Back to Hub

How AI Forces Procurement to Change the Concept of Contract Management: A Q&A with Seal Software CEO Ulf Zetterberg

08/13/2018 By

Artificial intelligence (AI) may be the holy grail of procurement software capabilities, but few vendors have begun to distinguish the plain chalice of useful functionality from the jewel-encrusted goblet of empty marketing promises.

This is especially true when it comes to contract management software, which claims numerous possible applications of AI yet few real-life case studies. Dozens of companies from startups to well-established contract lifecycle management (CLM) platforms have entered an AI arms race, hoping to establish technological dominance as they solve their customers’ most pressing business issues.

Find the best contract management software for your organization: Q2 2018 CLM SolutionMap

To learn more about how the contract management software market has evolved in this context, we sat down with Ulf Zetterberg, founder and CEO of Seal Software, a provider of contract discovery, extraction and analytics solutions, to discuss how procurement organizations can tell if AI capabilities are the real deal, as well as how regulatory challenges from GDPR to increased M&A are changing the very concept of CLM.

 Jason Busch: Seal Software really pioneered this whole contract analytics sector. In case our readers are unfamiliar, could you give a short history?

Ulf Zetterberg: When we started out, we were looking at the two holes we saw in contract lifecycle management (CLM). One is discovery, with customers struggling to actually find the contracts they have to govern. Second, they struggle to quickly locate and review what’s inside those contracts, comparing the terms to other versions or the gold standard.

The conversation with our customers about machine learning and AI took a while. We spent the first few years demonstrating to and teaching the market about the capabilities of AI when applied to contract discovery and analysis.

Fast-forward to today, and companies understand how Seal is able to use AI to help solve their struggles with contracts. We also see a number of startups and competitors trying to catch up by following in our footsteps. Finally, contracts are in many ways a starting point, as we’re beginning to apply our technology to other types of content in the enterprise.

JB: It’s unbelievable. Actually, in this space, there’s at least half a dozen startups even from the past year or so. It’s really happening fast, and so many flavors of AI, as well.

UZ: Well, it’s not The Holy Grail — at least not yet. When used right, AI can do a lot of things — we’ve proven that — but it’s disappointing when we talk to people who say, “It doesn’t really work, we don’t believe in this.”

I don’t blame them. They’ve become disillusioned by tech providers who too often over-promise and fail to deliver, some of them even calling their technology ‘AI’ when it is, in fact, not AI at all. This is not limited to contract analytics, as many companies we talk to have tried other ways of using AI, only to walk away thinking there was not enough automation and it didn’t work as advertised.

I think we’re going to start to see more and more of these would-be AI companies fall. Likewise, we will see startups struggle to get sufficient funding, and struggle harder to make good on the promises they’ve made. It’s normal in the development of any market.

JB: If we were to think about how the market has evolved in the context of Seal Software itself, what are the biggest growth areas you’re seeing? Are there any industries, are there any specific business needs within legal, within procurement, that are driving use cases over the past year?

UZ: Some industries have more challenges than others because the speed of change in their business is moving faster. But the single biggest driver for change, across all industries, is the demand for digitization. This “digitization of the enterprise” is a positive trend but also scary for many companies. When a company goes all-digital, business speeds up even more dramatically.

If you don’t have processes and technology built and prepared to deal with digitization, you open up a lot of new avenues for risk and loss. We see that in procurement sourcing, where regulatory requirements and the drive for improved outcomes make it tough for non-digital processes to keep up. In many industries, the burdens of compliance are two or three times what they were just five years ago.

Any time you go through a big transformation, like digitization, companies that are leaders one day may not be leaders the next. History is full of examples like the impact of Amazon, where former market leaders find themselves in a new position and are forced to change how they do business or go out of business.

I think digitization is massive, and it applies to many new technologies — blockchain, for instance — that are coming in, not just AI. In every case, digitization is both a struggle and an opportunity for the enterprise.

