What Drives Contract Management Inefficiency — Part 2: Decentralization

Ever have to jump between two or three different departments just to find a contract? Then you've experienced the pains of a decentralized contract management process. When contracts are scattered across different departments — and each department has their own process — it makes it extremely difficult to quickly find contracts when you need them.

Watch this week's video to learn how decentralization kills contract management efficiency.

Video Transcript

Hello and welcome back to our three-part video series on What Drives Inefficiency in a Contract Management Process.

Last time we talked about a lack of definition as a key contributing factor in inefficiency in your contract management process.

Today, we're going to talk about the second factor, which is decentralization.

Decentralization comes in two flavors. There's decentralization of the contracts and then there's decentralization of the contract management process.

When we talk about decentralization of the contract management process, what we mean is -- in an organization, you have contracts being managed by different departments.

This is not uncommon and it usually takes place in an organization where the procurement process is also decentralized. So for example, you'll have an IT department that negotiates and manages their own suppliers and they'll store all of their contracts and manage their contracts independently. Real estate will have their contracts; finance will have their contracts; HR will have their own contracts.

That's decentralization. When you have your contracts decentralized within departments like that, it creates a lot of inefficiency, particularly if you want to do things like negotiating with suppliers to get economies of scale. Because you could have multiple departments buying the same things in a contract, but they're going with different vendors because the process is decentralized.

Then there's the decentralization of the actual contracts themselves. What that means is an organization may have a tool, usually it's an add-on to some expensive ERP tool, and the organization has decided -- this is where we're going to store and manage our contracts.

But it's a complicated tool; not everybody knows how to use it. Maybe not everybody has access to it. So what ends up happening is different groups, different organizations, even different people within an organization, like the procurement department, will come up with different ways to store their contracts.

The most common one is the filing cabinet. But now, what's becoming even more common is SharePoint. So they'll create folders in SharePoint, which has a basic file structure and they'll start storing contracts. But there are a lot of problems with that. Now you have contracts in SharePoint; you may also have contracts on somebody's computer; you may still have contracts in a filing cabinet; then for those that are following the corporate processes, you may have contracts in your ERP module as well.

If you ever try to run a report to say "show me what my spend is across all of my contracts," you'll never get an accurate report.

So those are the two flavors of decentralization. That type of decentralization of your contract management process leads to incredible inefficiencies.

Once again, thank you for watching our video and please check back with us when we post our next video, which will talk about the third and final key contributing factor to inefficiency in a contract management process, and that's manual processes.