborate on contract creation, review customer accounts, or manage contracts. The number of system users will
grow to 1,600 by October as HP brings other stakeholders online, including partner operations. Huix expects that 2,500 users will be using the system worldwide by next summer.
Contract lifecycle management has helped HP achieve streamline its contracting process
and mitigate risks within customer contracts. However, Huix says the greatest benefit of
AberdeenGroup 27
CLM has been improved insight into customer obligations and performance. Winning in
sales requires you to have as much customer information as possible, said Huix. Just
having our customer contracts in a single location that is easy to search and report on has
the potential to dramatically increase our sales because we now have better knowledge of
our obligations, performance, and the customers needs, likes, and how they want to be
sold to. This information was simply inaccessible to our [sales and customer representatives] in the past.
For example: since consolidating sales and marketing contracts within the Upside system,
HP has shrunk the time for running a consolidated report on its global obligations to a
specific customer to as short as about an hour, down from four business days, on average.
Standard reports on the terms and performance on individual contracts or pre-defined
groups of contacts are accessible on demand by approved business users. Now our people can easily access information that they require to make the right business decisions,
said Huix.
He added that consolidating contract information and operations within a single system
has significantly reduced the costs HP incurred previously for using and maintaining 14
disparate and proprietary contracting applications across the company.
All of this put together has provided major cost and time savings to HP, said Huix,
The global contracts group can now incorporate more contracts information into the system at a faster pace and keep the quality constant.
Lessons Learned
The leading recommendation Huix has for other firms considering transforming their
contract management operations is to secure input and buy-in from the process stakeholders and system users early and often. The people on the frontline that are the ones
that are going to be interacting with it on a daily basis, said Huix. Their feedback and
support is invaluable.
Huix also strongly advise an off-the-shelf software approach to contract lifecycle management. Internal information technology groups can do a great job to responding for
home grown system requests, said Huix. But their core competency is not developing
leading-edge applications for specific business processes. The dedicated contract management application providers have done their homework and built out the necessary
functionality correctly already. Using an off-the-shelf solution can get you greater value,
quicker, and, more often than not, at a lower cost than you can do internally.
Thats not to say that contract management solutions are alike. On the contrary, Huix
strongly recommends that companies take the time to clearly define their internal process
and system requirements and to thoroughly evaluate and test commercially available contract management solutions. You need to find the solution that can best fit for your
needs with as little customization as possible, said Huix. Price alone should not drive
the decision, but be one of a number of factors used to make the award.
Future Outlook
Moving forward, HP plans to use the Upside application to automatically track service
and revenue milestones in contract agreements with customers and partners. The intent is
for the system to either alert appropriate stakeholders or trigger required actions when
28 AberdeenGroup
predefined milestones are met or exceptions occur. Such proactively monitoring and
alerts will help HP optimize contract value, enhance customer satisfaction, and lead to
shorter order-to-cash cycles. Huix also expects contract monitoring to better position HP
to quickly access accurate financial details such as revenue execution and recognition
to satisfy regulatory reporting requirements of the Sarbanes-Oxley Act.
HP also plans to enhance customer relationships by permitting customers to directly access their own contracts to determine the details and status of their HP relationship. Says
Huix: The ultimate goal is to use effective contract management as an enabler for continuously increasing business with existing customers, boosting productivity, and bringing new sales to HP.
When it set out to transform its contract management operations, Hewlett Packard crafted
a strategy that aligned corporate sales and contract goals and leveraged technology to
improve visibility into customer relationships and obligations and to standardize and
streamline contracting procedures globally. The company was careful to involve key
stakeholders in defining contracting procedures and templates and selecting and deploying a contract lifecycle management solution. This attention to detail, has helped HP gain
better insight into its customer relationships, enhance its reporting and compliance capabilities, and position itself continually improve customer satisfaction and drive revenue
growth.
AberdeenGroup 29
QUALCOMM Uses Contract Management to Dial Up Savings and

Control
Executive Summary
Priding itself on fostering an entrepreneurial working environment, QUALCOMM

had decentralized contracting and procurement operations, with each major division
empowered to execute its own procurement
and contracting decisions. The telecommunications giant lacked consistent contracting procedures and had limited visibility into contract data. The result:
QUALCOMM overpaid on maintenance
for IT equipment and software, had duplicate contracts across divisions, and struggled to measure contract and vendor performance.
In response, QUALCOMM initially
adopted a contract lifecycle management
solution from CMSI to improve management of procurement and IT contracts.
Early success drove rapid adoption across
other divisions. Today, QUALCOMM
manages more than 10,000 supplier and
customer contracts in the system, resulting
in the elimination of unnecessary fees, improved pricing, and process efficiencies.
A global leader in developing and delivering innovative digital wireless communications products and services based on the
Companys CDMA digital technology.
QUALCOMM has built a business on helping companies track and manage mobile
assets. However, internally, the company
was challenged to access let alone manage
many of its IT, supplier, and customer contracts.
Company Name
QUALCOMM
Solution Provider
CMSI
Business Challenges
Lack of visibility into contract data
Overpayment on maintenance fees
Inability to avoid redundant contracts
Unable to measure vendor performance
Strategy
Select a communications vehicle for the
enterprise and use the selection and implementation as a catalyst for change
Value Achieved
Within the first 6 months, saved $100,000 on
unnecessary IT hardware and software
maintenance
Eliminated overpayments and penalties
Leveraged spending for improved pricing
Coordinated M&A data across enterprise
Business Challenge
Looking for ways to maintain its edge in the increasingly competitive and global telecommunications marketplace, QUALCOMM identified management of Corporate and IT
procurement contracts as two key areas for improvement. At the time, the company
lacked visibility into these operations, but anecdotal evidence indicated that they were
both paying for assets they werent using and overpaying for services and assets that they
were.
30 AberdeenGroup
An internal review of these contracts revealed four major challenges:

