Six Sources of Value from Contract Lifecycle Management
The first question every business asks when considering new technology is: What value will it deliver for our enterprise? To help businesses answer this question when considering an enterprise Contract Lifecycle Management (CLM) platform, Forrester Research has provided six major sources of value from a CLM system in its new report: The Forrester Wave™: Contract Lifecycle Management For All Contracts Q1 2021
1. Improved contract availability
Placing all an enterprise’s contracts in one place makes documents much easier to access.
Many enterprises store contracts in multiple locations and in multiple formats. One essential document might be kept as a PDF or Word document stored on a flash drive in the United States. Another might be in a manila envelope stashed in a file cabinet in Japan.
Bringing all documents together makes it much easier for a stakeholder to pull all relevant agreements. That increases visibility into obligations and entitlements, and grants decision makers confidence they know everything going on.
According to Forrester:
“This electronic contract repository helps compliance with audit and governance requirements and gives contract managers direct and easy access to the contracts they need to manage. It also supplies contract data to transaction systems that need the data to execute purchasing, ordering, or invoicing transactions accurately; and supports analysis of the obligations, entitlements, and risks in the contract portfolio. Key innovations in contract repositories are AI tools that enable more automated importing and metadata tagging of existing or third-party contracts.”
2. Improved analysis for decision-making
Forrester notes that enterprise contract management software gives decision-makers valuable insights. In moving contracts into a central cloud repository, documents become digitized, allowing a contract management platform to leverage data and turn it into useful knowledge:
“Analytics can provide insight into risks across contracts, entitlements with financial benefits, obligations with financial costs, and the effect of new laws or regulations on these factors.”
3. Faster and easier contract authoring
Enterprise contract management software offers features that accelerate and ease contract authoring. Legal departments can work with stakeholders to draft standard clauses and templates for common contracts, allowing business users to self-service contracts while staying within set parameters.
As Forrester notes:
A major benefit of a CLM system is allowing business users to create new contracts on their own or from CRM or sourcing systems without legal initiation but with legal controls over allowed changes and with legal review of any deviations from approved language.
With clause approvals in place, legal can be confident that the risk from new documents is much lower. Legal staff can spend less time reviewing documents, and more time on high-value projects.
Staff in the field, meanwhile, bypass approval roadblocks. Drafting and negotiating common documents becomes standardized. Lead- or source-to-contract time becomes much shorter.
4. Optimized sales and procurement contracting
With enterprise contract management, both sales and procurement contracting processes are accelerated thanks to more streamlined processes that allow data to flow into and out of other enterprise systems.
According to Forrester:
“Contracts are often a key stage in broader processes, such as the purchasing process to run a sourcing event, contract negotiation, or vendor relationship management. On the sell side, a similar process ranges from a sales lead to configure price quote (CPQ) for a sales opportunity and contract-to-customer relationships that may involve rebates and discounts that need tracking and management.”
5. Integration with purchasing, order management, and invoicing systems
The report calls out a key way to get the full value to get a CLM system to ensure the data from the contract is “pushed to” other operation systems, such as ordering, purchasing, and invoicing. When CLM flows data directly into these systems, Forrester reports, companies can reduce revenue leakage by ensuring compliance with contract terms:
“The most effective way to achieve the business benefits of contracts is to push the contract price and offering terms into transaction systems for purchasing on the buy side, order management on the sell side, and invoice systems on both sides. That will drive automated contract compliance.”
6. Better visibility into contract processes and performance
Lastly, enterprise contract management software allows for unprecedented visibility into the performance of contract processes and contract performance. Users can match specific documents to specific business outcomes and implement the insights on future documents.
On a higher level, users can assess the cycle time of specific events in the overall contract lifecycle. Routine chokepoints and delays are easier to spot, allowing executives to change processes:
“They can analyze their total contract portfolio and identify risks that their contract language fails to address. And after all employees adopt CLM systems for drafting and negotiating contracts, they can identify bottlenecks and lags in their contracting process.”
As the report makes clear, the net result of enterprise contract management is accelerated and optimized contracting with less exposure to risk.