Using Contract Management to Drive Cross-Functional Digital Transformation

contract

Contract management is a critical enabler to digital transformation. By digitizing a business’ contracts, procurement organizations can unlock numerous benefits, from spurring enterprise agility to reducing compliance risks to improving working capital metrics. But achieving such improvements won’t happen alone. Procurement will need to enlist its cross-functional partners in sales, legal and finance to expand a digital contract transformation from a confined functional capability to an enterprise-wide program.

Contracts are a key source of truth for every business function, so each stakeholder will have problem areas that an enterprise contract lifecycle management (CLM) approach can immediately address. To help identify where to start, here are the key ways scaling CLM beyond procurement can affect different business functions — and the benefits each group can expect.

Sales

Enterprise sales teams today must operate in a relentless business environment that demands faster, more efficient transactions that are often global in reach. Paper-based and last-generation CLM systems only make this more difficult, preventing sales teams from meeting revenue goals and the broader business from scaling.

A modern CLM platform can meet these needs and then some. Through automated contract assembly wizards and clause suggestion tools, sales teams can slash their time-to-contract by accelerating the internal approval process. They can also simplify the customer negotiation and acceptance process by using mobility features and e-signatures, which eliminate unnecessary paperwork and reduce human error.

In addition, sales organizations will find their current systems, including customer relationship management (CRM) platforms, can easily integrate to modern CLM platforms. This facilitates access to needed customer data and also bolsters the commercial system of record, helping sales insure that transactions are compliant to both internal rules and regulatory requirements.

Bringing a truly digital approach to CLM to sales extends the foundation procurement has laid in its CLM processes with suppliers. Contract management should not be merely a capability confined to individual functions; instead, it should bring departments closer, creating ways to increase collaboration. With an enterprise approach to CLM, for example, sell-side contracts can be linked to buy-side contracts, so that materials needed to fulfill orders are automatically purchased. Such linkages are impossible to identify without a digital contract management system, as the intelligent capabilities needed to automate the CLM process are not supported.

Legal  

Similar to their sales counterparts, legal teams face increasing complexity related to numerous external trends. Especially within certain vertical industries, new regulations are beginning to overwhelm general counsel, who must keep up with a growing number of new compliance hurdles that touch all parts of the business, from rules governing commercial relationships to ethical supply chain requirements.

To get a handle on these and other risks, legal teams will want to take advantage of the contract analytics, reporting and tracking features that underpin a modern CLM solution. This includes the ability to extract, structure and analyze both structured and unstructured content across enterprise systems, allowing legal to uncover risk exposure as well as other business opportunities. With problem clauses and sentences automatically identified, the CLM solution can then suggest rules to mitigate an issue, such as through the inclusion of particular phrases, terms, dates or monetary amounts.

Of course, analyzing and reporting on risk is not just a one-time process. Corporate legal professionals know that contract drafting and signing is only the beginning of a longer lifecycle, one that must be continuously monitored for future obligations, potential dispute resolution procedures and the like. Leading CLM systems uses artificial intelligence (AI)-based features to actively monitor contract obligations and alert users to when an action may need to be taken, along with suggested strategies based on a company’s prior decisions in similar scenarios.

Moving legal from manual contract management to a fully digital system is no small change, but it is necessary to enable broader enterprise agility. What’s more, as the regulatory landscape becomes only more complex, legal teams will require the advanced capabilities of modern CLM solutions to prioritize problem areas and effectively mitigate risks. This is especially true when it comes to supply chain risks like managing supplier qualification efforts, where choosing the wrong partner can result in hefty fines and long-term damage to brands. To protect the business, procurement and legal will need to scale risk management from an operational process to an enterprise-wide strategic capability — a goal that must be supported by digital contract management.

Finance  

Beyond revenue and risk, businesses are also dealing with an overwhelming amount of information related to financial commitments and obligations. This is where procurement, in its naturally tight linkage to accounts payables (AP) processes, can help push finance over the digital contracts edge.

In this area, finance is primarily concerned with monitoring payment terms and conditions, as well as potential compliance and fraud risks. A modern CLM solution will easily handle these requirements, automatically extracting and recording all terms, commitments and obligations the business needs to know about. And by integrating with CRM, ERP systems and third-party data services (e.g., D&B), the CLM platform can serve as a central point of truth for all information on all external partners, allowing finance to better track data related to know your customer/know your supplier requirements and monitor risks such as vendor/customer credit status.

Finally, a digital approach to contract management will help finance and accounts payable teams lead strategic initiatives beyond simple savings and obligations tracking. Through automated alerting on rebates and discounts that become available (or lost) through the contract lifecycle, modern CLM solutions help businesses get the most out of their supplier relationships, offering continuous opportunities to manage working capital more effectively. This is yet another instance of where digital tools like procure-to-pay and CLM systems are enabling finance and procurement organizations to tackle larger organizational problems, such as cutting down extended payment terms through innovative supply chain finance programs.

The connections to digital transformation here are strong. Monitoring hundreds or even thousands of contracts for every payment date and rate — to say nothing of potential discounts that slip past the overwhelmed AP clerk — is impossible with a manual approach. A finance team supported by a digital approach to contract management can accomplish all of this and more, teaming up with its closest functional partners to help the business scale.

Putting It All Together 

A digital transformation consists of far more than just bringing old processes onto digital tools. At its core, such initiatives change the DNA of a company. And within not just procurement but every business function, that DNA is determined by how a company creates, manages and monitors its contracts. By taking a fully digital, enterprise-wide approach to managing contracts, supported by the necessary modern software tools, businesses can both establish their digital foundations and build off of them to reap the long-term benefits of a digital transformation.

Share on Procurious

First Voice

  1. Kevin Crothers:

    Thank you Nick. Good article on contract management. I generally agree with aspects of the article that describe contracts as a key source of truth in a business. Contract management systems have traditionally done a good job helping legal teams manage documents, improve search, and assist in contract standardization and authoring. But when it comes to driving more complex, non-standard contract information into functional groups like sales and finance, businesses require a level of detail that CLM solutions have not been able to deliver. In particularly, I would disagree with the statement, “[a] modern CLM solution will easily handle these requirements, automatically extracting and recording all terms, commitments and obligations the business needs to know about.” In my 15+ years of experience working with contractual and text based data, this is a dangerous assumption. I have yet to see a contract management system (or any technology — AI, machine learning, OCR, etc.) do this reliably enough to support finance and sales business processes. It is by no means an easy task. I would encourage your readers to validate detailed business requirements from the perspective of the sales teams and finance professionals on how they need to leverage commercial terms across their customer base. Then map these requirements to determine the combination of technology, people, and processes to achieve them. But if companies simply assume that contract management systems can extract any terms and deliver it to sales and finance reliably across 1000s of agreements and frequently changing amendments, addendums, order forms, etc., they run the risk of over promising and under delivering on key projects that could drive significant incremental revenue.

Discuss this:

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.