JB: When you think about specific business issues today — it could be regulatory like GDPR, the rise of M&A, metals tariffs or the talk of trade wars resulting in greater commodity volatility — what are the issues that are particularly strong in certain industries, or cutting across multiple industries, which highlight the relevance of Seal today?

UZ: Data privacy is certainly a good example. Contract terms often make no mention of it, but when it comes to getting into compliance with regulatory mandates like GDPR, companies are virtually blind as to the privacy content of their agreements. They must find the agreements, identify which ones have no privacy provisions, as well as the ones that do but are not good enough to satisfy the regulators, and then prioritize the work based on risk. Seal is exceptional when it comes to these types of use cases — finding contracts, identifying the presence or absence of key provisions, but most importantly, understanding and reporting on the content of those provisions.

GDPR is also a good example because it shows how the value of data changes over time. Something that had a certain value five years ago could be irrelevant or it could be even more critical, but due to legacy-lock-in, it is still being used in the same way. Even worse, data that is inaccessible using legacy systems could be put to practical or strategic use if only the right people knew it existed and could access it as part of a transformed process.

We shouldn’t have to spend time trying to future-proof something — nobody can predict the future. What’s needed is a system that is agile enough to adapt to the information and reporting requirements as they evolve, as well as the data itself, so that the data’s value is maximized. Our technology has an engine that can very quickly repurpose and re-tag data, and make it meaningful without the need to re-engineer legacy applications or the underlying data structure.

JB: If you were a general counsel, or a head of procurement, or CFO, or head of compliance in a bank, how would you prioritize what Seal does in relation to traditional CLM? How do you prioritize and look at it in relation to CLM?

UZ: The concept of CLM needs to change dramatically. It needs to be integrated as a core function within business processes. One thing we like is what we’re seeing with DocuSign. Traditional CLM has in most cases been implemented as a back-office application, but DocuSign is redefining CLM to cover what they call Systems of Agreement — it’s about the front office, not the back office.

For example, when it comes to enforcing and analyzing sell-side and buy-side contracts, the front-office people responsible for optimizing deals are cut-off from the details, frequently unable to even find the contract they are responsible for leveraging. We’ve got to move all of this closer to the people that actually run a business, rather than some kind of historical report that comes out of a static back-office system. That’s just too late.

What we see around digitization, blockchain and AI is going to force us to think very differently about the contracting process. I think with initiatives like DocuSign’s, the focus will expand from drafting and storing contracts to the practical application of terms and proactive analysis of outcomes, trends and contract parties.

JB: Seal has established results in kind of a pole position, and you just raised another substantial funding round. But what is next? I’m curious both in terms of not only industry expansion and specialization but also product. Are there any areas of products you guys are looking at?

UZ: Our customers want us to help them with three things. They want to more easily find their contracts, and identify the things that are material and valuable within them. They also want to automate the flow of information, to reduce all the redundancy in data and the volume of it that comes across their desks. Finally, they want to increase and tap into the collective knowledge in a company.

We want to make these three things simpler. It’s about pre-built analytics that help with things like the GDPR, but it’s also about using AI to create analytics that learns from the user behavior and patterns, giving them hints that help them look at the data from a different perspective.

I’m not talking about the kind of AI that you see in Hollywood movies. I’m talking about things you can do today if you just build data models, and machine learning, and deep learning models, in the right way. A good example is know your customer (KYC), which, as the name implies, helps companies like banks know whom they are dealing with. We can use AI to get more insight into KYC processes, making it easier to avoid risk and fraud, and to see where you actually make money or lose money on customers in a more refined way.

It’s not sexy talking about knowledge management, but I really see that as the biggest power of AI. It’s the automation, and the knowledge you create, and the ability to share it not only inside a company, but also in a community among multiple companies. That’s where we can save lot of time, and uncover tremendous value. Seal is going to continue to be part of that as we take AI to the next level for our customers.