1. lack of clear visibility into contract terms and milestones
2. payment for maintenance on equipment or software no longer owned
3. redundant agreements across business units
4. lack of processes to systemically measure vendor performance
5. It was later revealed that similar challenges were also impeding QUALCOMMs
management of customer contracts.
Corporate and IT procurement were the pioneers within the organization, developing a
detailed business case that identified the adoption of a contract lifecycle management
(CLM) system as a primary method to achieve the following benefits:
Proactively manage contract deliverables and milestones through online alerts
Streamline creation, collection and distribution of knowledge of all contractual

relationships to all relevant stakeholders
Improve management of nested company-to-company relationships, partnerships

and alliances
Enhance reporting of critical legal obligations across procurement, marketing,

logistics, finance, and legal teams.
Once word of this successful implementation spread to the business units and divisions,
the system administration and management team quickly focused on developing a strategy that would support anticipated growth. QUALCOMM wanted to maintain the companys entrepreneurial spirit, which meant that the business case had to be compelling
enough to ensure strategy and system adoption without corporate mandates.
QUALCOMM created two steering committees made up of senior managers and group
administrators: one for procurement (buy-side) contracts and another for customer
(sell-side) contracts. With the help of the steering committees, the team developed a
strategic vision and a set of core values which they used to guide the growth of the system from a single-solution for two procurement teams to the enterprise-wide implementation that exists today.
In 2002, QUALCOMMs procurement team conducted a three-month evaluation of eight
CLM solution providers, beginning with a detailed RFP reflecting the requirements. A
core requirement was to support a General Counsel mandate that there would be only one
contract database to store and manage all QUALCOMMs contract data.
The company eventually selected CMSI due to its ability to support its functional requirements for management of procurement contracts and to extend to support future
needs for managing customer contracts. QUALCOMM conducted a final build versus
buy ROI analysis, comparing the packaged CMSI application versus potential modifications to its existing asset management system. The company also put the CMSI systems
architecture through a rigorous technical evaluation to ensure scalability and upgradeabilAll print and electronic rights are the property of AberdeenGroup 2004.
AberdeenGroup 31
ity. The results reconfirmed QUALCOMMs decision to license CMSIs Contract Manager.
QUALCOMM deployed the Contract Manager application across its Corporate and IT
Procurement groups within four weeks, going live with just 300 contracts in the system.
This go-live gave QUALCOMM immediate (and much-needed) visibility into existing
supply agreements, allowing procurement to identify redundant agreements and stop
payments on maintenance contracts for software and equipment it no longer owned or
used. This newfound intelligence prepared QUALCOMMs procurement group to aggregate spending and execute supplier rationalization initiatives where synergies existed between business units. The system also provided a foundation for QUALCOMM to consistently measure contract compliance and supplier performance across the enterprise.
News of these early successes spread quickly, and within a year, 12 functional groups
within QUALCOMM were using the Contract Manager System to manage both buy- and
sell-side contracts. Today, QUALCOMM manages over 6,000 sales agreements and
4,000 procurement agreements within the system, with an additional 3,000 legacy contracts in queue to be converted into the system.
Results
QUALCOMMs CLM initiative has delivered improvements in several areas:
Eliminated unnecessary maintenance agreements on IT equipment and software.
Cut costly auto-renewals on unused equipment, software, and services.
Avoided renewal penalties and late fees.
Secured improved pricing by leveraging existing master agreements.
Coordinated merger and acquisition (M&A) information across the enterprise.
The new system has also allowed QUALCOMM to mitigate contracting risk and exposure by standardizing on approved contract language, where possible. For example, all
payment terms are now net 30 days, with only the CFO allowed to approve exceptions.
Lessons Learned
Key contributors to the success and rapid adoption of QUALCOMMs CLM program
include:
Strong executive sponsorship: QUALCOMMs initial effort into CLM was sponsored by the CIO. After the program began to expand beyond the management of
IT and procurement contacts, QUALCOMMs Corporate Legal took over sponsorship, driving the program and system adoption across all business units.
High involvement by the businesses: QUALCOMM drove adoption within individual functions and businesses by assigning a power user per constituency to
ensure contract data entered into the system is accurate and clean, and to mentor other business users within their organization. There are more than 40 such
power users across QUALCOMM today.
Established a change control board: To progress the CLM initiative,

QUALCOMM established a change control board or steering committee that
32 AberdeenGroup
ensured alignment across the functions and business units and kept the program
on schedule. Even today, the steering committee still meets with the functional
leads periodically to mitigate issues and drive continuous improvements for the
CLM initiative.
Future Outlook
QUALCOMM currently has three separate teams investigating how CMSIs Deal Manager module might be used to help the company comply with reporting and document
management requirements of the Sarbanes-Oxley Act.
As the QUALCOMM implementation matures, the CM user communities are focusing
on process improvement initiatives; by partnering with finance, sales support, and export
compliance teams the users are finding ways to make the CM data more beneficial.
QUALCOMM is a prime example of how a well-constructed contract management initiative can drive rapid adoption by simply delivering measurable value to its user base.
Known for its entrepreneurial spirit, QUALCOMM was able to roll out CLM companywide without harsh mandates. Instead, the company drove success by making functional
stakeholders active participants in the selection and deployment CLM process. And the
company has seen big returns for its efforts.
AberdeenGroup 33
Time Warner Taps Contract Management

to Improve Spend Management
Executive Summary
As part of a larger collaborative sourcing initiative,

