Source: Value of contracts falling worldwide

Down red arrow

At what point does an “interesting trend” become “the new normal?”

That’s the question raised by the most recent ISG Outsourcing Index, a quarterly report issued by advisory services firm Information Services Group (ISG). The index tracks the number, type and value of contracts worth more than $5 million worldwide.

In its most recent report for the second quarter of 2015, ISG notes that the number of contracts hit an all time high — but the overall dollar value of these contracts is 7 percent lower that last year’s second quarter.

For the first half of 2015, the annual contract value (ACV) of all contracts actually declined 14 percent from the prior year. (It should be noted, however, that the Americas, as a region, bucked the trend. The Americas posted a record number of deals — and an increase in values a well).

This trend of ever-more deals while values stagnate or fall has shown up in other recent quarterly reports. So how can the number of contracts hit an all-time high while values decline?

One result, many reasons

“We’re seeing a clear and continuing trend toward more deals at lower value. From the start of the recession in 2008 until now, counts have nearly doubled, while ACV has risen only modestly,” said ISG President and Partner John Keppel in a press release. “Technology has changed significantly during this period, which saw the beginning of the Digital As-a-Service revolution and its continuing pervasive impact on the global services market.”

That may be true, but there may be other factors at play here. For instance, in a generally harsher economic climate since 2008, there’s been extra pressure on companies to perfect just-in-time inventory practices.

The last thing many companies want when the economic outlook is hazy is a warehouse full of way too many goods. Warehousing large inventories, after all, is expensive (whether you own the space or not).

And although the Americas have been fairing better than other regions in the last 24 months or so, everyone is connected, as they say.

China’s economy may have recently stumbled — but the warning signs have been in place for a while. Europe still seems to be on the verge of its EU identity crisis every other month. And even growth in some parts of Asia-Pacific has been tepid.

In an economic climate like this, there may be pressure on buyers of outsourced services to be very conservative. Why make a large, expensive commitment with a partner for outsourced services when a couple smaller contracts may serve the same end?

It may be short-term thinking — and it may not even be truly economical, but it’s safer than presenting the CEO and CFO with a huge new bill.

Dealing with the “new normal”

In any event, this trend of more contracts for smaller values may constitute “the new normal” for those buying and selling outsourced services and products.

Assuming a contract is “done and done” when signed may be a luxury these days. For those in contract management on the vendor side, this should place extra emphasis on forming close, results-oriented relationships with customers.

That means keeping an unusually diligent eye on contract performance — like ensuring follow-through on periodic contract reviews.

For buyers of outsourced products on services, this also places extra pressure to review contract performance — there’s little extra budget these days for poorly performing outsourced work.

Is there any better argument for close contract management?

[About the author: Todd Hyten is a former business journalist who now writes about B2B topics and consults on content marketing. You can find him on Twitter and ]

What does agile contracting mean?

image of person balancing

It’s not every day you see the word “agile” in the modern business sense connected to the topic of contract management.

That’s why this recent post on the website for staffing and consulting company, Eliassen Group, caught our attention: Utilizing Agile in the World of Contract Management.

In the post, Rob Annis, senior agile coach for Eliassen Group, notes that “Agile” practices are relevant beyond the traditional areas it’s associated with (IT, software development, etc.).

They even apply to … contract management. Annis notes some examples of thinking “agile” that overlap nicely with recent thinking in contract management.

For example, Annis writes: “One of the key tenets of Agile is that of collaborative decision-making between customer and client” and “collaboration is a key part of Agile and should inform the contract writer’s behavior and its inclusion in the contract.”

This is a key theme of what’s been called outcomes-based contracting: the practice or exercise of a vendor and client collaborating closely on the desired end results of a contract — rather than a narrow concern with delivery of products or services in X quantity by Y date.

It’s a great way to discuss quality, not just quantity — and a way to build bridges and solidify relationships. So should we call outcomes-based contracting “agile contracting”? It’s probably not a good idea — but they are definitely in the same family of thinking.

