Every facet of contracting - from the initial negotiations to the management of executed contracts - impacts a company's budget and operations. For this reason, managing a company's contract portfolio and strategic decision making must be properly intertwined. Here is how contract management supports strategic decision making:
Determine Areas for Cost Cuts
Strategic planning involves the establishment of clear goals and the creation of a plan to best achieve those pre-defined objectives. But, a huge part of making a plan that is actually "strategic" in nature requires the plan to allocate resources in the best manner possible to maximize productivity and efficiency while curbing costs and waste. Contracts create a range of direct and indirect costs, and unforeseen expenses may arise when contracts go awry.
Thus, the contract management team must constantly analyze contract performance to determine whether there are excess costs or perhaps areas in which costs can be reduced to some degree. This information must be communicated to other leaders, incorporated into the strategic plan, and be a part of ongoing discussions to allow for any necessary modifications to the budget.
Find Avenues for Expansion and Growth
Strategic decisions should focus on maximizing growth possibilities, and keen contract management can help with this endeavor. Contracts with vendors and suppliers can provide a lot of information and insight into other markets, and contract managers who pay attention to small details during negotiations and contract review may be able to determine whether there are untapped possibilities worth exploring. For example, it may be advantageous to create a strategic partnership with a particular supplier who can augment a company's existing product line by offering special discounts or purchasing incentives for other goods and materials.
Ultimately, contracts must be viewed as company assets, and just as other assets must be properly used and protected so that their full potential is realized, contracts and the contract portfolio as a whole is no different. Therefore, contracts and the relationships they create with other firms must be taken into consideration when crafting the company strategy.
Increase Revenue Streams
Ideally, engaging the contract management team in a company's strategic decision making will help increase potential revenue streams. This may be a tangible stream, such as the revenue generated from the establishment of a new venture if the team identifies an avenue for growth. Or, there may be general increases in revenue due to somewhat intangible streams, perhaps resulting from cost savings realized through diligent contractual oversight and the elimination of any redundancies.
In the long run, virtually any company department or operation can contribute to the execution of a company's strategy, as long as everyone understands the eventual goals and how the company intends to achieve them. Of course, contracting is particularly important in fulfilling these aims because contractual relationships, whether raging successes or utter failures, can have such a drastic effect on every aspect of the business, including its survival.