Time Warner focused on improving visibility and
control of its supply contracts. At the time, the
company had few standardized cross-divisional
contracting processes & Ts & Cs. And contracts
were housed in multiple systems or locations
throughout the company. Time Warner elected to
deploy a contract management solution from Determine to establish a central contract repository
and leverage standard processes and controls
where applicable.
One of the worlds leading media and entertainment companies, Time Warner has the same spend
management challenges of many multi-national
conglomerates: highly decentralized, globally dispersed operations made it difficult to gain visibility, control, and leverage of supply spending.
Company Name
Time Warner
Solution Provider
Determine
Business Challenge
Highly distributed purchasing organization
provided insufficient visibility of supply contracts and inadequate leverage of corporate
spending.
Strategy
Having successfully completed phase one of the

program, Time Warner has established an online
searchable repository of supply contracts for its
most commonly used spend categories that is accessible by the different business units. The result:
enhanced spend visibility, increased compliance,
identification of redundant contracts, and mitigation of erroneous payments. Building on this success, Time Warner will begin using the Determine
system to automate and enable standard procedures
and contracting language and processes and integrating contract terms with broader supplier management procedures and systems.
Build central repository for supply contracts.
Business Challenge
Mitigation of overcharges and erroneous

payments.
Standardize contracting language, processes and compliance management.

Automate contract management processes.
Value Achieved
Reduced rogue and redundant contracts
Improved spend visibility and leverage.
Like many multi-national firms, Time Warner has

many geographically dispersed business units, each
Improved compliance with critical contract
operating autonomously, with its own procurement
terms and service level agreements.
standards, procedures and business systems. To
drive opportunistic spend leverage and synergies
across divisions, the company created a procurement council, consisting of representatives from each business.
Beginning in April 2003, Time Warner made collaborative sourcing a strategic initiative.
The divisions requested resources and leadership to help coordinate cross-divisional ef-
34 AberdeenGroup
forts. After an analysis of current operations, it became clear that Time Warner had limited visibility into existing supply contracts and spending.
Adding to this challenge was the fact that the Time Warner business generated a host of
different contract types (e.g., talent agreements, product agreements, asset leases, global
real estate, IT procurement), each of which was negotiated and managed differently by
the business units. These supply contracts stored in different formats, systems, and numerous locations across Time Warners affiliates and subsidiaries. This fragmented contract environment frustrated efforts to measure compliance, and more efficiently leverage
Time Warners vast spending volumes.
The core tenants of Time Warners supply contract management strategy can be summed
up as follows:
Establish a central repository for all supply contracts.
Standardize contracting language, procedures, and compliance management.
Automate contract management processes.
Due to the size and autonomy of Time Warners divisions, the procurement council knew
that rapid and quantifiable benefits to the individual business units were needed. The
group defined a well-calculated contract management transformation program that began
with improving contract visibility to enhance Time Warners ability to aggregate, analyze, and leverage its spending. This first phase would not require the businesses to
change their processes mitigating any change management hurdles -- but would be able
to deliver quantifiable benefits to the businesses in the form of cost reductions and better
contract terms.
Time Warners procurement council believed that phase one of the program would also
whet the businesses appetite for spend management improvements, making it easier to
transition to phase two, which would involve increased use of standardized contract
terms and procedures and automating contract processes and improving compliance.
To gain buy in from the businesses, the council established a cross-divisional and crossfunctional solution selection team that was responsible for gathering contract management system requirements and preferences from each division and communicating the
intent and progress of the program. The initial information gathering process generated
more than 600 functional requirements, which the selection team winnowed down to 10
core buckets that were incorporated into the initial RFI.
Starting in April 2003, the team researched and evaluated 25 contract lifecycle management (CLM) solution providers, before selecting two finalists for the final phase of the
selection process. During this proof of concept phase, the finalists were required to
configure and deploy their systems within 45 days. Time Warners selection team tested
the systems using use-case scenarios that reflected their 10 core requirements. The media
company eventually selected Determine due to its functional ability to meet its core requirements, including advanced capabilities to scan and load structured and unstructured
contract information and contract hierarchies to support multi-tiered contract structures.
AberdeenGroup 35
Sean Harapko, director of business process and technology in Time Warners Procurement Services Office (PSO), said the Determine solution also offered advantages in the
areas of flexibility, extensibility, and price.
To support Time Warners calculated strategy for program adoption and success, the Determine solution deployment was segmented into two phases:
1. Aggregation and Analysis -- involved transitioning and classifying legacy contracts into a secure, central and searchable contract repository. To maximize
alignment across the company, Time Warners procurement group focused initially on supply contracts for large and high-impact spend categories that were
common to each division. A team of Determine, Cap Gemini, and Time Warner
employees loaded these contracts into the system first. Once contracts were
loaded, Time Warner was able to configure rule-based triggers to alert key stakeholders of contract events, such as terminations and renewals. The system also
allowed users to create on-the-fly reports on any or all fields within any contract,
including matching contract terms against purchase orders (POs) and invoices.
Time Warner also used the system to configure reusable contract templates for
specific contract types and spend categories.
2. Automation and Compliance currently underway, this phase will focus on using the Determine system to automate and standardize contracting processes and
language, and to drive compliance. Business managers will be able to use the
system to track cost, performance, and compliance across both active and inprocess contracts. Time Warner also plans to drive proactive compliance by configuring event-based alerts and custom compliance reports.
Results
Time Warner completed phase one of its rollout within 90 days, activating more than 150
users and 2,000 of its most impactful supply contracts on the Determine system. The
company anticipates that 5000 contracts will be on the system within a year.
With its supply contracts in a central repository, Time Warner has been able to improve
its ability to analyze spend data, monitor key contract events and improve contract compliance. The company has achieved the following benefits to date:
Access enterprise-wide supply contract management data in real-time
Analyze contract spend by type and commodity
Aggregate contract spend
Analyze contract templates and establish standard terms to increase efficiency
Implement key alerts for managing contract dates and compliance events
With these new capabilities, Time Warner has been able to identify redundant contracts,
identify expired contracts and erroneous on-going payments, and detect overcharges and
improve compliance of critical contract terms and service level agreements.
36 AberdeenGroup
Harapko said the system has also helped the procurement council identify new savings
opportunities and elicit cross-divisional participation in sourcing and online reverse auction events that maximize Time Warners company-wide spending efficiency.
Lessons Learned
Harapko said Time Warners rapid-deployment experience delivered some valuable lessons for any company considering a large scale contract management solution deployment:
Secure executive buy-in at the outset, and reinforce this support across the life of
the program. Harapko said executive support is critical to securing necessary
funding and resources as well as for driving organizational alignment and decisions.
Make solution selection and deployment a company-wide initiative. Harapko attributes a large part of the success of Time Warners supply contract management system deployment to the active participation of key stakeholders across
the company. Future Outlook
A phased strategy and approach was critical to success. Harapko adds that focusing on visibility first gets past some of the traditional hurdles associated with
business process re-engineering and change management.
Determine is currently working with Time Warner in implementing Phase II, which will
include configuring the system to support the media companys custom processes from
contract request through creation and automated approval routing. This may also include
integration with the individual divisions ERP systems. Time Warner also plans to integrate the Determine solution to its other supplier management systems.
In Phase II, Time Warner will also define and measure key performance indictors (KPIs),
including cycle time as an indicator of cross-divisional efficiencies, contract compliance,
and time savings by using standard templates and contract language.
Time Warner has made contract management a cornerstone of its collaborative sourcing
initiative. The media giant has wisely taken a measured approach to contract management, beginning with a discrete goal of creating a central repository to improve visibility
and analysis of its supply contracts company-wide. This calculated method has helped
Time Warner better analyze and manage its global spending and deliver measurable and
rapid value to each of its business units. Having secured support from the businesses,
Time Warner is now positioned to standardize, and automate contract processes and language to drive continuous improvements across it contract management operations.
AberdeenGroup 37
Contract Management Drives Compliance and

