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Challenges Facing The Contracts Community


									  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
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
         Discrete IT services will grow only 2.7%
          through 2007, a 6% decline as a percentage of
          the total market.
                       Source: The Wall Street
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
               New multi-vendor governance models
     Future Contract Management
3.   Organizing for success:
        SWAT teams, central review structure
        Oversight of contract governance function in
        Establishing a virtual program office to
         provide governance
        Corporate-wide/global outsourcing function
         A new “intermediate” role as “general
            In-house
            Separately sourced
            Integrated prime supplier structure

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