The Evolution Of Contract Management: From Box To Bot
IACCM’s (International Association for Contract & Commercial Management) recently published a contract management automation report that revealed that “levels of satisfaction with current contract management automation systems are low, with a rating of just 4.2 out of 10. Organizations have struggled to gain adoption and for many, integration with other systems is proving problematic…….functionality is generally limited – for most, the repository functions of accessing and having visibility into agreements are the primary benefit. Almost half are benefitting from the system as a store for standard terms and term options, including templates, and around 40% use the application to support review and approval. Less than one-third can demonstrate an ROI from their investment.”
This indicates that CLM has been a missed opportunity for both the contract management software vendors as well as the customers. But there is a silver lining as the future is starting to look up once again, and a new resurgence is brewing in the CLM space. The rules of this technology category are being re-written through exotic technologies such as machine learning, AI, NLP, etc., which hitherto appeared too bold for this ‘back-end’ enterprise software (check out our recent webinar with Forrester that talks about the gaps in the traditional CLM technology and the power that modern contract management software promises for the new-age enterprises).
Two Aspects of the Evolution of Contract Management
As this new journey for CLM takes shape and speed, let’s take a quick jog down the contract management technology evolution lane and see how it got here. And this is not simply an academic account of the CLM journey. This journey represents the spectrum of CLM maturity levels that we see across the industry. So, there are two parallel journeys that we should be looking at here.
- The journey of CLM technology
- The journey of adoption by organizations.
As there are contract management software products distributed across these various generations/levels, there are individual organizations that continue to operate at different levels of the CLM maturity curve. This should be an interesting exercise for organizations to identify which generation their contract management software belongs to and do a cost/benefit analysis of upgrading to a more modern technology.
So, here is a high-level account of the CLM technology progression across generations.
How Contract Management Evolved Over The Years
Generation 1 – The Birth of the Humble Contract Repository
During the late 90s, the first generation of contract management technology emerged in the form of a simple contract repository – the sole purpose of which was to provide electronic storage for the expanding portfolio of contract documents. The repository along with the photocopying and electronic imaging technology, which were rising in popularity at around the same time, represented a form of electronic content management for contracts.
Generation 2 – The Evolution of Contract Authoring
As the velocity and complexity of business deals started to shoot up in the early years of the new millennium, the need to expedite the contract authoring process emerged. Along with speed, enterprises needed to make the authoring process cost effective by cutting down the number of hours that expensive legal resources spent on this process.
Responding to this emerging need, the contract repository started expanding from a functional point of view to include the actual creation of the contract. By automating a lot of manual steps involved in the contract authoring process – from request origination and tracking, finding the right template, putting together the first draft to centralized management of the back and forth with the counter-party, approval management and finally contract signature – this development made the authoring process quicker and optimized the time spent by the legal team in this area.
The evolution of contract management software design at this point viewed the contract as the end-product of the procurement or sales process and assumed that the ‘contract lifecycle’ ended at signature for most practical purposes. While the procurement world was steadily transitioning away goods and commodities towards services, the core design of contract management technology remained fixated on the buying and selling of the former where little need existed for managing the contract after signature.
Generation 3 – Pressure on the Traditional ‘Passive’ Design of CLM
With the emergence of services (especially complex services such as IT, BPO, facilities management, logistics, etc.) as a dominant spend category for enterprises and government organizations, the need for technology to manage contracts after signature became stronger. Existing CLM vendors attempted to address this by adding basic functionality to manage the contract after signature – capturing the contract metadata and a summary of the key contract terms, adding alerts and reminders for key events, basic search functionality, etc.
Unfortunately, the depth and granularity of management required for services contracts meant that these limited measures were not going to be enough. To address this complex need the conventional contract management approach needed to be completely re-imagined. A new generation of CLMs was needed that would consider the contract signature as the beginning of the lifecycle for the contract and manage it as a living entity until termination. This was not a simple challenge to address. Data in services contracts exists in an unstructured form (and keeps evolving throughout the tenure), performance is a complex concept as it involves interlinked information spread across the contract, the actual performance happens across business units and organizations either offline or through systems that are not inter-connected, etc.
Generation 4 – The Arrival of the CLM Bot……
Sometime around 2012, developments in Artificial Intelligence (AI) started creating new possibilities for the evolution of contract management. These developments focused on extracting structured meaning from the unstructured information embedded in the contract – both from the legal end of the contract (e.g. insurance, indemnity, limitation of liability) as well as the business/performance end of the contract (e.g. deliverables, milestones, service levels, payment terms, etc.). The latter was a significant break-through especially in the context of services contracts. It now became possible to take inert data from the contract and convert it into active and trackable individual objects with the help of computer algorithms and workflows. By integrating data from different enterprise systems, it became possible to centrally reconcile performance against the contract across different business units within the organization (legal, finance, procurement, sales, delivery, etc.).
New age CLM systems like Sirion are leveraging these technology breakthroughs to redefine what CLM has traditionally represented. CLM is no longer restricted to pre-signature activities. It is no longer about creating a document and then burying it in an electronic cabinet. CLM today is focused on breathing life into the contract and making sure that the full value embedded in the contract is realized by both the buyer and the supplier. CLM is not restricted to just managing the contract document, but it now extends to managing all aspects of the contractual relationship throughout its lifecycle – contract, performance, financial, relationship and compliance management. CLM is today a critical part of an organization’s strategy to improve all aspects of its supplier/client engagements – securing the intended business outcomes; driving cost savings and profitability; strengthening the relationship through collaboration, transparency and trust; and reducing manual effort and inefficiency.
Traditionally, CLMs have served as closed, back-office systems. e.g. suppliers do not have access to the data related to their contract in the client’s contract management software. While it is obviously not advisable to share all information related to a contract with your supplier, targeted sharing of relevant data is good for the success of the engagement. Modern, evolved contract management software solutions like Sirion use a distributed ledger approach (which is used in blockchains) to redefine the role of contract management as an enabler of inter-enterprise (between client and supplier) and intra-enterprise collaboration (across enterprise functions such as procurement, legal, sales, finance, delivery, etc.).
By giving access to all relevant stakeholders within and across organizations (with granular access control), this approach allows all stakeholders to work with the same set of data and centrally capture progress/completion updates ensuring complete transparency and tight alignment.
So, which of the above generations best describes your organization’s current contract management capabilities? Are you seeing the impact of the latest CLM technology developments at your organization yet? Would love to hear your feedback, so please do share your thoughts by leaving a comment below or connecting with us here.
To discover how new generation CLMs are bringing together the above discussed technology breakthroughs to enable unprecedented value and impact in commercial engagements, you can review this product brief for Sirion’s Supplier Governance solution or schedule a demo to see Sirion in live action. Our experts will be happy to share with you how several industry leading organizations such as Vodafone, BP and Vestas are leveraging Sirion to drive higher value in their contracts.