Improvements at Toyota
Executive Summary
TMS procures over $500 million in external goods and services annually across
more than 7,000 vendor contracts. In the
late 1990s the group managed these contracts using inconsistent manual and paperladen procedures. Prompted by the Year
2000 (Y2K) mandate, TMS undertook an
initiative to institute a common platform to
gain better visibility into information technology (IT) and software, hardware, maintenance, and services contracts, and to
automate and streamline contract management procedures in its IT operations. The
IT department deployed Contract Management Solutions Inc. (CMSI) to support its
contract management strategy. The result
an estimated $14 million in hard dollar and
cost avoidance savings and a whopping
571% return on its solution investment.
The division is now poised to leverage its
success by replicating its automated contract strategy and the CMSI tool across
other Toyota business units.
Selling more than 1.8 million automobiles

in the U.S. last year, Toyota Motor Sales
(TMS) U.S.A. is one of the fastest growing
automakers in the states. As the sales, marketing, distribution, and customer service
arm of Toyota, Lexus, and Scion, in the
United States, the Torrance, Calif.-based
division directs the promotion, MSRP pricing, and delivery of vehicles across the 49
continental states and transfer of cars to
Central and South America.
Company Name
Toyota Motor Sales U.S.A.
Solution Provider
Contract Management Solutions Inc.
(CMSI)
Business Challenge
Identify IT and software assets to assess to
Y2K risk
Drive continuous improvement to support
kaizen directives
Establish procedures, controls, and reporting
to support contract compliance
Strategy
Implement a centralized repository for contracts to support procurement optimization
activities and enhance compliance.
Value Achieved
Saved an estimated $14 million over five
years in improved prices, terms and conditions through enhanced visibility into contracts and compliance, resulting in 571%
ROI.
Business Challenge
Anticipating the massive challenge of ensuring all of its information technology (IT) systems and assets were able to protect against potential Y2K failures, Toyota began assessing its IT assets and contracts in the late 1990s. At the time, TMS IT did not have centralized policies or procedures for creating, storing, and managing IT contracts and also
lacked standard processes for negotiating with IT vendors.
38 AberdeenGroup
Each [information systems] manager handled their own contracts, according to Sam
Barton, Senior Contracts Manager Information Systems at TMS IT. It was a challenge
to locate some contracts. When we did, we were often surprised at what we found.
Furthermore, as Toyota vehicle sales have significantly increased since the early 1970s -with total units in operation in the U.S. expected to reach 21 million by 2006 Toyotas
IT investment had remained relatively flat and its systems were straining to support its
growing business, employee base, and projects adequately. The company recognized the
need to upgrade it capability and keep pace with both technology and the competition.
To ensure its software was Y2K-compliant, TMS knew it needed a better method for
storing and analyzing contract data. Toyota is also governed by a philosophy of continuous improvement -- or kaizen in Japanese -- that encourages employees to solve problems and add value wherever they see the opportunity, and IT was identified as a worthy
initiative for improvement. Moreover, the company has realized that contract management could impact performance beyond IT as well as provide the opportunity to optimize
its contract terms and conditions with better visibility into its contract pricing, terms, and
compliance overall.
Without time to develop a contract management solution internally, Barton chose the Contract Manager application from Contract Management Solutions Inc. (CMSI) of Winter Park, FL in 1997. He noted there were few software applications available when he
initially investigated platforms, but Toyota re-evaluated CMSI a few years later when the
company contemplated migrating to a Web-based hosted application and issued requests
for information (RFI) to competing contract management systems providers to ensure it
was receiving the best functionality and value. After a thorough review of responses, collaboration with other companies, and market intelligence, Toyota elected to remain with
CMSI, feeling that the companys solutions led the industry in terms of functionality.
Following this evaluation, TMS IT deployed the Internet-based version of CMSIs Contract Manager in 2000.
With assistance from CMSI, TMS migrated its legacy contracts and data into the new
Web-based system. The automaker elected to deploy the CMSI solution in hosted, application service provider (ASP) mode so that all data and functionality could be easily accessed by Toyota employees and partners worldwide, requiring only an Internet connection, a standard Web browser, and proper authorization and permissions.
In 2003, TMS elected to deploy CMSIs Deal Manager, a Web-based negotiation tool
that, when integrated with Contract Manager, enables the automated transfer of deal
terms directly from RFI to negotiation to a finalized contract.
Today, TMS IT has more than 100 users accessing the system, with six contract managers authorized to make changes to the contract terms and conditions. Although initial
deployment supported IT contracts alone, the system now includes contracts for other
spend categories and is actively used by TMS procurement, Toyota Financial Services,
and the North American Parts Organization (NAPO).. All told, TMS currently manages
AberdeenGroup 39
more than 7,000 contracts including 4,000 IT contracts that have an overall value of
$560million in procurement commitments through the CMSI system.
Results
TMS has calculated these improvement activities have saved Toyota $14 million in cost
avoidance and hard dollar savings over the first five years of the CMSI deployment.
Subtracting the costs of the CMSI license, implementation, and maintenance costs, Toyota reports a return on investment (ROI) of 571% to date.
One of the chief benefits of the CMSI deployment is that it has facilitated best practices
in vendor and contract management across IT departments. Today TMS can ensure that
standard terms and conditions are used, and that volume is leveraged for better pricing.
TMS has also obtained better warranties, licenses and service terms.
For example, TMS has established a North American discount-pricing program to allow
all locations to access preferred suppliers and price cuts. In addition, it has been able to
eliminate MIPS in licensing and put caps in place for maintenance support.
Furthermore, with improved visibility into vendor progress against contract terms, TMS
is securing pay for performance deals with its IT vendors. The division also uses the
CMSI system to match invoices against contracts for accuracy and completed work milestones before payment, and can reduce unauthorized vendor contact as well.
Toyota reports significant process efficiencies and administration costs savings from the
CMSI deployment. The automaker estimates that streamlined and automated contract
management operations has cut two to three hours of labor per contract by not having to
re-key information into the system. The system has also been able to mitigate risky trading terms and streamlined re-sourcing activities by leveraging standard contract templates. Last year TMS IT group processed 705 contracts, saving almost a full man-year
through automation.
Internal Audit has recommended that TMS extend the CMSI system to track the companys supplier commitments and performance. Barton noted that part of Internal Audits
interest in contract management automation is being fueled by a desire to gain control of
major contracts across TMS and the need to improve purchasing efficiencies and reduce
costs throughout the company.
Lessons Learned
Barton advises companies to clearly define the goals and scope of their contract management strategies and solution requirements at the outset of the project. He also urges
companies not to waver from these goals.
Todays contract management solutions offer a wealth of functionality, said Barton.
Where companies fail is when they allow new features to distract them from their core
goals. Dont try to use all the features that they put in these systems, because you dont
need them all. If you try to use them all you defeat the purpose of what you really want to
do.
Barton recommends measuring performance against initial contract management goals.
Once you achieve your initial goals, you can then begin to see what else the system is
capable of doing.
40 AberdeenGroup
Future Outlook
TMS is currently documenting its contract management processes in preparation to extend these across other Toyota business units. Since deploying contract management to
IT, procurement, Toyota Financial Services, and NAPO, TMS has opened up the application to Toyota Canada, and Toyota Motor Manufacturing North America as well.
The goal is to identify software and IT contracts and negotiate volume discounts and service levels across Toyotas businesses. Barton expects that contract management will
better support Toyotas sourcing strategies, portfolio management, and project prioritizations and delivery goals. In short, standardizing and automating contract management
operations fosters the continuous improvement spirit of Toyotas kaizen culture.
Toyota Motor Sales U.S.A. is a prime example of how improvements in contract visibility and management can enhance multiple aspects of the business. TMS moves to centralize and automate contract management operations to address Y2K concerns have
driven benefits far beyond the companys initial intent. Thanks to its early investments
and focus on contract management efficiency, TMS IT has driven dramatic cost savings,
improve strategic sourcing capabilities, reduced risky agreements, and improved both
operational and contractual compliance. If the defining attribute of best practices is the
identification of policies, procedures, and programs to drive continuous improvement,
TMS has certainly achieved this title.
AberdeenGroup 41
UAC Ups Contract Management Skills to Meet Growth

