Contract lifecycle management delivers measurable value for organizations by increasing speed, enhancing agility, reducing risk, optimizing existing business relationships, and helping make processes more efficient. By choosing a contract intelligence solution over a traditional process-focused Contract Lifecycle Management (CLM) solution, companies can improve not only their contract processes but their overall business performance in the form of more revenue, smarter spending, improved compliance, and reduced risk. That translates into a competitive advantage and bottom-line profitability.
Commerce is foundational to our modern lifestyle – delivering the many goods and services we need to survive and thrive. Contracts, in turn, are the cornerstone that makes commerce possible. They provide a clear framework for relationships, commitments, and expectations.
As companies scale, contract management systems take on an increasingly important role, providing an opportunity to improve performance, increase agility, reduce risk, and drive more profit to the bottom line. Contract intelligence takes CLM to a new level, going far beyond mere workflows and data storage to apply advanced technologies to produce strategic advantage.
The right CLM solution delivers enterprise-wide value. That’s not simple conjecture – hard data back it up. In this article, we’ll explore how CLM can create business value for companies willing to invest – and why it’s essential to choose a contract management solution that can serve your future needs as your organization grows.
Key Benefits to Investing in Improved Contract Management Solutions
Over the past decade, companies have invested in digital transformation to develop agility, scale their operations, and build competitive advantage. As a result, today's digital transformation initiatives are producing powerful results in the contract management space. These include:
Increased Speed: By reducing the friction associated with end-to-end contracting processes, organizations are reducing cycle times, increasing efficiency, and enabling faster decisions.
Better Value: Contract intelligence helps organizations to optimize the value they derive from their existing business relationships; through improved productivity, vendor performance management, and excellence in negotiation.
Reduced Risk: High-performing teams clearly understand risk's impact on their organizations and take proactive measures to manage it carefully. CLM monitors and measures compliance, proactively alerting the right people to situations that require attention.
Increased Profitability: CLM enables contract teams and others throughout the organization to focus on high-value activities and to derive greater value and higher performance from their business relationships. Efficiency and contract optimization translate directly into bottom-line results.
Achieving Excellence in Contract Management
Excellence in contract management requires more than mere automation. Today, AI and advanced analytics are being applied to many business processes to affect qualitative differences in outcomes. In other words, these technologies are not just making it possible to execute existing business processes more efficiently; rather, they are expanding the range of what is possible.
To achieve contract management excellence, organizations must be prepared to use the complete range of tools at their disposal. That undoubtedly includes the digitization of contracts and workflows, but for standout results, CLM initiatives must extend much further than most vendors offer.
As a category, CLM solutions provide unquestionable value. There are distinct differences between the products and the vendors who provide contract management solutions, though. Contract management, as most vendors define it, entails digital records, e-signatures and approvals, amendments, renewals, and more. Traditional CLM systems rely on a structured approach to storing and managing a limited array of data points. That implies a relatively narrow scope to define the most important elements of a contract, and it often limits organizations to identify those most easily defined elements.
Contract starting dates and ending dates, for example, are generally simple to define and readily lend themselves to operations such as sorting, filtering, and reporting. Vendor performance standards, in contrast, are usually more nuanced. Consequently, they can be difficult to standardize, requiring a substantial up-front effort to identify the range of possibilities, organize them according to a meaningful nomenclature, and flag each contract with the appropriate parameters.
Contract intelligence takes CLM to a new level by automating the discovery and interpretation of contract language to identify meaningful parameters using AI and natural language processing (NLP). Contract intelligence goes beyond merely organizing and processing data, instead applying technology to identify the things that matter most, monitoring for opportunities and risks, and recommending actions that lead to better business results.
This combination of efficiency gains and qualitative enhancements distinguishes contract intelligence from traditional contract management solutions. As a result, contract intelligence is delivering meaningful enterprise value, and there is data to back up that assertion.
In 2021, World Commerce and Contracting (WorldCC) issued its biennial Benchmark Report, studying the impact of contract and commercial management on overall organizational performance. Recognizing that contract lifecycle management is an end-to-end discipline, WorldCC sought to approach the benchmark from a holistic contracting perspective.
Specifically, they acknowledged that contract lifecycle management must extend beyond the simple delivery of a signed contract. To deliver transformational value, a contract management solution must extend into managing the commitments that play out long after the initial document is signed. This is where contract intelligence delivers standout results.
The Measures of Value and Success
In their benchmark report, WorldCC outlined five key focus areas for high-performance organizations:
- Negotiated benefits such as risk reduction and financial benefits.
- Revenue improvements/contribution.
- Frequency and source of disputes/claims.
- Cycle times to manage changes or disputes.
- Performance benchmarks with similar groups in other corporations.
Interestingly, four of these five measures fall outside the list of top metrics most organizations use. For example, only “negotiated benefits” appear among the ten most commonly used KPIs, yet the remaining four measures highlight clear and compelling business value. It’s reasonable to conclude that the companies that already focus on these metrics are likely to entrench their leadership positions even further relative to the competition.
What’s Driving Changing Contract Management Priorities
Increasing regulation, risk management, and the emergence of transformational business models are compelling businesses to increase their focus on contract management. As a result, large organizations have shown the most interest in digital transformation in contract management. Companies with annual revenues exceeding $5 billion showed the strongest initiative – especially in engineering & construction, transportation & logistics, services, and software technology.
