Creating a new contract management system? Make sure you don't compare apples to hamburgers

Published: 01 Oct 2014 Average Rating: 3.5 / 5 Print
This article appeared in Contracting Excellence magazine on 01 Oct 2014 view edition

Author: By Anne Wolf, Marketing Program Manager at Merrill Corporation Merrill DataSite® for Contract Management

Selecting the right contract management system can be overwhelming. When you face so many choices, vendors and sales pitches, how can you decide which option is right for you and your company?

The first and biggest challenge is to understand the five basic types of systems. Each type has inherent advantages and disadvantages. Once you understand those, it's much easier to zero in on the system you need – and avoid wasting time reviewing options that do not fit your current network.

Contract management systems fall into one of five categories:

  1. Internally built systems
  2. IT-built, internally-developed systems
  3. ERP integrated systems
  4. Vendor built, installed systems
  5. Vendor built, web-based systems

Internally built systems

Most companies considering a contract management system already manage their contracts with an internally built system that has evolved over the years to accommodate their needs. Typically, this starts as a simple system – such as a few Excel® spreadsheets used to track a small number of contracts.  But if it has morphed into a large scattered collection of data tracked in different ways, by different people, in different locations, the system is no longer adequate and the contract management team has recognized the need for change.

One option is to try to fix the current system. But managers who try this quickly realize it's a nearly impossible task; there are too many disparate business practices, storage locations and vested interests to fix the current system. Even when the job does get done, many needs, such as automatic alerts, still go unmet. You can react to requests and concerns, but you can't manage proactively.

IT-built, internally-developed systems

It's tempting to look at the problems of an internal system and think: “Can't IT fix this? They're the technology experts.” Some companies choose this option, but usually encounter high costs and long delays. In most cases, the system is never completed.

Even when an IT built system is completed, users tend to find it lacking.  For example, a 2013 survey of contract managers found that 63% of users of IT built systems indicated a satisfaction level of 6 or lower on an 11-point scale.1

Given these realities, most companies reject the idea of building their own robust, customized in-house solution. The delays and costs are just too high. Purchasing a system is usually more cost-effective and immediate. However, some organizations have no choice but to build a system themselves.

ERP Integrated Systems

Many companies begin their search for a new contract management system by going to their Enterprise Resource Planning (ERP) software provider. These vendors offer contract management modules that can be installed and integrated into a company's current ERP system or they sell a complete contract management-enabled ERP system for companies that don't yet have one. In either case, the big advantage is a solution that fully integrates with the existing system and provides valuable capabilities, such as automated invoice creation and robust reporting functionality.

On the other hand, an ERP system can be rigid - enforcing system compliance and removing flexibility and responsiveness.

ERP systems can be a good fit for companies primarily focused on controlling process, with thousands of field personnel who need access to contract information and with other circumstances that leverage the advantages of these systems. Most contract managers can't wait that long, so they look to other system categories.

Vendor built, installed systems

A vendor-built, installed system is an off-the-shelf software solution specifically designed to manage contracts. These systems do not integrate the way an ERP system does, even though they are installed and access is contained within the company's Virtual Private Network (VPN). But because their functionality is designed specifically for contract management, contract managers can get all the features they are looking for.

The flip side, however, is that these systems are one-size-fits-all and thus tend to offer many more features than most organizations need. Many contract managers find these systems far too complex.

Research shows that while many contract managers believe they want certain capabilities, the actual user adoption of such capabilities is very low.

Vendor built, web-based systems

A vendor built, web-based system is usually the easiest and fastest system to set up. There is little or nothing to install and all the data resides on hosted servers. The system includes all the features most contract managers need and it can be customized. On the other hand, because the system is web-based, integration is limited to exchanging data. Most contract managers find that it is far easier to mimic current workflow – an advantage they prefer over full integration.

What's right for our company?

Only you and your colleagues can answer this question. Some of the critical criteria for your decision include:

  • Company size
  • Projected company growth
  • Budgetary parameters
  • Number of contracts to manage
  • Number of users who require access to contracts
  • IT infrastructure and bandwidth

Contract managers and their leadership teams are trending toward vendor-built, web-based systems, primarily due to cost, flexibility, reduction of risk and the immediacy of the benefit. That said, you should consider all the factors to determine what type of system best meets your needs.

Understanding the impact

When weighing different systems, it's helpful to compare the five basic types using the following factors:

  • Function: the functional capabilities of the system, such as field access, searching, reporting and alerting.
  • Workflow: how well the system integrates with current workflow processes.
  • Implementation: the impact of system implementation on your company's time and resources.
  • Cost: the overall cost, including initial outlay, project management, implementation, training and ongoing user support.

Knowing your options

One of the most confusing aspects of selecting a contract management system is the wide variety of solutions to choose from. Many contract management options exist, but they're fundamentally different in critical ways. To make the right choice, you first need to understand the basic types of systems and their intrinsic advantages and disadvantages. Only then you can effectively compare the options available.

End note

  1. HMR Consulting Marketing and Research Analysis (2013). Managing contracts, insights, challenges and trends. Merrill Corporation.

About the author

Anne Wolf is marketing program manager at Merrill Corporation Merrill DataSite® for Contract Management. Merrill DataSite is an online Virtual Data Room (VDR) solution that houses critical business information for mergers and acquisitions, document warehousing, IPO, etc. The company has developed a tool to solve the unique challenges of contract management. For more information about the options available, follow the link to Virtual Data Room (VDR)


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