Executive Summary
An Oracle e-Business Suite user, UAC

elected to leverage this infrastructure to
establish a central contract repository, contracting process, and management functionality that was tightly integrated into its customer management operations. The result
has been enhanced contract visibility and
control, improved customer satisfaction,
and higher renewal rates returning an estimated $2.5 million to UACs bottom line.
Business Challenge
United Asset Coverage has secured a very

profitable niche in providing fixed-price
maintenance contracts to companies that
have grown tired of spending a third of
their technology budgets on maintaining
equipment. Demand for such services has
been so great that UACs business grew
4300% in just five years. To keep up, UAC
knew it would need to overhaul the manual
and fragmented processes it used to manage
contracts.
Company Name
United Asset Coverage
Solution Provider
Oracle Corp.
Business Challenge
High growth rates exposed internal challenges with contract data access and integrity, response times, and billing accuracy.
Strategy
Standardize contract language and adopt
and integrated business application architecture that included support for management
of complex service contract and billing requirements.
Value Achieved
As a leading provider of telecommunications and data-networking maintenance
Increased contract renewal rates
services, contracts are core to UACs busiEnhanced customer service levels
ness. The company lowers enterprise IT
maintenance costs by providing fixed-price
Reduced contracting cycles
contracts for network maintenance services.
Improved billing cycles and accuracy
To maintain top service levels and system
Generated $2.5 million in improved revenue
up time at customer sites, UAC must inteand operational savings
grate contract commitments, service levels,
and pricing information into customer service call centers as well as with the back-office systems that keep operations running
smoothly.
UAC initially attempted to manage contract commitments using an internally developed
system comprised of a Microsoft Access database, Lotus Notes, and Microsoft Excel. But
it soon became clear that this homegrown approach was inadequate, limiting UACs ability to efficiently access critical contract data and execute important business analyses.
The system also posed several operational challenges, such as an inability to capture pricing history for a client or service (i.e. inputting new price replaced original pricing) or to
track key operational metrics, such as repair to revenue. The biggest issue was that the
homegrown system did not provide an effective means to arm customer service and sales
42 AberdeenGroup
reps with contract details. It often took days to answer customer questions or generate
equipment-level invoices. As a result, UAC manually processed about half of outgoing
invoices, extending billing and order-to-cash cycles.
With business growing at nearly 1000% per year, UAC knew it faced a major customer
service crisis unless it could improve the way it managed contracts.
UAC laid out an aggressive contract management program designed to accomplish three
main objectives:
Guarantee integrity of contract data
Better understand service delivery costs
Improve billing accuracy and efficiency
A core tenant of UACs strategy was to acquire an enterprise business application infrastructure that could provide a single integrated database to support the business that also
provided functionality to improve the efficiency and control of the contract management
process. The system would need to support service contracts for IT and network equipment types and brands, each with potentially unique service terms and requirements.
Contract information would need to integrate to customer relationship management
(CRM) and call center systems to arm UACs service representatives with the information required for fast and accurate responses to customer inquiries. The system would
also need to arm accounts receivable with the insight needed to provide timely and accurate billing. Finally, the system would need to provide UAC with a better way to track
contract renewals.
With its end goals firmly defined, UAC organized a cross-functional solution selection
team and hired a project manager that had experience managing complex enterprise application deployments. Having made the strategic decision to adopt a system to manage
the entire business, UAC evaluated enterprise business platforms from the three top enterprise resource planning (ERP) vendors. UAC eventually selected Oracle due to the
breadth and scalability of its integrated e-Business Suite and the ability of its contracts
module to provide support complex service and equipment level contracts.
Beginning implementation in January 2001, UAC established an internal rollout team,
consisting of business line and IT managers and supervisors. This approach tied the implementation to the business, helping smooth out issues, such as converting unstructured
contract data and processes into a structured relational database and business application.
The cross-functional team also aided in overcoming initial change management issues,
ensuring adoption of the system and compliance with new process and data entry protocols.
One of the major business changes was the adoption of a global contract template, which
includes standard and approved terms and conditions. This template functions as a contract configuration engine, presenting with a library of contract terms and options that
have been pre-approved by UACs contracting, finance, and legal group. Terms falling
AberdeenGroup 43
