What is Contract Lifecycle Management? Looking Inside CLM
Poor contract lifecycle management practices, outdated software, and limited focus on specific contract stages can significantly impede your success as a business.
And we’re not talking about simply improving your contract management by digitizing and storing your documents in a contract repository.
Contract lifecycle management goes far beyond signing the contract and calling it a day. Only focusing on this pre-negotiation phase results in missed business opportunities.
All contract lifecycle processes, phases, and functions need to align to get full value from your agreements and relationships.
Only then can your organization fulfill contractual obligations on time, boost cross-functional collaboration, reduce risk, and ultimately increase visibility and strategic decision-making.
Let’s explore what optimal contract lifecycle management looks like, how these phases work together, and how to apply them.
Contract Lifecycle Management Defined
Contract Lifecycle Management (CLM) is a systematic approach to overseeing the entire lifecycle of contracts within an organization, from initiation and creation to negotiation, execution, and eventual renewal or termination.
It involves processes such as drafting, approval, storage, and analysis, ensuring that contracts align with organizational objectives, comply with regulations, and are efficiently managed throughout their lifespan.
Why is Contract Management Important to Business Operations?
CLM is crucial to business operations because it establishes the framework for agreements, mitigates risks, and ensures compliance.
Effective CLM streamlines negotiation, approval, and execution, fostering transparency and collaboration. It helps prevent disputes, ensures you meet contractual obligations, and minimizes legal and financial risks. Properly managed contracts clarify terms, obligations, and deliverables, facilitating stronger business relationships.
Additionally, contract management supports strategic decision-making by providing insights into performance metrics and optimizing resource allocation. Overall, it’s essential in maintaining organizational integrity, reducing uncertainties, and promoting successful and sustainable business operations.
Breaking Down the 3 Contract Lifecycle Stages
Before we examine the stages of contract lifecycle management, you should know that CLM is not a linear process – contracts should never be a one-and-done deal.
The “cycle” in lifecycle means it’s continuous – once you’re in the post-negotiation phase, you should be looking ahead to reviewing the contract renewal process or using it on another contract opportunity.
In this way, contracts live on in the enterprise as valuable assets. From the initial draft to fulfillment and then ultimately renegotiating (in some cases termination), every contract has its own cycle and phases that produce data to then guide bigger-picture strategy and help businesses extract the most value from these reciprocal relationships.
Let’s break each stage of this cycle down from pre- to post-negotiations.
1. Pre-negotiation Phase
Pre-negotiation focuses on preparation and planning before formal discussions. During this phase, organizations identify their needs, goals, and potential risks. They assess market conditions, define contract objectives, and establish negotiation strategies. Organizations typically develop templates, guidelines, and standard terms to streamline the negotiation process to improve efficiency and consistency.
2. Negotiation Phase
The negotiation phase is the core of CLM, involving the actual discussions and agreements between parties. This phase centers on reaching a consensus on contract terms, conditions, and obligations. Negotiations may cover various aspects, including pricing, deliverables, timelines, and dispute resolution mechanisms. Effective communication, compromise, and understanding of each party’s expectations are essential during this phase.
3. Post-negotiation Phase
Post-negotiation occurs after contract execution and focuses on implementation, monitoring, and ongoing management. In this phase, organizations ensure that all parties adhere to the agreed-upon terms and conditions. Key activities include contract execution, storage, distribution, and performance and compliance evaluation.
This is just a brief overview of the phases of CLM and how they work together. But you can take a deeper look at the cycle as a whole in our Lens On CLM industry report.
How To Effectively Implement CLM in Your Business
As we just mentioned, CLM software is one valuable tool to help automate and streamline each step in a contract’s lifecycle. To effectively implement it in your organization, follow these contract management best practices and make sure your CLM can perform these key tasks.