In the wake of the COVID-19 pandemic, businesses face continued volatility, supply chain disruption, and geopolitical uncertainty. That has placed risk squarely on the front burner as global companies recognize the need to survive and thrive during times of significant volatility. Contract management – and contract intelligence in particular – is a powerful tool for managing and minimizing risk.
Increasing regulation, likewise, is compelling businesses to take all necessary measures to ensure compliance and avoid penalties or bad publicity.
Finally, transformational business models are changing the rules of the game in many industries. Servitization is turning traditional product-focused industries into subscription-based services designed around long-term relationships. Partnerships and ecosystem offerings bring complementary vendors together to offer products and services in which each party’s roles and responsibilities must be delineated. Embedded technology is increasing the complexity of many products, prompting the need for support and maintenance programs. These game-changing innovations demand closer to the contractual relationships between businesses and their trading partners, including customers and vendors.
Enterprise Contract Management Challenges
The most common pain point cited by enterprise contract management professionals is the sheer volume of operational workload in their organizations. This is especially challenging for growing companies, as they seek to reach scale but struggle to manage business processes designed for lower volume.
Competition for talent is also intense, as contract management leaders struggle to attract and retain employees with the right skill set. Budgetary constraints are a common concern preventing many companies from investing in improvements. Interestingly, companies that express a strong interest in digitally transforming their contract management processes tend to rank budgetary constraints low on their list of constraints.
These limitations and concerns indicate an opportunity for contract management teams struggling to break out of existing paradigms and transform the way their organizations work. By investing in contract intelligence, these teams can automate high-volume tasks and shift their energies toward higher-value work while also affecting qualitative improvements that drive measurable business benefits.
In contrast, companies that balk at the call to contract management excellence may soon find themselves falling well behind their industry peers. Relying on traditional approaches, they risk foregoing the opportunity to shift the value/effort equation to their advantage.
Delivering Total Enterprise-wide Value
The 2021 WorldCC Benchmark Report highlights four key categories of measurable business benefits to be gained from implementing a modern CLM solution with contract intelligence. Let's examine these in further detail:
Simplification: Drives efficiency by removing friction. By streamlining contractual language, structure, and design processes, businesses stand to benefit from enhanced value. Since 2019, the percentage of enterprises operating with intelligent clause libraries, for example, has doubled to 8%. In the World CC data, top performers were more than twice as likely to have undertaken simplification efforts that resulted in greater efficiency. They were three times as likely to use alternative contract models.
Adaptiveness: Top performers adapt to standards that meet market requirements or regulatory standards, whereas lower-performing organizations tend to measure compliance relative to standards that are defined internally. These two approaches call for different skill sets and capabilities, which top performers cultivate proactively within their organizations.
Tools & Systems: The best-performing organizations in the WorldCC Benchmark report were significantly more likely to take full advantage of contract intelligence's advanced capabilities. This includes features such as contract obligation extraction and monitoring, integration with ERP and other external systems, and the ability to assemble contracts from a library of templates and contract clauses.
Measuring Value: As noted previously, the WorldCC Benchmark report identified five key metrics to assess the contribution of contract management to the enterprise. There are key variations, however, in the focus areas for buy-side versus sell-side contracts. For example, many groups appear to be very narrowly focused on compliance and negotiated cost reduction, whereas top performers look for a more diverse range of benefits.
Delivering Value: The WorldCC report noted that top-performing companies are 37% more likely to focus on integrated (digital) data flows across the entire contracting lifecycle. They're 50% more likely to fund analytics and automation initiatives to effect digital transformation, and they're 60% more likely to treat contract management as an independent function within the organization. In addition, top organizations allocate more resources to front-end engagement, risk mitigation, and post-award engagement than their peers.
Risk Allocation: Traditional approaches to risk management often focus exclusively on risk reduction. Leading organizations, in contrast, tend to focus on risk mapping and scoring. In companies where executive attention to contract management is high, companies are more than twice as likely to take a formal approach to risk scoring and supporting technology.
Contract Design: Contractual complexity translates to added costs and risks when it leads to prolonged negotiations that lead to delayed agreements. This can also erode goodwill and increase the likelihood of future disputes.
Where to Focus: The best companies are focused on agility and risk while aiming for efficiencies and value-creation. They direct a good deal of their attention toward insulating their organizations from the impact of uncertainty.
Speed, value, and risk all have a direct impact on profitability. Removing friction from the contracting lifecycle speeds up business processes and leads to cost savings, but it also drives higher (and faster) revenue for sell-side contracts. Contract intelligence enables enterprises to manage obligations and commitments proactively, leading to better outcomes. Risk mitigation drives profitability by enabling the organization to limit the effects of adverse events or eliminate them altogether.
When contract management teams have mastery over the entire contract management lifecycle, they provide measurable value for the organizations they serve. Contract excellence begins with a commitment to think and work differently rather than simply automating existing processes. Automation is unquestionably valuable, but for optimal results, it should be paired with transformational thinking and technology that supports contract intelligence.
Icertis delivers transformational CLM with contract intelligence capabilities. As a result, many of the world's most innovative companies have chosen Icertis to help them optimize the value of 7.5 million+ contracts totaling more than $1 trillion. Our unwavering commitment to contract intelligence, grounded in our values, creates the ideal foundation for enduring partnerships.
To learn more about Icertis Contract Intelligence, contact us for a free, no-obligation demo.