ENTERPRISE SOFTWARE FOR CONTRACT MANAGEMENT

Transcription

1 An Invaluable Guide t Buyers f Cntract Management Systems THE MYTHS, PITFALLS AND REALITIES AROUND ENTERPRISE SOFTWARE FOR CONTRACT MANAGEMENT A Buyer s Guide

2 EXECUTIVE SUMMARY The Enterprise Cntract Management (ECM) sftware market has gained tremendus mmentum in the past three years. A cmbinatin f a plethra f regulatins with a realizatin f the tremendus value f autmating the cntract management prcess has led t this increasing interest. Tday, hwever, mst cmpanies have nt selected cntract management systems as majr sftware vendrs d nt adequately address the cntract management prcess. Their system architectures cannt satisfy the unique and dynamic functinality f the cntract management prcess. As a result, there are a number f small startup and established public cmpanies that prvide cntract management slutins. Due t the new develpments in this space, there have becme a number f beliefs that are fundamentally flawed due t lack f r misinfrmatin. This paper dispels the myths f ECM, explres the unique requirements f cntract management, and details the specific limitatins f traditinal sftware. The paper advises sftware buyers n imprtant cnsideratins in the selectin prcess. There are a number f gtchas if yu dn t pay attentin. The market is littered with rganizatins that try t build their wn systems r wh prcured an ECM system and fell int ne r mre f the traps utlined in this paper. This paper infrms a buyer and als includes a practical checklist t assist yu in navigating the pitfalls f acquiring an ECM system. ENTERPRISE SOFTWARE AND CONTRACT MANAGEMENT Enterprise sftware has had a prfund impact n crpratins in the last twenty years. Almst all crpratins have autmated financial and ther prcesses. This was dne in rder t effectively manage and cntrl critical prcesses and transactins. The value f this autmatin has been increased efficiency and cmplete cntrl f enterprise prcesses, resulting in streamlined peratins and ultimately prviding a cmpetitive advantage. Hwever, even thugh this transfrmatin has taken place, there have been many issues and prblems due t the limitatins f enterprise sftware. Enterprise sftware is still an evlving industry and as a result the pitfalls f enterprise sftware have had their impact n many cmpanies. Unfulfilled prmises, ver-runs and ther unfreseen prblems have at times presented buying cmpanies with at a minimum, annyances and frequently mre serius cnsequences. This paper cnsiders the traditinal pitfalls f enterprise sftware and specifically investigates the area f cntract management and hw these pitfalls apply t the unique requirements f cntract management. Althugh there is tremendus value in the purchase f a cntract management applicatin, these pitfalls need t be clearly understd in rder fr a buyer t discern the right slutin fr their needs. This paper is a cmpilatin f varius experiences and research, prviding a buyer with a practical checklist t ensure the apprpriate applicatin is selected. When acquiring enterprise sftware there are 6 key areas t pay attentin t in the selectin prcess: 1. Functinality Make sure the prduct prvides the functinality that yu require 2. Usability Make sure the prduct desn t just shw well, but is usable 3. Viability Make sure vendrs are ging t exist t supprt yu later 4. Technlgy Make sure yur Crprate IT department can supprt the prduct - use industry standard technlgies when yu can 5. Self Sufficiency Make sure yu are nt dependent n the vendr fr changes later 6. Implementatin Prbably mre pain has existed here than anywhere else due t verruns, etc. Anyne can build the sftware yu need is it a prduct r custm cnfigured fr yu at yur expense? w w w. i m a n y. c m P.2

