The Contracts Matrix

I was recently in a hotel in San Francisco for one of our company events, sitting in a ballroom while staring at a potted plant.

Our group had been discussing the pervasive nature of contracts in any organization–that everything of value in an organization is connected to a legal agreement.  I started thinking about contracts as a sort of hidden layer shaping our reality. This reality, like The Matrix, pervades everything–even that potted plant in the corner of the room. How did the plant get there? At some point it was purchased (or rented? or leased?) via one agreement, delivered to the hotel and installed via another, serviced and maintained via yet another. These contracts were living connections between the item in question, the suppliers of all the above, and the organization managing the hotel.

This “contract matrix” gets even more interesting when you consider the next level of connections. Our company had a contract with the hotel to provide meeting space with appropriate furnishings. Our hotel booking was supported by all these other contracts. The hotel staff needed to ensure our team activities were not interrupted by service staff watering plants in the middle of a discussion, which involved an understanding of the service frequency called out in the service agreement. When the hotel determined pricing and costs for renting the space, the purchase/rental/lease and services agreements for the plants factor into the overhead. And if the hotel wants to find the margins for the revenue, traversing these contract connections becomes a necessity.

If you consider everything and everyone else in that room at that moment, and the bar next door, and the lobby, and the fitness center–the matrix of contracts becomes dizzying.

The tactical matrix

Extend this matrix into the operational realms of the organization, and you realize that it represents the spine of all the relationships it holds with people or organizations. Think of the questions that might be raised about any of these entities, and they inevitably lead to relationships backed by contracts. Any product or services company that asks, “How healthy of a customer are they?” leads to data about cost-to-serve, overall spend and active opportunities, which leads to order forms, support agreements, SOWs, and invoices. “Where is our biggest spend risk?” leads to budgets and purchase orders, which leads to vendor agreements, MSAs, and co-marketing agreements.

Boiled down to its essence, the structure of an organization is a graph of entities (nodes) connected by relationships of various kinds (edges). Employees work for the organization and their managers, the organization compensates them for this, customers buy things from the organization and the organization provides support for customers, vendors sell and deliver products and services to the departments in the organization. The more complex, high-value “edges” are encoded in contracts of various kinds. Just like the movie, this matrix of contracts encodes how the world works within the organization. And just like the movie, the ability to “enter the matrix” is a hugely powerful skill. In this matrix, that means quickly traversing the connections from entities through their agreements to other entities connected by the matrix.

Suppose that a sales rep bumps into a customer at a conference, and the customer raises concerns about their upcoming subscription renewal. Imagine that the rep could “enter the matrix” and navigate from the customer account through order forms, support agreements, and invoices to gather intelligence on the spot about renewal upside, recent service incidents, adoption details, and payment status. This could support an immediate response to provide assurance (“These recent incidents have been resolved within our SLAs and a root cause is on its way to your team now”), empathy (“I see the last few invoices have been delayed in payment – if there’s a budgetary or cash flow issue, we can talk about different payment terms”), or even incentives to buy more sooner (“You shouldn’t be concerned about this upcoming increase in your renewal – our pricing model is changing and we can put you into a alternate tier that minimizes the bump in your spend”).  And this immediate, comprehensive response could change the narrative completely–from the customer walking further down the conference floor to talk to your competitors about options, to agreeing to a renewal with a smile.

That is real impact.

The strategic matrix

Seeing and navigating this matrix does more than connect data. It is the strategic fabric of the organization. It encodes all your obligations with the myriad entities behind your business model – customers, vendors, employees, partners. This facet of the matrix represents enormous strategic muscle. Navigating the matrix along these lines shows you how your organization is positioned at a very real level in terms of potential spend, revenue, and risk.

Insights drawn from this fabric could be hugely valuable. Over-exposure to volatile markets, early warning signs of cash flow anomalies–the ability to see and leverage the obligation matrix can enable you to manage your business strategy at a whole other level.

Once you’ve fully connected your obligations this way, there’s also the potential to marry it up with external data to drive automated signals.  Basic data, like trends for currency exchange rates tied to purchase agreements, are an obvious next step. But even more interesting possibilities open up if more complex situational data can be applied to the matrix. International law changes can be compared to terms and conditions in agreements to assess impact and risk exposure. Automatically.

That, too, is real impact.

Back to reality

Clearly, the contracts matrix is powerful. In theory.

Before any of these amazing scenarios can become reality, your contracts matrix needs to be more than an abstraction. It needs to be an actual digital capability wired into your enterprise.

The foundation for this is central, digital access to all your contracts and their related data. Enabling this is the backbone of the matrix–if your contracts are scattered across legal and business teams, the root of the connectivity is lost.

Next, your contracts need to be truly digital. If the entirety of a given agreement is contained in a single binary PDF file, it is technically digital, but the information is locked in an unstructured format. The ability to exploit the agreements depends on having the DNA of the agreement–contextual information, terms and conditions, obligations, clause variations–all accessible as structured, digital data.

Finally, the central, digital contract hub needs to be connected into your data infrastructure. Traversing the edges of the matrix needs to be a digital, automatable action–no swivel chair, no manual data extracts.

Admittedly, none of these are easy to achieve. But if you acknowledge the power of the contract matrix, then it should be fairly easy for you to justify the costs, in dollars and change management, of these strategic steps.