ERP or Best-of-Breed? (Part 6): Making the Decision in Contract Lifecycle Management

Before getting into the topic of this installment, the last in the series, we thought we'd look back for the sake of review. So here’s how we began laying out our case on the “ERP vs. best-of-breed” question in this series:

Putting All These Principles into Action

There’s no perfectly prescriptive guidance we can offer, but, generally, if you want more flexibility to chart your own destiny in managing more complex supply chains and services networks, you want to focus heavily on your own native supply analytics (which can use third-party analytics solution providers, of course).

This way, you’ll be able to switch out the workflow execution apps as needed where you use BoB suites (e.g., source-to-pay suites) or “mini suites” (e.g., CLM) to manage the hard stuff — and also use ERP to manage the easier stuff until that day when ERP may eventually catch up.  

The “hard stuff” isn’t just advanced industry-specific processes, but also just the richer data models that are required to support the advanced analytics that are part-and-parcel of areas like artificial intelligence.

CLM is actually a great example for us to highlight in closing out this series.

Making the Best-of-Breed Decision in Contract Lifecycle Management

Contract Lifecycle Management (CLM) seems like an application area that would be hard-wired to an ERP system.

Just as the General Ledger (G/L) is the best known system of record for financial controls and reporting, your commercial contracts are really the ultimate commercial system of record that contain all the legal rights and obligations pledged via contract documents. So, a no brainer for ERP, right? And given the sensitivity of the information, you’d want to keep this information deployed behind your firewall, right?

The answer is generally “no” on both counts!

Here is Why:

Nearly all corporate applications are moving to the cloud, including CLM applications. Leading SaaS vendors build and deploy their applications on world-class infrastructure and make it their business to protect such critical data. Additionally, technology such as encryption at rest and the ability to encrypt data so that even the SaaS providers themselves can’t view it, help get firms over this technical hump.

In terms of process breadth of this application area, CLM spans both buy-side and sell-side domains and also includes contracts related to HR (e.g., a big issue for truly strategic talent) and to digital asset management (in a world where physical assets are increasingly getting digitized). If these areas have no connection to each other at your firm, and will not do so in the foreseeable future, then you can move onto to the next decision criteria.

Otherwise, you will likely find out, if you haven’t already, that the contract information in an ERP application stack is fragmented across CRM/Order-to-Cash; SRM/Source-to-Pay; Hire-to-Retire (HCM); Legal; IT; and so on. Therefore, connecting the dots to provide a holistic view of your contracts will not come easily and BoB CLM applications must be considered.

In terms of data depth of the application, you have to consider whether you simply want to build a contract repository that stores contract document images and contract document metadata or whether you want to manage your contracts more richly and strategically at the contract data level (i.e., clause data and associated metadata), from collaborative authoring all the way through to ongoing contract monitoring. ERP suites are good at managing the former.

If your contract domains (e.g., buy-side and sell-side) are disconnected, you can look at BoB suites (e.g., source-to-pay suites), and the best ones will have contract repositories that can be built up from clause libraries. If your enterprise is fairly simple and your contract portfolio is also, this might be fine. But if you have thousands of contracts, and the portfolio is fragmented (e.g., if you’ve had growth via M&A activity) and the contracts themselves are high value/volatility or pegged to regulatory complexity, you’ll need to see more deeply into your contracts.

Finally, you’ll need to assess the degree by which you want the “option value” of selecting a BoB CLM solution that is pushing the envelope on new innovations. For example, contracts are also virtual containers of risk information and commitment information beyond legal obligations (e.g., voluntary compliance activities from various regulatory regimes), and some of the BoB CLM providers are using contracts to help put teeth” and rigor into performance scorecarding, risk management, compliance monitoring and so forth.

In addition, some firms are building or partnering in the area of AI, including machine learning for text-to-intelligence contract analytics (e.g., Seal Software, Exari, RAVN, eBrevia, Kira Systems and others) and the broader “legal tech” market. But we see nearly endless analytic scenarios for fraud detection, commodity management, blockchain (i.e., “smart contracts”), supply risk management, “outside-in” regulatory compliance and other areas. The machine learning can help enabled a “guided contracting” process that goes beyond simple rules-based questionnaires to configure draft contracts from standard clause libraries.

Procurement organizations need to assess the “option value” of choosing a more innovation-centric BoB provider over a more basic provider. CLM is an interesting area in that it has more value than just efficient and effective supplier contract authoring and compliance monitoring. It also supports areas such as legal spend management, revenue uplift, risk management, talent management, digital asset management and so on.

But whether it’s CLM or other areas, procurement and supply chain organizations need to choose their partners (including service providers not just app providers) carefully and find ones that align to their own service delivery goals.

There are many provider segments to choose from. They all have their place and can co-exist, but the most important thing that practitioners can do is to apply strategic sourcing and third-party/supplier management practices to find providers who are a strong strategic fit with their own “professional services business.”

Don’t miss the actionable advice in this free download: "ERP vs. Best-of-Breed Decision Guide: 3 Recommendations to Kill the Debate Once and For All."

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