Can Technology Improve Contract Renewal Processes? Paper 4 in the Series on Contract Management
Our fourth paper in our series on contract management features a great summary by Sara Sonderman, who pulls together some great information on the application of technology in contract management and renewals. Lots to think about here… and also a great precursor to our upcoming SCRC meeting on the interaction between marketing and procurement.
Contract management is a key stage within the strategic sourcing process. After the analysis and strategy is developed, the RFP sent and supplier selected, sourcing professionals must take over contract management to ensure that the agreement between the supplier and the buyer is well negotiated and upheld. The contract management stage often does not receive the same due diligence as previous stages and is an area for improvement within the sourcing process. Without proper management terms and expectations of a contract could be forgotten diminishing the relationship between supplier and buyer. Many companies, even still today, manage contracts by hand and it is difficult to keep up with the volume of contracts let alone analyze the data associated with each contract.[1] Technology companies are looking for ways to ease the burden of contract management and bring this strategic sourcing stage into the twenty-first century. This paper will highlight how technology is affecting the different aspects of contract management and how the onset of digital solutions are benefiting companies and the supplier/buyer relationship.
With any agreement between supplier and buyers there should be a contract which clearly outlines the term of the agreement, the requirements and deliverables for both parties, and the consequences if those requirements and deliverables are not met. With every agreement a company may have a new contract. Each one of these contracts has different negotiation terms and renewal dates and could require a team of contract managers to simply make sure no renewal date was missed or negotiation term not met. Hundreds of hours’ worth of company time are put into maintaining each one of these agreements however it is still estimated that a company could lose anywhere between 5% – 40% of a deal due to the mismanagement of the contract.1 There is a lot of room for improvement within this process.
While companies are attempting to move away from the traditional hand and paper management of their contracts the industry still has not reached its full potential with the use of technology. A 2015 article from the International Association for Contract and Commercial Management (IACCM) cited that a benchmark study which states 77% of respondents have a digital repository for their contracts but only 52% use software to support review, approval, and other functionality falls.[2] The study is a few years old now but paints a clear picture of where companies stood with the use of technology in contract management. Many companies saw technology as a support for consolidating their contracts but were not taking the full advantage of technological possibilities. The underutilization of technology may not be due to lack of willingness to adapt or enhance performance but may be because companies are unaware of the improvements that could be made with the new technology or they could be overwhelmed by the change management associated with a new way of doing things. There is a level of comfort associated with completing tasks in a routine way. A change or perceived lack of visibility could shy companies away from technology that could enhance their overall business and methodologies. A clear outline of the benefits of technology at each stage of contract management could help companies transition from a time consuming process to an efficient and profit maximizing process.
A growing trend and desire for digital contract management has led to the rise of contract lifestyle management (CLM) systems. These systems provide a technological solution to managing each stage of a contract: concept, drafting, negotiation, execution, and storage and management. The CLM systems are designed to manage a contract through its entire lifecycle and there are tools associated with each stage of a contract. For concept, the system can initiate a contract request and help users determine the appropriate type of contract to use depending on the type of service or product being provided. The drafting component allows for users to create digital copies of the agreements based on templates and pre-approved verbiage from the legal department. A CLM system can assist with the negotiation of a contract by saving drafts of the agreement, tracking changes and versions, flagging exceptions to standard terms and can automate the approval process based on pre-established criteria. The automation can be set-up to send notifications to appropriate parties at each stage of the agreement expediting the review process and keeping track of who is responsible for the next step in contract management. Once a contract is approved, the CLM system can document and track the execution of the agreement based on the agreed upon deliverables. Finally, a CLM system has a central database that is used to house all of the agreements, provide monitoring tools, proactively track the performance of the contract and provide notification about key dates.[3] A CLM system can help automate and streamline processes for a company and help alleviate pitfalls typically associated with contract management. However it is a completely inclusive approach for a company and may not suit everyone’s needs. CLM systems are best used in organizations with a large volume of highly complex agreements.
Another inclusive technological option for contract management is a document management system. Document management systems are less complex than the CLM counterpart system and only cover a portion of stages within contract management. These systems typically cover the following stages: create/capture, manage/version control, delivery, and retention/archive. Within a document management system users can manage and control the versions of the documents, specific access controls and security can be places on documents and the system will log transactions for an audit trail. The document management system provides a space for companies to collaborate on documents. It can facilitate the approval process and finally store final copies within a repository. A document management system is a basic approach to digital storage and review of contracts but lacks the capabilities of a CLM to analyze and maintain the consistency of a contract.3[4]This system can help companies who are beginning their digital transformation and it can be integrated with other enterprise systems to facilitate contract management however with this system companies are still responsible for upholding the performance of a contract manually.
