Anyone surprised? Most of us (involved in contracting) can probably subscribe to that good contracting processes make more money, but we have at the same time hard to quantify it in each and every case. In this article, IACCM’s CEO reveals the studies made in relation to the economic return from ‘good contracting processes’?
IACCM research in 2012 focused on the scale and reasons for value leakage and identified that on average weaknesses in contracting are resulting in losses equivalent to 9.2% of annual revenue. In companies with the most integrated process, this reduced to as low as 3.4% – an impressive difference.
Is there a link between overall profitability and the maturity of the commercial and contracting process? The answer is clearly yes. In one select group of 10 companies, the typical margins of those with poor contracting processes were in the range 2% – 5%. Those with holistic approaches to contracting were recording margins of 14% – 16%.
Conclusive proof that good contracting pays a healthy dividend? Perhaps not; there are of course wider factors to take into account. But there seems little doubt that the quality of contracting is a significant contributor to profitability – or failure to develop competence in this area carries a heavy cost.