3 THE PITFALLS AT A GLANCE Myth Autmating the cntract management prcess leads t hard cst ROI Autmating cre Cntract Management functin autmates prcesses and helps manage risk but rarely prvides hard cst ROI Cntract creatin is easy in an ECM applicatin s peple will want t use it Legal and Cntract administratrs use Micrsft Wrd tday. And typically will nt change frm that. The applicatin must have the capability t create a cntract end-t-end in MS Wrd, nt in a prprietary sftware system - therwise it will nt be used. Yu have many types f cntracts and they change all the time the sftware is ging t make it easier fr me Changes in enterprise sftware are never easy. Yu need highly develped sftware tls t d this therwise it is difficult and cstly t make changes and yu are dependent n IT r the vendr. Yu need smething slightly different in yur applicatin, but yu can get this thrugh simple cnfiguratin Changes in enterprise sftware are never easy. Vendrs may shw yu changes but the key is t d them yurselves implementatin csts can get ut f cntrl and yu end up with a custm system difficult t manage and maintain This applicatin lks very easy t use. I can d everything I need in the sftware. Demnstratins f the prduct versus actually using it are fundamentally different. Make sure that entering a cntract in the system is nt cumbersme and invlves many screens, clicks and patience. Gd- lking demnstratins d nt mean that the prduct is easy t use. New technlgies will greatly imprve my cntract management prcesses. Existing technlgies can easily give yu everything yu need. IT must be able t supprt yur purchase and assure there is n risk f underlying technlgy vendrs ging away. The sftware is web based s it can be deplyed thrughut my enterprise There is minimal risk in a fully funded start-up cmpany with quality custmers and cmmitted investrs Many web based applicatins are nt enterprise grade. In ur current ecnmic envirnment tday small sftware cmpanies are a risk. There is n such thing as a cmmitted investr until the mney is in the bank. If a cmpany is nt at r very clse t sustainable cash break even tday, there is a big risk. w w w. i m a n y. c m P.3

4 THE PITFALLS IN DEPTH The remainder f this dcument takes these basic principles f buying enterprise sftware and applies them t the unique requirements f sftware fr Enterprise Cntract Management. Myth #1 Autmating the cntract management prcess leads t hard cst ROI. Autmating cre Cntract Management functin autmates prcesses and helps manage risk but rarely prvides hard cst ROI. Cre cntract management includes creating, string, searching, reprting and analyzing an agreement as well as being ntified f dates, events and milestnes cmmnly referred t as bligatin cmpliance. Autmating these func- tins leads t greatly imprved prcesses, standardizatin and therefre risk reductin and efficiencies. It des nt typically prvide hard cst quantifiable ROI. The nly sure way t gain hard cst savings is t manage the actual transac- tin cmpliance e.g. match the actual transactin taking place in yur financial system t the terms in the cntract. Cntract Transactin Cmpliance mnitrs every transactin in real-time assuring that price, discunt, shipping and payment and ther terms are cmpliant with the agreement. Transactin cmpliance als identifies whether a transactin has a valid cntract assciated with it and pr- vides aggregate data allwing rt cause analysis and reslutin. Being able t autmatically capture incrrect pricing and ther terms s yu can deal with it befre it impacts yur cmpany s bttm line prvides the greatest hard cst ROI. When selecting a cntract management system, ensure that yu can, nt nly manage yur cre Cntract Management functins, but als enable Cntract Transactin Cmpliance. T d this yu must integrate t financial systems such as SAP. Ask vendrs t prvide references demnstrating their experience at multiple sites. Dn t be misled by a supplier simply saying yes, they can d it. Withut Transactin Cmpliance, it is difficult t justify the ROI f a cntract management system. CONTRACT MANAGEMENT 2 DIFFERENT VALUE PROPOSITIONS Cntract Cmply Create Stre Manage Obligatin Cmpliance Transactin Cmpliance Cntract Manager BUSINESS RISK IMPROVEMENTS RISK MANAGEMENT SOFT COST ROI Cmpliance Manager HARD ROI COMPLETE COMPLIANCE COMMODITY HIGH VALUE w w w. i m a n y. c m P.4

5 Myth #2 Cntract creatin is easy in an ECM applicatin s peple will want t use it. Legal and Cntract administratrs use Micrsft Wrd tday. And typically will nt change frm that. The applicatin must have the capability t create a cntract in MS Wrd, nt in a prprietary sftware system - therwise it will nt be used. The creatin f sftware user interfaces is an art. Applicatins can be made t lk very intuitive. The result can be a great lking prduct that appears intuitive t use. The reality is that users have certain ways f ding their wrk, and unless there is a very cmpelling reasn t change, they will resist. Legal and cntract administratrs specifically d nt like changing the way they perfrm their tasks. The primary way legal and cntract administratrs create cntracts tday is using Micrsft Wrd paired with . Getting lawyers r cntract administratrs t change frm this and t use a prprietary system is a daunting task and in fact desn t make sense. Micrsft Wrd is the crprate standard tday fr drafting agreements. Prviding yu select a slutin that allws the average user t d all their wrk in Wrd, there is n cmpelling reasn t change. If yu d nt, adptin will be painful and slw r nn-existent; the prcess will break dwn and the slutin will eventually be abandned as many applicatins ften are. It s imprtant t chse a prduct that is cmpatible with the user s current wrkspace. Fr cntract management this means initiating an agreement, editing managing and redlines finalizing and the finalizing agreement the entirely agreement dne entirely in dne in MS Wrd nt entering a prprietary applicatin at all. Once this prcess is cmplete, the cntract needs t be easily checked int the cntract management system thrugh MS Wrd. w w w. i m a n y. c m P.5

