A blog post on the website for the Chronicle of Higher Education caught our attention recently because of its applicability to something we see in businesses with poor contract management practices.

In his Profhacker blog post titled “Institutional Memory in a Digital Age,” Jason B. Jones tackles the issue of how elusive “institutional memory” can be.

“The current bane of my existence is underdocumented policy,” writes Jones. “Underdocumented policies are a problem because, obviously, most people don’t follow them … You might think that (underdocumented policy) is an artifact of yellowing photocopies moldering in file cabinets, and in our new digital fairyland it’s not going to be a problem.  But this isn’t necessarily true.”

Jones goes on to explain that even in our digital age, those “moldering” files can be electronic if they aren’t in open-standards formats (HTML or XML). “Anything that exists only in a proprietary format risks disappearing down the memory hole,” writes Jones.

Though Jones is writing about the academic world, his point is applicable to the wider business environment – and especially to contract management.

Specifically, when it comes to “institutional memory” of contracts and how they came to be, businesses often rely on the memory of key stakeholders. When thinking of all the contracts even a small enterprise can create for sales, service delivery or service outsourcing, that’s a lot of different people scattered in different departments who hold that “institutional memory.”

Those people, in turn, may store their related contract files in a number of different ways; literally in file cabinets, in files on PC or laptop hard drives (or both). Though these may indeed by in some digital format … organizationally they are “down the memory hole” and never to be seen because they are so scattered and disorganized.

And if there is one constant we see in today’s businesses – it is employee turnover. So all those memories of where those contract files are stored can easily walk out the door.

In other words, relying on “institutional memory,” even in the digital age, is simply a big mistake and invites contract troubles. Decentralized contract records or even missing contract files expose companies to three critical financial risks:

• — Financial and legal risks from failure to record or track deliverables owed to clients.
• — Financial risks in the form of “lost” goods or services due to the company that were not provided by vendors/contractors.
• — Financial risk in the form of duplicated services and overpayment of goods or services through sloppy or inexistent vendor management.

 

All of these risks from a decentralized, uncoordinated “method” of relying on “institutional memory” can be dealt with by an efficient contract management solution.

A solution such as Contract Assistant allows users to transform all company-wide contracts into electronic records, complete with highly customized notes fields, and even pre-set fields for financial summaries. Just doing that simple step – converting contract files into a single database – ensures that you no longer need to rely on “institutional memory” when employees leave a company.

The other key step that mitigates risk is the key step of linking or storing contract-related documents (files) to specific records.

These two steps go a long way to reducing the very real financial risks of relaying on “institutional memory” – even in the digital age.

[Photo Credit: bibliojojo via Compfight cc]

[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 Google+.]