Optimizing Contracting Processes + Practices (live from IACCM)
This is a live blog post from the International Association for Contracting & Commercial Professionals (IACCM) Americas Forum. [Please forgiven any typos or misunderstandings in meaning.]
This session is Optimizing Contracting Processes + Practices with Arne Byberg, Vice President of Innovation and Strategic Solutions & Associate General Counsel, Hewlett-Packard.
His role is “R&D for legal”, an unusual role.
A few years ago, HP decided to review contracts – and pushed back on businesses that wanted one-off provisions. Had good success with this but realized that most contracts HP legal supports are not on HP paper. No matter how much success in standardizing its own contracts, HP saw it would be dealing with counter-party paper.
So HP developed commercial norms. This is not boilerplate language. Rather, it specifies business outcomes HP wants. Law department wanted outcomes and did not care so much about the language (or even if language was in contract) as long as it got outcomes. This was a huge success.
The next step in evolution was to focus on workflow. In a department of 1200, more than one half support deals. There was no repository and no clear workflow. When HP adopted Salesforce.com, legal adopted Apttus contract lifecycle management software. This was “totally new” because it go all internal stakeholders on the same platform.
HP started measuring cycle times for contracting, from the time a deal was “won” to actually signing the contract. The focus on deal velocity was increasing. To support increasing deal velocity, we had to do something. Commerical norms and empowering sales teams help achieve the goal.
Looking into the issue, HP found that everyone used the commercial norms in different ways, which led to slower cycle times. Some used right away, some only used as last resort. Negotiators and lawyers – too many of them – negotiated the way they always had, not invoking the commercial norms until the 11th hour. So management wanted to shift behavior.
That led to the “clearing house pilot”. HP took a sizable team – all N. America commercial negotiators for 3 business lines. Each team had 7 to 8 lawyers and other negotiators. Management edict was to not over-negotiate. Use the commercial norms. Catch was that only managers could sign off on final deal and clear deals. Managers were concerned they would have too much volume. But theory was they should have very light touch: review only for those few clauses that actually required negotiation.
It worked. Some managers left – could not deal with change. Promoted other managers who succeeded. The bottleneck effect was not real. Successful managers focused only on critical clauses that require negotiation.
But the teams under these managers were unhappy. They had been empowered by commercial norms; now they were dis-empowered by being limited to negotiate only a limited number of clauses. This led to team wide calibration on what HP really considered important.
Throughout process, HP tracked all issues resolution in all contracts to determine which issues really slow down the negotiation. Was it a few or was it all? Some stragglers? The know-how of what was really happening was locked in the the managers’ heads [RF: tacit know-how]. The pilot eased out the tacit knowledge.
Above represents where HP was one year ago at this conference: pilot, teams calibrated on risk, and increased deal velocity. Since then, over the last year, focus has been on automation…
Rather than have managers identify issues to negotiate, why not use contract analytic tools. [Show of hands show that in a room of about 100, about 1/3 are familiar with this class of software.] HP concluded there are two buckets for these: service providers such as LPOs, which attaches some tech, and pure tech plays that attach some services. Either way, need tech and humans. HP selected three vendors.
Running three vendors in parallel now. Will not name because they are not aware of each. “Kicking the tire” on the tech for one year has yielded a lot of learning. Arne has impression that several vendors stumbled into contract analytics from eDiscovery. From EDD perspective, providers focus on discovering what is in the contracts in the files. But HP is more interested in revenue generating capability.
HP challenges vendors to establish a de facto standard. Find out which provisions are most commonly agreed to. Most contracting organizations say they know this; or you can ask about compromise positions. But if you actually go through the corpus of contracts, you can empirically establish the de facto standard. Knowing that, you can put some judgement around that to score proposed contracts agains the standards.
Have been running this for one year – many interesting findings. None of the vendor tools are perfect. But the tools are useful. Most tools are directionally useful. Big question is level of effort to stand up tools to be commercially useful. We did not look at that by choice but because HP decided to split. Because of the split, HP had to scan a lot of existing contracts.
HP used third-party consultants to help with process of establishing level of effort to review automatically all the contracts. Can’t share findings yet but expects to in the future. Main message so far… if you are looking at the tools, don’t discard because they are not perfect but understand there will be effort involved. Once you understand effort, think about how to staff, for example, onshore or offshore.
Arne would like a standing team that is deployed regularly to look at and calibrate tools. There is a skills challenge. The skills required may not be those that typical contracting organizations currently have. If the contract professionals can’t become comfortable with these tools, this will be a problem.
Turn now to Q&A:
Q: As you looked at tools, what features or attributes did you find most and least useful?
A: User interface is important. Some tools are by engineers for engineers – generally not good. UI should be intuitive. Extraction mechanism is key. Reporting side is important – it provides a management layer. You need to check if first-line managers are embracing. Interoperability is very important. Providers may say they do all but none do – so they need to be able to exchange data.
Q: What has been the role of lawyers and their reactions. [My question!]
A: Lawyers don’t like change. Biggest difference between lawyers and business people: lawyers will try to shoot holes and if they find anything not perfect, they discard the whole thing. In contrast, business people look at the balance and is there value, even in the face of imperfection.
Q: A hurdle is that business owners don’t own all the provisions – how do you deal with these. Separately, what are success metrics.
A: On who owns provisions, geo difference. In US, legal tends to own more; in EMEA and Asia, lawyers tend to give more decision rights to business people. Tracked all issues by owner and tracked time to resolve. HP had ammo to see where the slow down occurred. It’s important to get the lawyers and negotiators to agree an not throw issues over the fence.
Re metrics… pendulum swings back and forth. Arne would rather have fewer, more reliable and easily understood metrics than lots of metrics that may be more complicated. Now look at responsiveness (time to help sales), overall cycle time (from question coming in to closing agreement), and a subset still being worked on: net time in legal (versus other stakeholders). It’s key to know where a deal is stuck – that is the only way to know how to unjam it.
Q: What was biggest factor in convincing management?
A: Helps that GC made a commitment to CEO. So I inherited top-level commitment. Many of these problems cannot be cracked by middle management alone. You need top level support for this type of change.
Q: Do you have SLA with internal customers and can you measure?
A: Not yet. Want to be able to measure and have more systems in place before committing to service level agreements. [Notes that legal operations teams within office of general counsel are beginning to serve as counterweight to lawyer inherent conservatism.]
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