You can find out a lot more about what people are saying about outcomes-based contracting in this blog post that also links to a great video.

The Eliasson Group post also reminded me of something observed among the winners of the 2014 Innovation Awards granted by the International Association for Contract & Commercial Management.

As mentioned in this blog: “It is clear that those companies reaping huge bottom-line rewards from contract innovation were willing to go deeper into the true nature of a business relationship than what a given contract demonstrated.”

So does this mean contract management is now a “hot” topic now that experts on agility are mentioning it? Well, I wouldn’t hold my breath on that … but it’s interesting how some similar ideas are popping up on what makes a good contract.

[About the author: Todd Hyten is a former business journalist who now writes about B2B topics and consults on content marketing. You can find him on Twitter and ]

Using calendars? You’re doing contract management wrong

Image of a calendar

Ever on the lookout for facts supporting the need for contract management (and, yes, CM solutions), we found this recent post by Brodies LLP, “Scotland’s largest law firm.”

In a survey of 138 businesses across Scotland yielded the following findings:

  • 22% said they had no system to manage contracts with suppliers or customers.
  • Of the remaining 78% who said they do have a “system” 57% reported their “system” was based on “spreadsheets, online calendars or paper-based filing systems.”

Did you spot the puzzling response in the fact above reported by Brodies LLP? We’ve heard of plenty of organizations that still file contracts in paper, or track them in spreadsheets. But calendar?

All we have to say is: if you’re managing contracts primarily by using a calendar … you’re doing it wrong.

It’s not as bad as it sounds of course: who doesn’t want to alert themselves to key dates? But, using a calendar sounds like all you’re concerned with is when contracts expire. And that can mean you are not managing your contracts as much as reminding yourself when to panic every year.

A calendar can never do what a database (such as Contract Assistant) can do for you: It can’t record all the elements of a contract, create financial summaries, and help you identify key parts of the contract. It also can’t provide a single record where all your many documents related to a contract can be stored (or linked to).

As some of you who work with contracts may know … the red-letter day that a contract expires is pretty much the wrong day to review a contract. It all needs to happen long before (30-60 days out, at least) that day pops up on your calendar.

The article posted on Brodies’ site also reports that 36 percent of those surveyed said they only review contracts “once or less” a year and another 10 percent said they don’t know. So that’s a total of 46 percent who appear to do the minimal — or less.

And what’s “less than once”? … You got it. It’s zero. Of course, someone could have just forgotten to check their calendar that day.

[About the author: Todd Hyten is a former business journalist who now writes about B2B topics and consults on content marketing. You can find him on Twitter and ]

Three ways the Internet of Things may affect contracts

image of icons for devices

Is opportunity in the Internet of Things (IoT) as real as people say it is? Let’s just say when it comes to predictions about future technology trends, a grain of salt should be a part of your diet.

Take for instance the figure mentioned in a recent DHL and Cisco report on the IoT potential in the supply chain and logistics industries. According to the report, $1.9 trillion is the collective value in supply chain and logistics from IoT technologies (representing new revenue plus cut costs) over the next decade.

We’ll see.

Of course, any new technological trend can seem like hype — until it’s sitting on your desk.

It doesn’t seem to be a stretch, however, that immediate benefits will emerge from IoT in supply chain and logistics — businesses that already depend on large connected networks. Adding more data isn’t that difficult when you’re already used to connecting dispersed time-sensitive information.

(Just a note here that do make a distinction between IoT and the connected enterprise. I like this definition of IoT from Wikipedia.)

IoT changes go beyond technology

The opportunities for IoT are huge in manufacturing too notes Ryan Begley in a recent article in The IBM Commerce blog Why Should a B2B Manufacturing Sales Executive Care About the Internet of Things?

Begley notes that implementing more IoT technology may have a profound affect on how manufacturers do business. If predicting what will happen during a contract or product lifecycle becomes possible, it can shift the focus of a company from reactive to proactive.

Imagine being able to predict wear and failure rates of key components long before they happen. Or imagine knowing that a problem will develop in 30 days with a key component — rather than being blind-sided by that product failure.

