All commercial contracting yields less than 100% of potential value. Some have estimated this amounts to an average enterprise profit shortfall of double percentage points. This sub-optimal performance is rooted in a variety of causes, ranging from flawed processes to organizational design, from under-developed resources to cultural restraints.
While many enterprises ensure that overall yield rates avoid negative results, few focus on capturing the highest yield possible. Traditional legal and risk analysis focuses on the contract and related relationship to ensure that the enterprise is not exposed to significant liabilities from entering the contractual arrangement. As long as the contract/relationship manager avoids dipping into negative or excessively low yield scenarios, the performance is usually viewed as acceptable.
World class contracting views the portfolio of contracts and relationships as an assortment of assets, that is contractual assets, in a portfolio. The contracting portfolio is segmented and prioritized, with the highest yield opportunities receiving the highest level of resource investment. World class contracting pursues the highest yield across the entire portfolio through effective processes, tools, talent and resources. The lowest performing relationships and contracts, as with any asset in a portfolio, are remediated unless deemed unsalvageable. And when determined to be unworthy of further investment, they are removed from the portfolio.
To be successful, high yield contracting requires an assessment of:
- the contracts and relationships
- the processes, policies, procedures, governance and compliance programs
- the skills and talent
- the tools and other resources
- the culture and behavioral norms
- the underlying strategies and business objectives
In addition, high yield contracting embraces certain philosophies, including:
- a mission to drive the portfolio yield rates higher despite limited resources
- a mindset of continuous improvement as this is a never-ending pursuit
- an understanding the innovation and collaboration are essential
- an awareness through benchmarking and market research of how to drive yield levels higher
- the acknowledgement that high yield rates today are not static – they have potential to diminish
- the realization that high yield contracting is a competitive advantage to those with the highest yields
Those interested in high yield contracting should consider an assessment of their organizational capability, their existing skills and a sampling of their contract and relationship portfolio. With the assessment of current state, a realistic definition of where the enterprise needs to be and the path forward to that future state can be developed.