Enterprise Resource Planning, or ERP, was a key driver of business transformation over the last 25 years. Today, it is the management of external relationships that needs urgent attention. By streamlining these commercial operations with RRP, organizations can potentially reduce operational costs by at least 20% and generate improved revenue and savings from their trading relationships.
Today we have entered an era where we must move our focus away from the software that fueled the integrated enterprise (ERP) and shift instead to solutions that support the virtual enterprise – what IACCM is terming ‘Relationship Resource Planning,’ or RRP.
A virtual enterprise is formed when independent businesses align to share skills and resources to sharpen their responses to external business opportunities. By contrast, the components of an integrated enterprise operate under common ownership or control and, until the 1990s, this represented the dominant industrial and public service model.
ERP systems first emerged during the era of the big, integrated enterprise and they were designed to streamline internal business operations. They drove efficiency through high levels of standardization, forcing business units and functions to work with common processes. This led to large scale elimination of headcount, especially in administrative tasks, and also heralded the era of large-scale outsourcing. Ironically, standardization made it increasingly possible to break down the integrated enterprise and this was accelerated by the arrival of networked technologies and the world-wide web.
When it comes to managing external relationships, ERP tends to become a constraint. It is designed to streamline internal operations and since each organization has its own system, we face the question ‘What happens when my ERP meets your ERP?’ The answer is – they do not communicate, they compete.
This is a growing problem since today, business performance relies predominantly on the strength and efficiency of external relationships and the quality of communications and data flows between them. Indeed, there is now increasing focus not only on direct relationships, but rather across entire supply networks or ecosystems. In some cases, this is driven by issues of cost or competitive advantage, in others it is increasingly due to regulatory requirements (e.g. in financial services) or reputational risk (e.g. the retail sector).
So RRP is represented by a new wave of technology that overcomes the inward-looking nature of ERP and promises a great wave of efficiency and reduced costs by streamlining the management processes of external relationships. How does this happen?
Automation is key
IACCM introduced the term RRP in recognition of the platforms and intelligent systems that are starting to interface between existing enterprise software. For example, the latest developments in contract lifecycle management incorporate artificial intelligence, blockchain and natural language processing to support advanced features such as obligation extraction and monitoring, shared data streams and ‘smart’ or self-executing contracts. This increased capability is already starting to impact attitudes towards commercial and contract management and generating a set of ‘big themes’ for 2020 and beyond.
- From documents to data. The traditional view of contracts as ‘documents’ is fast giving way to an appreciation that they are in fact a critical source of ‘data’, at both transactional and portfolio level. Once turned into data, they can operate as shared assets that span organizational boundaries.
- From Risk transfer to Economic value. Traditional approaches to contracting and negotiation focus on contracts as mechanisms for risk transfer. Over the next decade, as research and analytics help us better understand the balance between risk and opportunity, we will witness a shift to contracts becoming instruments for mutual economic value. This in turn is leading to greater definition and formality in relationships and behaviors, with growing focus on outputs and outcomes, rather than inputs.
- From boundaries to pathways. Contracts today tend to set boundaries, often influenced by an approach that seeks to impose responsibilities and establish protections for when things go wrong. Our new era of increasingly open, transparent data flows will see contracts establishing pathways through better structured and more formal relationships that place greater emphasis on creating the conditions for success.
The broader impacts
Underlying these major changes, there will be a number of important enablers, for example in areas such as contract design and structure. Current trends towards visualization and graphics will accelerate. Similarly, advances in the use of blockchain will create platforms that generate visibility across supply chains, while initiatives such as Robotic Process Automation will hasten the push towards ‘self-service’.
Perhaps the biggest change occurring is growing appreciation that contract and commercial management are frequently out of step with corporate goals and strategies. They often lag behind shifts in priorities. For example, while executives may promote speed, flexibility and collaboration, such initiatives typically take time to be reflected in commercial and contract terms and practices. In the 2020s, supported by dynamic market intelligence and contract analysis, commercial management will increasingly inform and shape corporate strategies, assuming a position of leadership in the execution of change and the realization of RRP.
In his role as President of IACCM, Tim works with leading corporations, public and academic bodies, supporting executive awareness and understanding of the role that procurement, contracting and relationship management increasingly play in 21st century business performance and public policy.