The Ignored Gold Mine—Channel Management Contracts
With so much pressure on marketing departments to generate positive returns on the investments they make in channel marketing and channel programs, getting the most out of managing contracts is often forgotten.
There is no clear return on investment calculation for contract management, and as a result, it gets ignored.
Yet contract management needs to be the basis of any multi-channel management strategy today. It's not enough to just rely on the outbound marketing strategies anymore; looking instead at how to better use pricing discounts, arbitrate on pricing strategies, and how to better manage resellers to performance levels and goals all can be tied to the better use of contract management.
Cisco Looked ... and Found
How Cisco was able to capitalize on putting contract management at the core of their channel management strategies is a case in point. Instead of allowing pricing discounts and opportunities for cost savings to expire, Cisco has created an enterprise-wide contract management system that is now core to their multi-channel management strategies. Their ability to manage pricing, analyze contracts down to the clause level and also increase the profitability of their channel partners, and in so doing add to their own, is evident in the latest fiscal-year figures reported. An astounding $4.8B backlog and 7% revenue growth illustrates how critical managing contracts with their many channel partners is.
An Emerging Contract Management Maturity Model
The majority of companies rely on intensive contract management systems to manage their procurement and supply-chain contracts, yet this same level of concentration and intensity is needed for sell-side contracts as well. From several companies that we spoke with in the discrete-manufacturing, high-tech, and process-goods industries that rely on contract management in their sell-side and multi-channel management operations, the following maturity model has emerged:
Level 1: Stand-Alone and Siloed
The majority of these companies use sell-side contract management only for managing pricing exceptions and as a database for re-evaluating sales contracts.
These databases often reside in Microsoft Access databases and Microsoft Excel. As a result, there is often a lag in terms of the accuracy of the data that leads to lost profit opportunities as well.
From the research, approximately 70% to 80% of the companies researched are in this category. There are major opportunities for increasing contract management performance in multi-channel management strategies.
Level 2: Minimal Integration leads to Margin Loss
This is the middle ground of the contract management maturity model, and it is populated by companies that have integrated their sell-side contract management systems with sales operations, Accounts Payable (AP), Accounts Receivable (AR), and in the case of distribution-based businesses, their pricing and forecasting systems.
On average, these systems have two to four system integrations, most often through internally developed adapters or connectors their IT departments have created. Companies in this level of the maturity model have the ability to forecast and plan out the impact of taking discounts across their reseller base, creating specific programs to help resellers get to their specific performance goals.
Level 3: Contract Management Platform
In companies including Cisco, Ingram Micro, Intel, GE, Microsoft and others, channel contracts are managed more as part of the broader Master Data Management (MDM) strategy, which are what SAP customers commonly use for managing their Supplier Relationship Management (SRM) contracts.
Forward-thinking companies spoken with during a series of sales calls on sell-side contract management want to move their dealer and distributor contracts into their SAP MDM warehouses as well.
Companies that have done this are capable of managing their multiple channels more profitably because the contracts can be accessed and used by anyone completing a marketing plan or evaluating a new marketing strategy.
Bottom Line:
Instead of filling up filing cabinet with contracts, get them automated so they can be used for better managing your resellers and creating incentives for your channels to seller higher margin, more profitable products.
About the Author:
Louis Columbus is a member of the Cincom Manufacturing Business Solutions Team and a former senior analyst with AMR Research. He has worked with enterprise clients on defining solutions to their channel management, order management and service lifecycle management strategies. Mr. Columbus also teaches graduate-level international business and marketing courses at Webster-Loyola Marymount University and University of California, Irvine. He is the author of 15 books on technology and two books on analyst relations. His book, "Getting Results from Your Analyst Relations Strategies," can be downloaded for free.
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