IoT will affect contracts too

A good question worth considering now is how the IoT will affect contracts. It may not be too soon to consider these issues:

* Outcomes, not widgets: Let’s say IoT’s promise is realized and companies of all stripes get more real-time data that allows them to react swiftly to problems happening in real time. If you are a vendor or supplier, that can significantly change the value of your product or service. You’re no longer supplying widgets — you’re providing an end result. Does that mean contracts need to become more about desired outcomes?

* Data and sharing get thornier: Let’s say you buy manufactured, complex products from company A. Company A has several key component suppliers: B, C and D. All of the suppliers have a vested interest in seeing data on their components. Access to that data becomes very important, especially if it predicts performance over time. What if the customer doesn’t want all that usage data to be shared with suppliers B, C and D? What if restricting data access gives company A an advantage in negotiating with B, C and D? As IoT technology grows, the boundaries of data sharing will have to be more clearly defined — which may not be easy.

* Regulation in the wings: It will probably only be a matter of time before privacy laws bump up against the idea of “things” sending out a stream of usage data. No doubt most of these issues will be in the consumer product world. But laws that affect consumer products have a way of “bleeding” into private industry too — especially when it comes to privacy legislation.

But let’s not get too fearful. The promises of the IoT in supply, logistics and manufacturing do indeed promise great things. Let’s see if they actually come to pass.

[About the author: Todd Hyten is a former business journalist who now writes about B2B topics and consults on content marketing. You can find him on Twitter and ]

Expert tip: Use contract reviews to refine, not rewrite contracts

image of woodworking

If you are working with a client or vendor, you probably know that over the course of just a year or two, contract terms big and small can change.

Ironically, sometimes it’s the small changes that can trip you up the most.

I recall working on a project for a client with a fulfillment component, and both my colleague and I became very comfortable with the fulfillment vendor we used for a year. So comfortable, in fact, that when the project grew in scope, the changes to the orders were easy to make.

As the scope of our fulfillment project changed, our budget had increased–but not on the same scale as the orders! Before we knew it, we had just spent a huge chunk of our budget without really thinking about it. It was all so easy.

Luckily, we were able to meet fulfillments through careful cost monitoring and swapping out some items with less-expensive options. We eventually stretched our budget successfully, but a lot of effort went into the belt-tightening.

A review is an opportunity to refine

Had my team conducted a more thorough 1-year review of that contract, we probably would have caught the gap in our fulfillment strategy. We were just so thrilled to get more work that we overlooked that our unit cost stayed the same while our per unit budget fell. Not by much – but enough to create some scrambling.

We knew we wanted to stick with the same fulfillment vendor (who impressed our company and our client). So it was very comfortable to verbally convey the changes in scale.

Had we, however, conducted a one-year review, on a formal basis, you would have had several heads in the same room looking at the same numbers. A bulb would have appeared over someone’s head (I hope!).

We should have conducted a review knowing there may be “refinements” to the contract — not big changes requiring a lawyerly rewrite.

Periodic reviews plus a database equals controlled costs

The big lesson I drew from this is that it is very easy to “let things slide” on a contract — especially when both sides are happy with the relationship. But conditions, budgets, turnaround times, customer demands all tend to change over time.

A small change can have big impacts — especially if no one is documenting any changes to a contract. The reason why we at Contract Assistant advocate periodic internal and client-facing contract reviews is that we know from our customers this is a great way to catch and fix costly errors.

In a “file and forget” system using physical documents or a digital one that’s decentralized, small changes to a contract’s terms are very likely to be forgotten too.

A centralized database in which managers can save or store all pertinent contract information in one record helps prevent this — because someone is assigned to gathering and recording data in the first place!

Add to that the ability to alert key dates, and you can give your team plenty of time to plan and organize a periodic review (Contract Assistant’s Enterprise version allows for email notification as well).

If you approach the reviews with the mindset that you are looking for refinements to make you may be more likely to catch and recognize the effect of small changes in a contract that may have a big impact.