outside this scope are routed to UACs legal department for further evaluation and approval.
UAC went live on the Oracle e-Business Suite in August 2001, with 2,200 active customer contracts.
Results
All told, UAC estimates that its integrated contract management and systems approach
has delivered more than $2.5 million in value in the following areas:
Improved efficiency and accuracy of new contract deployments
Increased contract renewal rates
Streamlined and integrated billing and collection
Reduced repair expenses
Improved accuracy of contract data
Reduced operational costs associated with contract and billing management
Through better data analysis, UAC now is able to measure critical key performance indicators, including repair-to-revenue metrics, contract volumes, contract entry errors and
overall performance and renewal rates.
Jack Murray, UACs project manager for the rollout, reports that the companys new
business protocols and adoption of the Oracle e-Business Suite have improved both the
accessibility and quality of contract and customer data. Our customer service reps now
have real-time access to contract details, customer histories, and cost information, said
Murray. This has helped us dramatically improve the response time of our Call Center,
allowing us to be more responsive to our customers.
Murray adds that system adoption has also allowed UAC to handle the increasing volume
of customer contracts without adding staff.
Lessons Learned
UACs contract management deployment was not without hiccups. One of the key lessons learned from the experience is the need to dedicate sufficient resources to training
the enterprise on the system features and program intent. UAC also recommends that
others budget more time and resources to cleaning and structuring legacy data.
The time required for data cleansing was far longer than we originally predicted, said
Murray. Our legacy data needed a lot of work. This slowed us down a little on implementation, but it was well worth the effort. We did not want to go live on the new system
with bad data or data that was difficult to locate.
Future Outlook
UAC is currently considering upgrading its Oracle 11i deployment to gain access to new
database and Call Center features available in the newer version of the suite.
44 AberdeenGroup
Faced with the high grade problem of rapid growth, UAC wisely set out to improve its
contract management operations. The IT maintenance service provider adopted the Oracle e-Business Suite not only for the breadth of its customer-facing functionalities, but
also its ability to support the types of complex service agreements on which UAC had
built its livelihood. This integrated business platform approach has paid off for UAC,
improving the efficiency of customer service operations, increasing contract renewals,
and delivering millions of dollars to the bottom line.
AberdeenGroup 45
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46 AberdeenGroup
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Since its founding in 1989, I-many has been focused on a single goal: to be the leader in
contract and transaction compliance management solutions. Today, the Company is recognized by Global 2000 companies, research and industry analysts and business and
technology media around the world as the undisputed leader in these burgeoning fields. Imany's success is a direct result of the value it has provided to more than 280 customers
in a wide variety of industries. This value is driven by the I-many business and technology professionals that are dedicated to optimizing contract processes, ensuring transaction compliance and tracking contract performance. The I-many contract management
solution suite is the only solution suite in the industry that manages the entire contract
management lifecycle. This holistic approach to contracts enables I-many customers to
increase contract revenues, decrease contract expenses, minimize unnecessary financial
risk and ensure compliance with the Sarbanes-Oxley Act of 2002.
Upside Software Inc. provides the leading Contract Life-cycle Management solution
UpsideContract as well as integrated business solutions for sourcing and procurement,
project management and invoice processing. Upside Softwares products are well suited
for organizations of all sizes from Global 1000 enterprises and the public sector to small
and medium sized businesses. Through better management of their business relationships, improved visibility and access to information and streamlined business processes,
our customers reduce their costs and increase their revenues, all while developing better
AberdeenGroup 47
relationships with their customers and suppliers. Upside Softwares solutions are deployed in as little as 10 days and typically provide a return on investment in as little as 90
days. Upside Softwares customers are around the globe and in all vertical industries. Our
solutions operate in virtually every language and major currency and provide full Unicode language support. Through our consulting partners and internal professional services group, we can address the needs of any customer in any industry and in any location.
48 AberdeenGroup
Sponsor Directory
Contract Management Solutions, Inc. (CMSI)
3586 Aloma Ave.
Suite 10
Winter Park, FL 32792-4010
Phone: (407) 478-0250
www.cmsi.com
Covigna
1300 Crittenden Lane
Suite 400
Mountain View, CA 94043
Phone: (650) 641-7950
www.covigna.com
Determine Software
325 Pacific Ave
San Francisco, CA 94111
Phone: (415) 633-2400
www.determine.com
I-many, Inc.
12th floor
399 Thornall St.
Phone: (800) 832-0228
www.imany.com
Upside Software, Inc.

