Fifty-seven percent of the technology and contract management professionals who responded to a Huron Legal poll expressed concerns regarding their company's existing contract lifecycle management (CLM) procedures. The Huron report mirrors the findings of many other studies: small- and mid-size businesses "have settled for a manual, slow, inefficient and ineffective process" when it comes to contract management.
How does this occur in otherwise innovative companies? Perhaps the sheer volume of the procedures places the task under a daunting light. Many companies have hundreds, if not thousands, of contracts to manage at a given time, with old ones expiring and new ones being signed every single day. Surely there must be a way to manage the lifecycle of such massive volumes of contracts in a manner conducive to maximizing profitability?
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Fortunately, there are some very concrete steps that can be taken to lead companies down the path of contract management optimization. There are also a few key ways of thinking about contract management that companies can adopt in their everyday philosophy to get the most out of the process. Let’s look at some of these ideas and see how they fit into your organizational outlook.
1. Standardization and Uniformity – Uniformity is the first crucial aspect of a strong CLM. Creating practical templates with preapproved language options and a simplified approach can make your contracts more manageable for staff, clients and customers. This cuts down a lot of time where contracts would get stuck in the approval process as staff or clients must sit and wait to hear from their legal team about the specifics of a particular phrase in a contract.
Over time, building a library of contract templates will ease operations. When your company first decides to delve head-first into optimizing your CLM, holding a meeting with stakeholders within the organization that covers necessary template inclusions will alleviate a great deal of long-term burden. This approach is also conducive of an inclusive environment for interdepartmental interaction. This can lead to a better understanding of how each department operates internally in regards to working with contracts, thereby providing insight for other departments about what works best for your company.
2. Simplify the departmentalization process- While we are discussing how other departments work on contracts, it would be a good time to mention the need to simplify departmentalization. Many companies’ see contracts move from department to department, changing hands on a day-to-day basis. Along the way, certain departments will naturally implement clauses into the contract that reflects their needs. Since so much of the work happens internally, communication between departments can be strained and, in the end, it becomes much like a game of children whispering a secret to one-another where the final product is not at all similar to how it was when it began.
In regards to the internalization of departments, time becomes an enemy. It is pretty simple: the greater number of departments a contract comes across, the longer it takes to reach the end of the cycle. Each departmental inclusion requires editing, more deadlines, and lost productivity, all of which are highly avoidable costs. By only engaging the necessary departments in the contract process and inviting others to sit in on less-frequent report meetings, everyone can still provide input while maximizing productivity.
3. Centralization – As you can probably guess by now, effective CLM approaches will require a central repository to function efficiently. This is where CLM software and database management come into play. Remember that library of contract templates? Centralize it. Having a web-based document management environment can enable full-text and keyword searches of contracts and therefore provide easy access. It can also allow multiple file versions to be uploaded, accommodating various clients. Furthermore, the addition of real-time editing on web-based platforms greatly expedites the speed of contract editing and enables on-the-spot discussion of implementations.
4. Process Management and Reporting – The process management stage of CLM includes the day-to-day tasks involved with the bulk of the contract. Reporting concerns the “audit trail” of a contract. This is the meat of where you can optimize your contract management.
In the practical sense, automated workflows are the essence of the process management stage. A great deal of CLM software will incorporate various methods and retooling to provide value in this process. As mentioned previously, minimizing the amount of departments that need to be individually involved with specific items in the contract can be crucial, but it is impossible to successfully see the final version of a contract without making a few stops along the way. Workflows that signal approvals can facilitate expedited processes. Graphic approval workflows can show where the contract is and can display the role of each approver in the process. A great deal of software now enables the support of “dynamic approvals”, which are workflows that automatically self-modify approval components and roles as amendments on the contract.
Enforcement triggers are another major component of this stage. These categorize issues based on determinations from the contract management team and issue automated alerts about upcoming deadlines and obligation dates. More specifically, they can signal missed/over/under payment, renegotiation and expiration windows as well as other billing errors.
Reporting also provides updates about contractual relations on a less frequent basis, giving overviews to those requiring information about where a contract stands. Charts and summary tables can provide both short-term and long-term visualizations that help reduce the strain that unexpected milestones can present.
An independent study conducted by the International Association for Contract & Commercial Management reveals how companies can improve their contract lifecycle management to add as much as 9% to profitability. This is a staggering number, especially with so much of the current economy operating under the margins. It’d be safe to say that CLM represents a relatively simple component of business that still has some juice left in it. By creating a centralized and standardized approach, efficient contract management can be the catalyst that propels your company into the black.
Judd J. Robins is Executive Vice President of Consulting Services at TekStream Solutions.