6 Myth #3 I have many types f cntracts and they change all the time the sftware is ging t make it easier fr me. Changes in enterprise sftware are never easy. Yu need highly develped sftware tls t d this therwise it is difficult and cstly t make changes and yu are dependent n IT r the vendr. The mst unique feature f cntract management and related prcesses is change. The cntracting prcess is highly dynamic with frequent changes t the prcess, templates and terms such as pricing structures, apprvals, etc. This is unique t cntract management, unlike ther crprate prcesses where nce a system is live, nly a few changes are made after the event. Fr cntract management nce yu are live, changes need t be made almst immediately. If the business users dn t have simple tls t d this, yu becme dependent n IT r even wrse, the vendr. That means these changes will take a lng time t take place and will be at high cst. The systems end up nt being used and the investment becmes wasted. Make sure yu see the tls. Specifically make sure yu see hw t create new templates, add cmpletely new structures like unique pricing structures, etc. and see hw t create a cmpletely new wrkflw. Dn t ask the vendr t shw this in the system, ask them t shw yu hw yu d it with tls. Vendrs can thrw many engineers at custmizing a system a t t shw yu smething during the prcurement prcess. But nce yu are live, yu need t be able t make the changes, nt the vendr. Withut pwer sftware tls, yu will be dependent n the vendr r ptentially yur IT department. Make sure when yu acquire a cntract management system, yu have the tls t make the changes. w w w. i m a n y. c m P.6

7 Myth #4 I need smething slightly different in my applicatin, but I can get this thrugh simple cnfiguratin. Changes in enterprise sftware are never easy. Vendrs may shw yu changes but the key is t d them yurselves implementatin csts get ut f cntrl and yu end up with a custm system difficult t manage and maintain. Sftware is intrinsically inflexible. When a system is set up, yu are stuck with the fields, wrkflws and ther variables that have been implemented. If yu desire t track a new field r fllw a different prcess, it s easy thrugh simple cnfiguratin, right? Wrng! Cnfiguratins r extensins t sftware are usually difficult. It invlves re-cding the sftware, which becmes expensive, time cnsuming and results in errrs in ther parts f the sftware, knwn as bugs. The nly way t prperly extend sftware systems is thrugh highly develped sftware tls. The tls shuld be usable by pwer business users, nt IT. Mst early phase sftware cmpanies d nt have these tls because they are difficult t create and take time and investment, bth f which are in shrt supply fr startup sftware cmpanies. In the absence f these tls, changes have t be made by develpers in yur IT departments r mre ften by the vendr. Given the frequency f change in the cntract management prcess, this is nt practical and is very cstly. If yu dn t see exactly what yu need in the applicatin, be abslutely sure t ask t see a demnstratin f the tls that are needed t change, add r delete fields, templates, terms, etc. as well as t create r change wrkflw prcesses. Dn t just ask t see simple changes such as adding a user. Often easy changes can be shwn in the applicatin but specifically t prve the ease f use in the demnstratin. Time hw lng it takes t create a cmpletely new template with different terms, pricing structures, etc. Ask t see hw t create a cmpletely new wrkflw that is specific t yur prcesses. Withut highly develped sftware tls where business users can make the changes that they need, yu will end up making few changes because f the time and expense it takes and the system will be cmpletely sub-ptimal fr yur specific needs. A chart like the ne belw can help yu in analyzing w w w. i m a n y. c m P.7