Suite 310
10180 101 Street
Edmonton, AB T5J 3S4
Phone: (877) 984-2455
www.upsidesoftware.com
AberdeenGroup 49
Author Profile
Tim A. Minahan,
Vice President and Managing Director
Supply Chain Research
Aberdeen Group, Inc.
Tim Minahan is vice president of supply chain management research for Aberdeen
Group, Inc., a Boston-based market research and positioning services firm. In this role,
Minahan provides analysis and assessment of software and services that automate and
streamline procurement, sourcing, design, and supply chain management operations.
Minahan specifically focuses on total cost management (TCM), which is an organizational and technological framework for managing the total cost of ownership of supply
relationships. Within TCM, Minahan tracks spending analysis, sourcing, procurement
execution, contract management, and supplier performance measurement technologies.
Minahan also covers product life cycle management (PLM) technologies and their convergence with TCM. Minahan continually consults with early implementers of these applications to identify world-class supply management strategies and to determine the
strengths and weaknesses of technology solutions and services that are competing in this
market.
His current research efforts include Aberdeens quarterly E-sourcing Index (ESI), as well
as benchmark studies on e-procurement success strategies and spending analysis best
practices.
50 AberdeenGroup
Appendix A:
Research Methodology
etween January and August 2004, Aberdeen Group assessed contract lifecycle management automation implementations of more than 35 enterprises.
Enterprise contract management deployments were assessed based on the following criteria:
Breadth and scope of contract management program and system deployment
Percentage of total contract managed under the program/within the system
Compliance rates
Process efficiencies gained through contract lifecycle management
Alignment and integration of contract management with broader customer relationship management, supply management, and business strategies.
Aberdeen began with an initial blind screening of nomination forms describing the scope,
solution selection, deployment, performance attributes of contract lifecycle management
programs. This initial screen was used to identify contracting and contract administration
best practice finalists. Aberdeen analysts conducted in-person and/or telephone assessments of each finalist before selecting the final winning enterprises.
Solution providers recognized as sponsors of this report were solicited after the fact and
had no substantive influence on the direction of the Best Practices in Contract Management Report. Their sponsorship has made it possible for Aberdeen Group to make these
findings available to readers at no charge.
Best practices case studies not published in this free report are available to qualified
members of Aberdeen Groups enterprise community and Aberdeen Group clients at
www.aberdeen.com.
AberdeenGroup 51
Appendix B:
Related Aberdeen Research and Tools
Related Aberdeen research that forms a companion or reference to this report include:
Contract Management Center of Excellence (June 2004)
Best Practices in Spending Analysis (September 2004)
Procurement Outsourcing Benchmark Report (April 2004)
Seven Habits of Highly Effective Supply Management Groups (January 2004)
Contract Management Benchmark Report (July 2003)
Making E-sourcing Strategic (September 2002)
Information on these and any other Aberdeen publications can be found at

