3 Critical Choices for Making a Best-of-Breed Decision with CLM Solutions

Contract Lifecycle Management (CLM) may seem like an application area that should be hardwired to an ERP system. Contracts are the ultimate commercial system of record, so they should be housed in an enterprise-wide software suite, available to everyone, right?

Not necessarily. Far from the elegant, centralized solution advertised, ERP suites have often fallen short. Their generic capabilities are often housed in functionally stovepiped modules that fail to meet the unique needs of various stakeholders. They can describe contract documents and have contract attachments, but they don’t understand the data and meaning of the contract clauses and language itself. This shortfall can lead to workarounds, customizations and frustration all around.

Modern best-of-breed CLM applications that are natively architected for the cloud therefore seem very attractive. They model contract data (not document metadata and attachments) at an atomic level and sit at an enterprise level rather than getting buried into functional modules geared towards various departments such as procurement, sales, legal, HR, etc. They are inherently more flexible, but they do need to be integrated into those functional processes and the basic contract information stored in those workflow systems (by means of linking a contract ID).

Making the choice to adopt a best-of-breed solution is far from simple, especially when it comes to contract management. I will offer up three areas procurement organizations should examine to make sure they get the decision right.

Determine the Process Breadth of Your Needs

In terms of process breadth, CLM spans both the buy-side and sell-side domains. If these areas have no connection to each other in your firm and will not in the foreseeable future, you can move to the next decision criterion.

If you need such connections, you will likely find that the contract information in an ERP application stack is fragmented across numerous systems and departments, as mentioned before. Connecting the dots here to provide a holistic view of your contracts will not come easily, and you’ll likely have to build custom analytics and data management capabilities to provide this truly unified view. This is where enterprise best-of-breed CLM can help.

Determine the Information Depth of Your Needs

In terms of the information depth of the application (i.e., whether you want to model high level data on contract documents or whether you need deeper level clause data and metadata), you have two choices to consider. One is to utilize a contract repository that stores contract document images and contract document metadata. The other is to manage your contracts more richly and strategically at the contract “atomics” data level, from collaborative authoring through to monitoring ongoing contracts. This data is not just clauses, but also related clause metadata such as risk types, obligation types, access rights and business impact.

ERP suites are good at managing the former. But if your contracts contain key intelligence on risks and opportunities that you need to model and extract, then you should look at best-of-breed suites to understand what they do. The best ones will have contract repositories that can be built up from clause libraries that richly model the clauses and their impact on the enterprise.

If your enterprise is simple and has few contracts that don’t have much commercial risk buried in them, ERP might work fine for you. But if you have thousands of contracts, your portfolio is fragmented or the contracts themselves are laden with business risk and pegged to regulatory complexity, you’ll need to see more deeply into your contracts. And only a best-of-breed CLM solution can provide that.

Determine the “Option Value”

Finally, you’ll need to assess the degree by which you want the option value of evolving contract management from basic risk protection to broader commercial excellence. This means deciding how much you value having a solution partner that is pushing the envelope on new innovations over a more basic provider. For example, contracts can also be thought of as “virtual containers” of risk and commitment information beyond legal obligations. Some of the best-of-breed CLM providers are using contracts to help put “teeth” and rigor into performance measurement, risk management and compliance monitoring through much more granular and robust information modeling as described earlier.

Further, some forward-thinking firms are building or partnering to expand into artificial intelligence, including machine learning for text-to-intelligence contract analytics and the broader legal technology market. This trend is unlocking a broader landscape of analytic scenarios for fraud detection, commodity management, blockchain, supply risk management, “outside-in” regulatory compliance and other areas. CLM is a surprisingly interesting and relevant area right now!

Thinking about option value forces you to think about the future, which, when it comes to best-of-breed solutions, is where your head should be. The future of contract management is undeniably in the cloud and focused more broadly on commercial excellence that unites risk/compliance management, opportunity management and performance management to manage increasingly complex business relationships and global value chains. So consider the three areas above and choose wisely.

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