If a company is interested in introducing technology to manage their contracts it is important that they understand what software is in the technology and where they can benefit the most from technological management. Besides being a repository for contracts or a tool to maintain contract terms there are other added benefits companies have seen from introducing software for contract management. In a 2018 article by the DigitalList Magazine, companies who said they use contract management systems for more than a repository noted they use the contract management technology to: build strategic relationships and achieve greater collaboration, improve supplier performance and negotiation efficiency, lower administrative and legal costs, and strengthen operational, contractual, and regulatory compliance to reduce risk.4[5] IACCM research indicates that the onset of technology is changing the future of contracts. Technology helps enable contracts to be less about cost and more about relationships. The technology will allow for greater visibility among transactions and increase business performance support. Technology is bringing more light to contract management and making it more important than ever before.5[6]
The onset of technology will be beneficial for companies but will not come without challenges. The benefits associated with a contract management system far outweigh the cons however determining the best systems for a company then facilitating the change management associated with it takes time for companies to adjust. With new technology comes new skills required to utilize the software to its full capability. Traditional roles in a company may change for example instead of needing as many lawyers to review contracts they may be reassigned to assess risk or provide counsel.1 Technology will shift the dynamic of an organization and provide an agile approach to how agreements are managed. Hours associated with tedious contract review and management can be reallocated to focus on the vendor relationship and building collaboration between organizations. It is important for a company to understand where they can benefit from a technology approach to contract management before investing in a system. Not all contract management software is created equally and some may focus more on one stage of contract management and ignore others. Each system should be customized to an organizations needs and should not be seen as a simple bolt-on to an ERP system.6[7]
The future of contract management lies in technology and companies readiness to embrace the benefits associated with technological improvements. With the introduction of technology the process of contract management is becoming less of an administrative task and more of a strategic tool for businesses. The technology will give companies a chance to integrate the contract management process across multiple stakeholders and allow data to flow between enterprises.6 Not all companies have adopted a fully integrated technology option but as the technology improves and becomes more accessible companies will be able to move away from using the systems as a repository and focus on improving their strategic process.
References
1 Consilio. “Contract Management System Vs. Document Management System Technology.” Right Law Department, https://www.consilio.com/resource/gc-focus-volume-3-issue-19-contract-management-system-vs-document-management-system-technology-right-law-department/.
2 Cummins, Tim. “Beware the Analysts Peddling Contract Management Software.” Commitment Matters , 11 Mar. 2019, https://commitmentmatters.com/2019/03/11/beware-the-analysts-peddling-contract-management-software/.
3 Cummins, Tim. “Is Technology the Death Knell for Contract Management?” Commitment Matters , 26 May 2016, https://commitmentmatters.com/2016/05/26/istechnologythedeathknellforcontractmanagement/.
4 Cummins, Tim, Kai Jacobs, and Claude Marais. “Contracting Technology Revolution – Here Today, but Are We Ready?” Contracting Excellence, 29 May 2015, https://www.iaccm.com/resources/?id=8562&prnt.
5 Rich, Beverly. “How AI Is Changing Contracts.” Harvard Business Review , 18 Feb. 2018, https://hbr.org/2018/02/how-ai-is-changing-contracts.
6 Vaseekaran, Annie. “The Critical And Evolving Role Of Contract Management In Digital Transformations.” Digital List Magazine, 16 Jan. 2018, https://www.digitalistmag.com/finance/2018/01/16/critical-evolving-role-of-contract-management-in-digital-transformations-05754529.
Citations
Consilio. “Contract Management System Vs. Document Management System Technology.” Right Law Department, https://www.consilio.com/resource/gc-focus-volume-3-issue-19-contract-management-system-vs-document-management-system-technology-right-law-department/.
Cummins, Tim. “Beware the Analysts Peddling Contract Management Software.” Commitment Matters , 11 Mar. 2019, https://commitmentmatters.com/2019/03/11/beware-the-analysts-peddling-contract-management-software/.
Cummins, Tim. “Is Technology the Death Knell for Contract Management?” Commitment Matters , 26 May 2016, https://commitmentmatters.com/2016/05/26/istechnologythedeathknellforcontractmanagement/.
Cummins, Tim, Kai Jacobs, and Claude Marais. “Contracting Technology Revolution – Here Today, but Are We Ready?” Contracting Excellence, 29 May 2015, https://www.iaccm.com/resources/?id=8562&prnt.
Rich, Beverly. “How AI Is Changing Contracts.” Harvard Business Review , 18 Feb. 2018, https://hbr.org/2018/02/how-ai-is-changing-contracts.
Vaseekaran, Annie. “The Critical And Evolving Role Of Contract Management In Digital Transformations.” Digital List Magazine, 16 Jan. 2018, https://www.digitalistmag.com/finance/2018/01/16/critical-evolving-role-of-contract-management-in-digital-transformations-05754529.
[1] Rich, Beverly. “How AI Is Changing Contracts.” Harvard Business Review , 18 Feb. 2018, https://hbr.org/2018/02/how-ai-is-changing-contracts.
1 Rich, Beverly. “How AI Is Changing Contracts.” Harvard Business Review , 18 Feb. 2018, https://hbr.org/2018/02/how-ai-is-changing-contracts.
[2] Cummins, Tim, and Claude Marais. “Contracting Technology Revolution – Here Today, but Are We Ready?” Contracting Excellence, 29 May 2015, https://www.iaccm.com/resources/?id=8562&print.
[3] Consilio. “Contract Management System Vs. Document Management System Technology.” Right Law Department, https://www.consilio.com/resource/gc-focus-volume-3-issue-19-contract-management-system-vs-document-management-system-technology-right-law-department/.
3 Consilio. “Contract Management System Vs. Document Management System Technology.” Right Law Department, https://www.consilio.com/resource/gc-focus-volume-3-issue-19-contract-management-system-vs-document-management-system-technology-right-law-department/.
1 Rich, Beverly. “How AI Is Changing Contracts.” Harvard Business Review , 18 Feb. 2018, https://hbr.org/2018/02/how-ai-is-changing-contracts.
4 Vaseekaran, Annie. “The Critical And Evolving Role Of Contract Management In Digital Transformations.” Digital List Magazine, 16 Jan. 2018,
5 Cummins, Tim. “Is Technology the Death Knell for Contract Management?” Commitment Matters , 26 May 2016, https://commitmentmatters.com/2016/05/26/istechnologythedeathknellforcontractmanagement/.
6 Cummins, Tim. “Beware the Analysts Peddling Contract Management Software.” Commitment Matters , 11 Mar. 2019, https://commitmentmatters.com/2019/03/11/beware-the-analysts-peddling-contract-management-software/.