- Easy Contract Setup
- Anytime-anywhere access to contracts with a central repository
- Visibility and insights into contracted terms
- Complete audit trails with easy access to detailed records of changes and variations
- Auto-Extraction and Contract Analytics
- Ability to digitize contracts using AI to capture metadata, clauses, obligations, and service levels
- AI-powered analytics to identify missing clauses, deviations, and remediation requirements across legacy contract
- Rich insights based on past performance data to drive future negotiation and draft stronger contracts
- Comprehensive Contract Authoring Features
- Streamlined contract creation with self-service and guided contract assembly
- Single-click drafting of simple agreements with contract templates and complex contract packages (containing a hierarchy of documents such as MSA, SOW, etc.) with smart tags to auto-populate metadata fields across multiple documents
- Risk mitigation through enterprise-approved clauses and template libraries
- Legal Review Automation and Streamlined Negotiation Features
- AI capabilities that identify missing clauses and clause deviations from preferred positions
- Advanced workflows and collaboration features for collaborative redlining and negotiations
- Highly configurable contract workflows with conditional fields and triggers
- Integration with leading electronic signature tools
- Obligation Management Features
- Functions for monitoring contractual obligations against performance metrics in real-time (this will also help to identify and measure any non-compliance)
- Prescriptive analytics to preempt issues and take corrective actions
- Custom Dashboards and Reporting
- Enhanced and on-time visibility through out-of-the-box, standard role-based dashboards based on industry benchmarks
- Configurable automated alerts and notifications for important upcoming events and milestones
Using Software to Improve Contract Management
What can you expect when you transform your contract management processes with CLM software? More business benefits than you anticipated.
- Simpler, more efficient CLM processes – Configurable workflows allow you to quickly draft new contracts, negotiate effectively, and automate approval routing. Once you execute a contract, CLM software will keep you updated on important dates and obligations related to the contract.
- Transparency and visibility into contract portfolio – A secure, central contract repository will provide easy access to documents. AI-powered software allows you to mine contracts for important insights by converting contract documents into searchable digital objects.
- Risk mitigation and contract compliance – CLM platforms will help drive compliance with built-in risk controls, reducing risk from rogue contracting.
- Improved collaboration – CLM platforms help break down workflow silos and overcome time-wasting bottlenecks. Teams can see a notable uptick in productivity and benefit from improved collaboration across various stages of the contracting process. You’ll also collaborate better with external stakeholders like clients, vendors, and partners.
- Increased business value – CLM programs enable you to stay on top of your contracts by providing automated reminders to help you meet all contractual obligations on time.
Roles and Use Cases in Managing the Contract Lifecycle
In addition to contract management being an ongoing cycle in your organization, the processes involved also touch and affect multiple departments. Just as each phase of the contract lifecycle works together as a whole, so should how each team manages its contracts.
Let’s explore some functions that may touch and manage contracts regularly and how the lifecycle applies to them.
In-house Legal professionals play the role of creating, negotiating, and reviewing a contract. They look for contract compliance with regulatory requirements and ensure governance across all existing deals (both buy- and sell-side). They are also in charge of gathering post-signature performance intel to guide incrementally better renegotiations.
Procurement teams own the vendor relationship and work to ensure both parties receive optimal value from their contract. They are most concerned with value leakage. So, post-signature, they want to track supplier performance to ensure cost-effectiveness and compliance. This helps them run screenings for new suppliers and ensure effective spend validation with Finance based on performance data.
Sales teams are not generally responsible for contracting itself but are most affected by delays in the contracting process – mainly due to approval bottlenecks. Their role is to ensure that opportunities and quarterly targets aren’t missed. To do this, they need to extract performance data from Operations and map it to existing customer data housed in CRMs.
Finance teams need visibility into the contracting process to ensure audit readiness and to conduct accurate forecasting and reporting around company spending. They are, namely, the approvers on how much a contract costs the company and how it fits into budgets across the organization.
The Future of Contract Lifecycle Management
Effective contract management doesn’t stop when a contract ends. It’s a full lifecycle process that extracts value from both contract pre-negotiation and negotiation tactics and well-executed post-negotiation strategies.
Technology has transformed CLM from hard-copy documents and manual practices to efficient digital workstreams with automated reminders and centralized repositories. And now, generative AI is stepping in to add even more power and efficiencies to streamline CLM processes.
With so much untapped business potential waiting to be uncovered, it has never been a better time to reimagine your CLM processes. We’re here to help you do that.