Most organizations work feverishly to increase their bottom line yet few realize just how negative an impact under-performing contracts have on overall profits. While corporations often dismiss contract preparation as simply an attorney’s job, contract management is actually a key profit lever and should be an essential part of any commercial excellence transformation. We leverage our proprietary 6-step contract management transformation framework in unlocking significant bottom-line value (See Exhibit 1). Our clients have seen anywhere from an 8 to 31 percent increase in overall profits when strategic contract management tactics are employed. Quite simply, effective contract capabilities are both a core business asset and key commercial excellence lever as it plays heavily into healthy financial results.
Our Approach & Frameworks
Contract Management Frameworks
We have a proven track record of rapid impact in contract management. Our contract transformation work has unlocked significant value and driven substantial financial results, including:
- Increased profits: ~13 percent and greater via implementing proprietary contract negotiation protocols across business units
- Improved likelihood of reaching a value add agreement: ~78 percent increase in agreement rate (Exhibit 2)
- Increased likelihood of a desired contract: ~55 percent greater likelihood of the opponent accepting the offer (Exhibit 2)
- Improved adherence to negotiation agreements: ~96 percent more likely to reach a Pareto optimal outcome (Exhibit 2)
PNI can help your organization learn the necessary contracting levers that will ensure value maximizing versus value erosive deals. Simply, our transformations: (1) maximize profits (i.e., does not leave money on the table from inefficient agreements), (2) enhance suppler/vendor relationships, and (3) streamline the time to contract completion (i.e., significantly reduce legal fees). In addition, we offer proprietary decision-making and debiasing tools and databases that will ensure sound, value added contract decision-making. Finally, we implement capability building for embedded capabilities & sustainable results. According to our research, the traditional method of corporate classroom training is one of the most ineffective techniques to building capabilities. Instead, PNI offers contract management capability building via war room and train-the-trainer initiatives, which creates an organizational-talent engine that rapidly scales up new capabilities.
ENGAGEMENT FRAMEWORKS & TOOLKIT OVERVIEW
Contract Management Transformation Framework
We have developed a proprietary contract management transformation framework in which we take clients through a holistic six-step transformation process consisting of strategic identification, customized platform creation, and function-wide implementation for embedded, sustainable results (Exhibit 3).
Contract Decision-Making Transformation Framework
In addition to our contract management transformation framework, we also employ our decision-making framework to ensure debiased, value added contracts across the entire contracting function. Improving decision-making via debiasing efforts can increase ROI by 9 percent and greater. We diagnose the existing decision making, identify the root causes of value eroding biases, redesign the decision-making system, and institutionalize the revised decision-making system via capability building, feedback mechanisms, and metrics/continuous audits (Exhibit 4).
Roadmap to Maximized Value Capture - 10 Best Contract Negotiation Practices
Post engagement, you'll be equipped not only with our proprietary playbooks and capability building protocols but you'll also be well positioned to apply our 10 quick win practices to any corporate contract negotiation, thus ensuring maximized value capture (Exhibit 5).
Contract Management Quick Wins
Three Quick Wins
Quick Win #1: Keep Negotiations "Interest Based" (i.e., why is "x" the best not for you but for your opponent) (Exhibits 6 and 7)
Interest based framing is a powerful tool that covertly changes the negotiation outcome because it:
- Ensures collaborative negotiations versus heated price wars while mitigating escalation of emotion that can quickly erode value
- Removes typical contracting pain points and shows flexibility thus increasing agreement rate
- Transforms the often "transactional" element of contracting into a "long-term" solution finder
- Unlocks hidden top and bottom-line growth by subconsciously guiding the two sides along the canter of the negotiation that you desire
Quick Win #2: Develop Multiple Equivalent Simultaneous Offers (MESOs) (Exhibits 8 and 9)
- Increases the chance of a Pareto Optimal outcome by ~139 percent while also ensuring ~37 percent greater likelihood of reaching a negotiated agreement.
- Provides key insight into the opposing side, allowing for more informed decision making
- Shows flexibility and willingness to concede which improves collaboration and enlarges the bargaining pie
- Naturally fractionates the issues leading to "package" level versus single issue negotiations
Quick Win 3#: Create a Dynamic Scoring Model to Optimize Real-Time Decision-Making (Exhibit 10)
A dynamic scoring model ensures quantifiable, value-maximizing decision making instead of "gut" based or biased led at the table decisions which can ultimately erode significant value. In addition, practice via war room creation will ensure the scoring model is best leveraged which ultimately:
- Increases bargaining zone capture (allows users to experience up to 95 percent settlement rate increase) (Exhibit 11)
- Provides a platform to scale other capabilities across the corporation
- Allows other advanced tactics such as debiasing, opponent perspective taking, and MESOs to be mastered to your contracting optimization
Examples of Our Work
We have helped clients unlock enormous bottom-line value and drive sustainable improvements via contract management transformations. Examples of our work include:
- Example #1 (Exhibit 12): Unlocked $425+ million of incremental operating income by renegotiating under-performing contracts via (1) pre-contract planning transformation, (2) real-time scoring model creation, (3) playbook implementation and creation, and (4) capability training via train-the-trainer and war room initiatives.
- Example #2 (Exhibit 13): Increased profits by ~14 percent and key account margins by 17 percent by: (1) re-training the contract management team, (2) creating a war room for contract negotiation training, and (3) leading key new contract negotiations.
- Example #3: Improved profits by 31 percent by creating a centralized contract management system (PMO) and by renegotiating more efficient and mutually beneficial contract terms with key accounts and suppliers.
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Additional Client Results
Additional Transformation Services
Our customer experience work ensures top customer engagement/loyalty, top quartile net promoter scores, and a pain-point free customer journey, equating to 12 percent and greater revenue increases
Our digital transformation engagements drive significant growth, innovation, and organizational success ensuring distinctive (1) employee empowerment, (2) product differentiation & (3) customer experience
Our organizational health, culture, and employee transformations ensure ownership, company wide adoption rate, sustainability, and significant revenue and profit growth, including up to 4X ROI
Our M&A and PE engagements optimize purchase price while ensuring target synergies are fully reached, resulting in 28 to 77 percent higher RTSR and ~37 percent increase in deal closings
Our procurement and supply chain transformations help corporations achieve sustainable cost savings from 16 to 63 percent typically followed by additional cost savings of 2 to 4 percent annually
We help clients improve their decision-making protocols via debiasing initiatives, resulting in 8 to 15 percent improvement in ROI and ~29 percent increase in the likelihood of exceeding targeted returns
Our sales transformations includes key negotiation and behavioral science levers, allowing our clients to experience revenue improvements of 12 to 33 percent and margin increases from 6 to 17 percent
We help clients unlock key account value while improving the customer journey via elimination of negotiation pain points, enabling 11 to 17 percent revenue growth and 8 to 15 percent margin increase
We transform our client's proposal conversion rate by 21 to 59 percent, improve their margins per winning bid by 6 to 14 percent, and increase the revenue per winning proposal by 13 to 36 percent