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Challenges Facing The Contract Management World Claude Marais October 2003 Challenges Facing The Contract Management World 1. Observations and Trends in the Current Environment 2. The Challenges Facing Contract Managers 3. Future Contract Management Observations and Trends in the Current Environment 1. Demand is Increasing: More business functions are being sourced, even functions considered close to the core business BPOs are expected to rise 10.5% in 2003 to $122 billion. By 2007, to $173 billion. A 9.5% growth rate since 2002. Outsourcing will grow 7.5% during the same period. Discrete IT services will grow only 2.7% through 2007, a 6% decline as a percentage of the total market. Source: The Wall Street Journal/Gartner Observations and Trends in the Current Environment Off-shoring is here to stay Growth rate of sourcing to India: 2001 2002 2003E ITO 66% 21% 21% BPO 71% 73% 59% U.S. jobs forecasted to move to India: 2000 2005 2010 2015 102,674 587,592 1,591,101 3,320,213 Source: U.S. Department of Labor, Forrester Research and Gartner Observations and Trends in the Current Environment Repetitive clerical processes Also creative and professional functions are sourced Accounting, Finance, and Engineering target areas for off-shore companies Observations and Trends in the Current Environment 2. Shift in Corporate Needs/Structure: Sourcing management expertise becoming a necessity in many functions: Significant outsourcing expertise regulated at higher functional levels Contract Management/Governance as a core competency Corporations are becoming virtual organizations held together by a collection of contracts new core “cross-functional”capability Observations and Trends in the Current Environment Need for formalized approach Outsourcing methodologies are becoming more robust Multi-vendor governance models are starting to surface CMMI like certification evolving Observations and Trends in the Current Environment 3. Changes in supply base: More risk adverse Sarbanes-Oxley in the U.S. - financial scrutiny overall Separation of functional expertise and financing function Fundamental shift in outsourcing requires new models/contract stipulations The Challenges Facing Contract Managers 1. Leadership: Move from support function to core/ leadership position Toolset more than the competitive hammer - relationship management, strategic sourcing, multi-vendor governance, etc. Integration of functional, business sourcing and contracting knowledge throughout outsourced functions Educating management in all functions on outsourcing pitfalls - new paradigm Changing Landscape The Challenges Facing Contract Managers 2. Changes in Capabilities: Retention of key functional knowledge Acquiring new capabilities The Challenges Facing Contract Managers 3. Rethinking Basics of Sourcing: Re-sourcing ability Understanding cost components Loss of contract knowledge Organize the business according to the supplier landscape, not vice-versa Required industry knowledge Strategic sourcing/contract portfolio management integration Future Contract Management “Red skies in the morning is a Shepard's warning. Red skies at night is a Shepard's delight”. Future Contract Management 1. A New Sourcing Paradigm: Rethinking traditional sourcing/contract management capabilities and tools - functional, sourcing, contracting, knowledge, relationship management rolled into one Taking on the core functional role as leaders Become organizational change agents filling the void across the corporation Who will step up to this challenge? Commodity sourcing will diminish Impact on sell side, buy side Future Contract Management 2. Multi-vendor Contracts: Increasingly, suppliers will be evaluated and selected on their ability to work as global collaborative partners Emphasis in a multi-vendor environment on: Clear roles and responsibilities Processes and systems to manage multi- vendor environments Relationship management capabilities and resources New multi-vendor governance models Future Contract Management 3. Organizing for success: SWAT teams, central review structure Oversight of contract governance function in corporation Establishing a virtual program office to provide governance Corporate-wide/global outsourcing function A new “intermediate” role as “general contractor” In-house Separately sourced Integrated prime supplier structure
"Challenges Facing The Contracts Community"