8 Myth #5 This applicatin lks very easy t use. I can d everything I need in the sftware. Demnstratins f the prduct versus actually using it are fundamentally different. Make sure that entering a cntract in the system is nt cumbersme and invlves many screens, clicks and patience. Gd-lking demnstratins d nt mean that the prduct is easy t use. One f the mst interesting fallacies f enterprise sftware is that plished user interfaces are easy t use. Often seemingly intuitive user interfaces are very difficult t use in practice. Prduct demnstratins are usually shrt, up t fur hurs where a vendr is trying t shw as much functinality as pssible. S they design user interfaces that manage t this cnstraint. When a user is wrking with the system every day, mre practical user interfaces are needed where nt all the functinality is presented - in rder t make the wrk prcess easier. Fr example, in many enterprise sftware systems, screens include buttns and tabs. If a view f a cntract is cmpsed f tabs and buttns, each f which gives yu access t different types f infrmatin this lks very intuitive. All the buttns are right there that I need t click t access any f this infrmatin right? Wrng! With any enterprise sftware systems where yu have t click n a buttn t add different types f infrmatin, each time yu click n a buttn, the applicatin is ging back t the database, checking and depsiting infrmatin and cmpleting the transactin. Frm a prduct demnstratin standpint, this is almst irrelevant. Fr a user actually wrking in the system, each trip takes a few secnds r mre, and when yu add this time up tgether with having t g back and check data, it becmes very cumbersme. Slick-lking user interfaces in demnstratins ften are difficult t use in practice. Really understand the usability f the system. The best way t d this is t actually enter a cntract in the system five f them and really start t understand what it takes t d s. Dn t be caught by elegant-lking user interfaces. Make sure they specifically map t yur use cases. w w w. i m a n y. c m P.8

9 Myth #6 New technlgies will greatly imprve my cntract management prcesses. Existing technlgies can easily give yu everything yu need. IT must be able t supprt yur purchase and assure there is n risk f underlying technlgy vendrs ging away. Tday, mst standards based sftware platfrms can d everything yu need. New technlgies are nt needed t perfrm cntract management functins. New technlgies have risks. These include yur IT department nt being able t supprt yu and becming vendr dependent. If a vendr is nt respnsive, yu are seriusly cnstrained. Enterprise-class sftware platfrms in Java r Micrsft technlgies running n standard platfrms are easily gd enugh t d the jb. In fact they can d it better because there are hundreds f thusands f sftware develpers wh develp ff the platfrms tday. Mst bugs have been irned ut, perfrmance is prven and scalability is prven. Use yur IT department t determine the standardizatin f the sftware. Invlve them early. Make sure standard, pen technlgies are used that can easily be supprted by yur IT department. Otherwise yu will end up depending n the vendr, incurring significantly higher csts and taking a great deal f time t make the change t the freign technlgy. The risk f new technlgies is t high given the number f excellent prducts that exist n standard technlgies tday. w w w. i m a n y. c m P.9

10 Myth #7 The sftware is web based s it can be deplyed thrughut my enterprise. Many web based applicatins are nt enterprise grade. Just because sftware can be turned int a web page des nt mean that it will supprt the missin-critical needs f a large natinal r glbal rganizatin. Security is a majr cncern. Read and write permissins f individuals r grups must be enfrced. As a user I might have authrizatin t view select cntracts but nt thers. Additinal users might have permissin t view cntracts but nt t edit them. The tls required t maintain these permissins must be available t ensure timely and cst- effective updating. In additin the sftware must scale t future requirements f yur rganizatin. Cmpanies frequently will phase int a Cntract Management Slutin with a limited number f users and cntracts t begin with but scaling later. Adding additinal users and agreements can seriusly degrade perfrmance t the pint where the system becmes unusable. Thugh sme slutins can be scaled, they require massive amunts f hardware t prvide the capacity yur rganizatin will require in the future. Ensure that yur rganizatin s security needs are understd and can be prperly administered. Lk at the tls that will allw yu t keep these permissins prperly maintained. Make sure the applicatin can scale easily. Determine future hardware requirements fr additinal cntracts and users t accmmdate expansin within yur rganizatin. w w w. i m a n y. c m P.10