www.aberdeen.com or by e-mail at info@aberdeen.com.
52 AberdeenGroup
About
AberdeenGroup
Our Mission
To be the trusted advisor and business value research destination of choice for the Global Business
Executive. A
Our Approach
Aberdeen delivers unbiased, primary research that helps enterprises derive tangible business value
from technology-enabled solutions. Through continuous benchmarking and analysis of value chain
practices, Aberdeen offers a unique mix of research, tools, and services to help Global Business
Executives accomplish the following:
IMPROVE the financial and competitive position of their business now
PRIORITIZE operational improvement areas to drive immediate, tangible value to their

business
LEVERAGE information technology for tangible business value.
Aberdeen also offers selected solution providers fact-based tools and services to empower and
equip them to accomplish the following:
CREATE DEMAND, by reaching the right level of executives in companies where their
solutions can deliver differentiated results
ACCELERATE SALES, by accessing executive decision-makers who need a solution and

arming the sales team with fact-based differentiation around business impact
EXPAND CUSTOMERS, by fortifying their value proposition with independent fact-based

research and demonstrating installed base proof points
Our History of Integrity

Aberdeen was founded in 1988 to conduct fact-based, unbiased research that delivers tangible value
to executives trying to advance their businesses with technology-enabled solutions.
Aberdeen's integrity has always been and always will be beyond reproach. We provide independent
research and analysis of the dynamics underlying specific technology-enabled business strategies,
market trends, and technology solutions. While some reports or portions of reports may be underwritten by corporate sponsors, Aberdeen's research findings are never influenced by any of these
sponsors.
AberdeenGroup 53
AberdeenGroup, Inc.
260 Franklin Street, Suite 1700
Boston, Massachusetts
02110-3112
USA
Telephone: 617 723 7890
Fax: 617 723 7897
www.aberdeen.com
2004 AberdeenGroup, Inc.
All rights reserved
September 2004
Founded in 1988, AberdeenGroup is the technologydriven research destination of choice for the global
business executive. AberdeenGroup has over 100,000
research members in over 36 countries around the world
that both participate in and direct the most comprehensive technology-driven value chain research in the
market. Through its continued fact-based research,
benchmarking, and actionable analysis, AberdeenGroup
offers global business and technology executives a
unique mix of actionable research, KPIs, tools,
and services.
The information contained in this publication has been obtained from sources Aberdeen believes to be reliable, but is not
guaranteed by Aberdeen. Aberdeen publications reflect the analysts judgment at the time and are subject to change
without notice.
The trademarks and registered trademarks of the corporations mentioned in this publication are the property of their respective holders.
THIS DOCUMENT IS FOR ELECTRONIC DELIVERY ONLY

The following acts are strictly prohibited:
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Copyright 2004 Aberdeen Group, Inc. Boston, Massachusetts
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This publication is protected by United States copyright laws and international treaties. Unless otherwise
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Best Practice - Contract Management

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AberdeenGroup

Best Practices in Contract Management

aced with lingering economic uncertainty and heightened regulatory requirements,

Best Practices in Contract Management

5. Dedicate and empower a contract management program champion.

Solution Providers Used

Firemans Fund Insurance Company

Toyota Motor Sales U.S.A

United Asset Coverage

Best Practices in Contract Management

Best Practices in Contract Management

Best Practices in Contract Management

Best Practices in Contract Management

Best Practices in Contract Management

Contract Lifecycle Management Defined

Creation, including final negotiations and collaboration; document redlining and

Institute for Supply Management

Best Practices in Contract Management

Activation, including establishing a central repository of all contract information.

Compliance, including proactive tracking of internal usage of preferred suppliers

Source: Aberdeen Group, September 2004

Best Practices in Contract Management

Contract Lifecycle Management Delivers Results

Specific benefits achieved from contract management automation appear in Table 2.

Table 2: Benefits of Contract Management Automation

Improve compliance 55%

Improve 25% - 30%

Contract renewal rates

Eliminate evergreen contracts

Cut contracting cycles in half

Procedures and terms

Standardize processes and terms to mitigate risks, ensure proper

Analyze and maximize performance

Reduce 25% - 30%

Best Practices in Contract Management

Actions: The approaches that an organization takes in response to industry drivers

Capabilities: The business process competencies required to execute corporate

Enablers: The key functionality of technology solutions required to support the

Table 3: Contract Lifecycle Mangement PACE

Best Practices in Contract Management

Increased regulatory reporting requirements

C-level focus and

Central and searchable contract repository. Standard, riskassessed contract

Enhance legal, negotiation, and contracting skills and

Standard, riskassessed contract

Extend value and

Hosted and ondemand application

Central and searchable contract repository. Data and process integration of

Source: Aberdeen Group, September 2004

Best Practices in Contract Management

Key Business Drivers

Uncertain global economic conditions and continued pressures to reduce costs

Globalization is increasing the types and complexity of contracts as well as the

Insufficient human resources and systems infrastructure to effectively locate,

Increased availability of packaged enterprise software applications designed to

Best Practices in Contract Management

Automation is Key to Best-in-Class Contract Groups

Best Practices in Contract Management

Table 4: Attributes of Contract Management Excellence

No formal contract group

No repository for contracts. All contracts

Formal contract repositories established on business unit or division

Central contract repository shared companywide. Able to search all

Contracts created using