Are Your Contracts Performing?

When I was tasked with building the Managed Market Segment – Trade and Specialty Channels from the bottom up, contracting was critical responsibilities of the segment. My knowledge of contracting was not very evolved at that time, but one of my first key responsibilities was to review a contracting channel strategy, assess performance and determine what to do. The desired outcome was to develop recommendations around if the strategy should be modified, terminated, or revised completely. After the assessment, the channel contracting strategy was to be presented it to executive management for approval and implemented (the implementation discussion will be reserved for another day!)

The “trial by fire” approach to further evolve your contracting expertise can be very effective under the right circumstances. That means having access to the contract “institutional knowledge” (implication: “and… Why did we do that?”) and having the appropriate data to quantitatively assess the contract. I was fortunate to have access to some of both.

Designing the most appropriate assessment of the current contract proved to be the most crucial step in the process! The fact that it was not easily done clued me into the fact I was on to something. The contract appeared relatively straight forward with some complexity. It required both an analytical assessment internally on the “numbers” and external assessment of the external environment including customers and the therapeutic area to get to underlying performance drivers.

What I found from the internal and external analyses was that the contracts were not aligned internally with the other managed market segments, and not aligned with customer needs and also difficult to implement and measure. The misalignment had a compounding effect that compromised the ability of the contract to perform.

This takes me to my first contracting 101 lesson:

Contracting strategies need to be aligned with brand needs, channel dynamics, customer business models and other managed market strategies to design a contract that can perform

I know you are saying to yourself, “no kidding – let’s just state the obvious”. Well, I argue that it is not so obvious. Particularly when you look internally, externally and both ways before you cross the street.

Here’s Why

Confounding internal managed market segment goals and objectives and overlapping customer business models can create the perfect storm.
What to do: Take the time to engage the brand, understand the competition and the therapeutic area, understand the channel dynamics and embrace your colleagues from contract management! With a comprehensive assessment structure, the right contract terms and performance measures, you can understand if your contracts are performing.

If you want to design the contracts right, take note of contracting lesson 201:

Contracts are best developed with the end in mind. Looking at the contract objectives, quantifying them and designing the performance measures and working them into the design of the contract will go a long way in the execution and implementation of the contract strategy (and embrace your colleagues from Contract Management!).