11 Myth #8 There is minimal risk in a fully funded start-up cmpany with quality custmers and cmmitted investrs. In ur current ecnmic envirnment tday small sftware cmpanies are a risk. There is n such thing as a cmmitted investr until the mney is in the bank. If a cmpany is nt at r very clse t sustainable cash break even tday, there is a risk. Small startup cmpanies are usually funded by Venture Capital. By definitin Venture Capital exists as a specialist funding institutins fr highrisk investments. VCs want t put capital int the cmpanies with the hpe that they will sell prduct and becme self-funded. If sales dn t materialize the cmpany may be at risk f either nt getting fllw-up funding r getting barely enugh funding t keep them aflat while they lk fr custmers. Often there is a pint where startups will n lnger be funded, regardless f what custmers the cmpany has acquired. This intrduces risk unless yu are abslutely clear that the cmpany has a very large cash reserve. When selecting an ECM supplier, ensure that the cmpany either is cash flw psitive r has at least 18 mnths f cash in the bank. This benchmark measure is used by savvy buyers tday. The frmula is really simple: Cash used last mnth divided by amunt f cash left in the bank tday nte: a prmise r funding rund in prcess is nt cash in the bank. E.g. Cash used last mnth = $1.0 M, cash left in the bank = $5.0M, perating life left f the cmpany is 5/1 = 5 mnths. If they will nt share this financial infrmatin with yu, this may be a red flag. Additinally, identify that the vendr is a quality cmpany: a) Cmpany s verall revenues b) Quality and state f their custmers c) What is the histry and lngevity f the cmpany? d) Ttal amunt f funding received t date mre than $20-$30 millin is a red flag e) Can they supprt yur rganizatin glbally if this is required nw r in the freseeable future? w w w. i m a n y. c m P.11

12 CONTRACT MANAGEMENT BUYER S CHECKLIST Functinality 1. Des the system have transactin cmpliance mnitring and managing every transactin t cntract terms? 2. Des the system have full integratin capability with yur financial systems? 3. D yu have multiple references f live ERP integratins frm the vendr? EAST COAST HEADQUARTERS: 12th Flr 399 Thrnall Street Edisn, New Jersey ph WEST COAST HEADQUARTERS: 255 Shreline Drive Suite 300 Redwd Shres, Califrnia ph Usability 1. Can the sftware supplier demnstrate the prcess managed entirely in MS Wrd and with the cntract management system being aware f all the changes? 2. Get legal references and speak with lawyers wh are actually using the system. 3. Whenever speaking t references, ask hw many lawyers and ther users have never used r stpped using the system. 4. Des the prduct map t hw yu wuld want t use the system? 5. Have the vendr demnstrate actual input f 5-6 different cntract types that were nt pre-cnfigured. Self-Sufficency 1. Can the vendr demnstrate tls fr yur rganizatin t easily change a. Cntract types - add fields, labels and cntract cmpnents? b. Wrkflw change, add and delete? c. Lad legacy cntracts? Implementatin 1. Hw much f the prduct is ut f the bx? 2. Have the vendr shw yu the tls that they use t implement. 3. What are the implementatin csts as cmpared t the sftware license? 4. What are the nging custmizatin and future upgrade csts? Technlgy 1. Is the prduct based n industry standard technlgies? 2. Des the applicatin fulfill yur security needs? 3. Are there any vendr dependencies n small riskier cmpanies? 4. Is yur IT department invlved in the prcess frm the beginning? Viability 1. Review audited financial statements. D they have at least 18 mnths f cash in the bank? 2. Overall Revenues. 3. Quality and state f their custmers. 4. What is the histry and lngevity f the vendr? 5. Have they received mre than $20-30M in funding t-date? 6. Can they supprt yu glbally? ABOUT I-MANY I-many (NASDAQ: IMNY) delivers the mst advanced Enterprise Cntract Management slutins fr managing crprate cmmitments. I-many CntractSphere ffers an end-t-end slutin frm pre-cntract prcesses, t cntract management and transactin cmpliance, allwing cmpanies t manage any type f cmmitments - frm cntracts and bligatins t payments and cllectins. The result is imprved prfitability with hard return-n-investment. Mre than 280 custmers acrss 21 industries wrldwide have realized the value f I-many business slutins. Cpyright 2005 I-many, Inc. All rights reserved. 5/17/2005 3/11/2005