Fundamentals of Contract Management-Know the Basics
Contract Management is the current buzzword in the Legaltech domain, and its adoption is on the rise quite rapidly worldwide. As per a state of the industry report by a major nonprofit association from the legal domain, 74% of organizations globally have implemented CLM, yet, curiously, 54% of respondents still have a high
intention of implementing high-tech solutions, including CLM. Another industry report highlights in the APAC region, Indian respondent organizations rated 47% on
average of their own revenue to be in the at-risk category, while 40% {57% in North America} rated their organizations use digital document processes. These
reports, and others, highlight the nature of the CLM market, and give a tantalizing insight into its usage trends. In that light, given the nascency of the adoption,
let us look at some of the fundamentals of Contract Lifecycle Management.
What is Contract Management?
A contract is the basic document of business, and in a way, the enabler of business transactions and continuity. In a running business, there can be hundreds of
contracts, with their independent obligations, requirements, dates, statutory aspects and more; keeping track of these manually can be tedious, time-consuming
and fraught with risk of errors and slippages. This is where automated Contract Lifecycle Management comes in, delivering improved efficiency, contract visibility,
contract compliance, all leading to enhanced productivity. But that is the subject of a more detailed article – for now, let us understand the concept of the CLM.
A CLM brings together all the components of the manual process in one place, right from the initiation – contract drafting, and creating new contracts. Its
multiparty collaborative development simplifies contract negotiation and contract approvals, and enables contract tracking and administration of obligations and
dates at the click of a few buttons. It brings all contracts in one central repository, enables easy searching of contracts, and management. This, then, is Automated
Contract Management in very simple terms.
What are the Stages of Contract Management?
Contract Management can be subdivided into the following 6 stages:
- Contract Drafting and Creation - This is the beginning phase of the process, wherein the contract is drafted such that it covers all statutory
requirements, the scope of the contract and its obligations, risk, and deadlines etc. The benefit of the CLM, its key deliverable in the early stages here is the
sheer speed of getting things done, as simple templates, questions and a rich library enable contract creation with a few clicks.
- Negotiation and Approval - The other source of time slippage in the physical contract process is the negotiation and approval stage; the online editing,
negotiation over clauses and obligations etc., is online – thereby cutting time spent in waiting for a meeting as well as cutting costs through reduced travel
expenses for each meeting.
The approval stage of a CLM Suite not just saves time & cost – it also deliver rich value through reduced risk, early identification of errors in clauses and
extended obligations etc., all of which serve to reduce the associated risk.
- Execution and Administration - This is the phase where we get the electronic signature by the parties, and then the CLM suite shows its power, by way
of its tracking of obligations, upcoming renewals etc. It gives superior control through the automatic escalation triggers, as well as defined user
permissions. The compliance management module inbuilt here ensures all the contracts of the organization are fully compliant, thus reducing contractual
risk to a very large degree.
- Storage and Repository - This is the key value proposition of an excellent CLM implementation, centralized storage of all your contracts for easy
access, fast retrieval in a few clicks, and deep analysis. Here you can migrate or upload contracts, store new contracts, link related contracts, highlight key
clauses, categorize contract and much more. This is what enables both contract-level insights, deep organization-span reports, and analysis.
- Reporting and Analysis - Each user, depending on his or her role, needs information to be able to give maximum output and attain higher productivity. A
CLM simplifies and indeed magnifies the analytical aspect of contract management manifold, with its rich dashboards that help a user track contracts by
volumes, types, due dates, value and much more. You can analyze trends, go deeper department-wise. Not only that, you can also create customized
reports to analyze and summarize data, and much more!
- Integration - While this, strictly speaking from a purist pov, is not a stage unto itself, but is yet one of the most important aspects of a CLM, if it is to
deliver the maximum potential benefits it is capable of delivering. In simple words – the extent and depth of integration of the CLM suite with the wider
business systems in sales, procurement etc. functions, or how the CLM speaks to the other systems like ERPs or CRM. It is this which truly unlocks the power
of a CLM!
Benefits of Contract Management
In order to fully realize the benefits from a Contract Management software implementation, one has to focus on the deliverables one expects from the
implementation. Thus, lets us spell out the highlights of the aspects that are counted as best practices. The basis for this is a couple of excellent industry reports
that have extensively analyzed industry best practices of the CLM implementations. Now, there are two elements to this: first, the targeted end-deliverables from the
implementation, and second, the key sources of value that must be executed brilliantly to realize these benefits.
As we can summarize from the above article, the key top-level target deliverables of a proper CLM implementation are:
- Average Cycle Time Reduction
- On-Time and Rapid Delivery
- Improved Contract Performance
- Realized Cost Savings
- Centralization of Contracts
It is these target high-level deliverables that ultimately deliver the improvements in compliance, efficiency, and business productivity. But that is another subject for
more, deeper articles to come!
The key sources of value, where implementation must succeed are:
- The Contract Repository
- Contract Creation Tools and Templates
- Negotiation and Approval Sub-Systems
- Integration of CLM to other Business Systems
- Contract Analysis & Reports
Once these are in place, with proper implementation, the benefits spelled out above can be realized; do stay connected as we, ahead in this CLM series, look at
Contract Implementation as well in one of our upcoming articles!
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