By Prioritizing Contract Management, Procurement Can Drive True Digital Transformation

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When it comes to long-term business planning, no one wants to be the next Kodak. That’s why companies large and small have embraced digital transformation as the path forward, hoping to accelerate growth, tap new markets and defend against competitive disruption.

To drive digital transformation throughout the enterprise, companies will need to change the foundation on which their business process are built. And there is nothing more foundational or business critical to a firm than the contract. Prioritizing a strategic, digital-first approach to contract management, then, is a perfect way to begin a digital transformation.

To start, procurement must set the parameters for the transformation by defining what exactly “digital” means for the supply chain. While there are multiple possibilities, a basic starting point for most businesses comes down to three capabilities: increasing access to enterprise data, enabling seamless communication and collaboration, and designing processes for agility.

Digital Demands Data

First off, digital transformations demand data. A fully digital business runs on data mined and recorded from various enterprise activities, such as customer purchases and trends discovered through spend analysis. Accessing this data requires digital tools and processes.

If creating, analyzing and increasing accessibility to that data is the objective, then focusing on contracts in an ideal starting point, since they contain a wealth of information about the whole business.

Enterprises commonly store their data in five major repositories. Sales and customer-related data reside in a CRM system; finance records transactional data with an ERP; information about employees filters through HR into an HCM system; procurement stores data about supply chain relationships in various SCM systems (e.g., e-procurement, SRM); and contract lifecycle management (CLM) systems store contracts and the data they contain.

For all of these repositories and business functions, CLM is the single source of truth that touches each of them. Leading CLM platforms allow users to access everything from customer obligations, to available rebates and discounts with suppliers, to commitments and terms that affect the supply chain — from any place, at any time and from any device.

By providing easier access to the full business picture, CLM systems free data from departmental silos, helping everyone in the company make better decisions.

Digital Demands Seamless Collaboration

In addition to using insights gleaned from enterprise data, businesses can improve their decision-making processes through increased communication and cross-functional collaboration. Digital transformations are likewise defined not only by the accessibility of critical information but also the facility of quick communication and digital tools that allow real-time collaboration.

Again, there’s hardly a better proving ground for this capability than the CLM process.

In the analog world, the process for drafting and securing approval for a contract was linear. A ground-level buyer would send a contract to a supplier, which would then send it back to a category manager, and then revised back to the supplier, then into legal and eventually the CPO. It took weeks, and all of the back and forth created significant potential risks.

Today, an enterprise-wide CLM platform offers a single place to assemble and push contracts through to approval. Leading systems can, for example, simultaneously route clauses to various parties for approval, streamlining the workflow and speeding up the contract process.

This is a far cry from the old approach, where companies wasted valuable time simply determining what was in a draft contract or, worse, figuring out where a contract is even located. One CLM provider we spoke with found that 50% of businesses are still storing contracts in emails, spreadsheets or even user desktops.

A true digital transformation turns such an approach on its head. Shared data and collaborative workflows lead to productivity gains and better planning, opening the business to more stakeholders who can scale out the digital transformation from the redefined CLM process.

Digital Demands Agility

With data accessible and workflows streamlined for internal and external collaboration, businesses can realize the third essential element of a digital contract transformation: agility.

The modern economy is defined by disruptive innovation. Traditional business models are being challenged by global upstarts, and value chains are becoming increasingly complicated and outsourced. To face these challenges, businesses must redesign their processes to accelerate the pace of business.

This is particularly important within procurement. Because businesses need to move more quickly and respond to challenges from digital upstarts, unexpected disruptions, be they natural disasters or unexpected supplier insolvencies, put additional pressure on supply chains should they buckle Procurement needs to be able to proactively manage and mitigate supply risks to keep the business running and, for advanced organizations, to tap competitive innovations in the supply market.

None of this is truly possible, however, without a robust CLM system. Even with a supply chain risk management (SCRM) or supply risk management (SRM) solution in place to facilitate risk planning and increased supplier collaboration, such technologies can fall flat without the necessary contracting abilities to finalize a supply agreement. In time-sensitive scenarios such as supply disruptions, flexibility and swift decision-making are paramount; a contracting process managed through email and spreadsheets facilitates neither.

And this is just the beginning. As an organization’s digital contract transformation matures, the number of digitally enabled capabilities it can take advantage of will increase. For example, as the lifecycle of digital contracts progress, an enterprise-wide CLM system can trigger alerts and notifications that enable companies to proactively manage obligations, helping prevent supply disruption in the first place. This shift from a reactive mindset ultimately enables businesses to become truly agile.

The Next Step

If businesses want to expand into global markets and plan for long-term success, they’ll need to go digital to manage it all. And if your contracting process isn’t digital, you clearly won’t be able to fully execute this shift. Luckily, procurement has a golden opportunity to embrace a digital approach to contracts, as well as to scale such an approach across the broader enterprise.

But what capabilities will define digital transformation from CLM point of view? To find out, stay tuned for Part 2 of this series, in which we’ll explore the top CLM capabilities that procurement will use to drive a digital transformation.

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