A Practical Guide to Determining the Need for CLM in Your Company
The volatility of an evolving market has led businesses to seek technologically advanced solutions for effectively managing contracts throughout their lifecycle. Growing needs for efficiency and rapidly changing contractual landscapes have preceded the advent of contract lifecycle management (CLM).
CLM refers to the automated and highly systematized management of contracts across their lifecycle (from implementation to compliance and renewal) through software that streamlines and centralizes contractual processes. An efficient contract lifecycle management (CLM) software enables the production of centralized template libraries and makes several time-saving features like e-signatures, online negotiation, and version tracking accessible. This has led to a widespread reduction in contract cycle times and upfront costs and prevented revenue leakage by ensuring regulatory compliance through timely audits.
An automated contract lifecycle management (CLM) software can overcome several hurdles that traverse traditional contract management, including inconsistent legal language, lack of transparency and stakeholder alignment, increasing regulatory and compliance risks, and high monetary investments. This guide is the ideal supplement to help you re-evaluate the merits of traditional contract management processes and assess your need for a modern contract lifecycle management (CLM) with robust technology.
Here are a few key steps to help you evaluate the need for a change.
- Evaluating current contract management processes: An intensive analysis of the existing contract management processes is vital for identifying the gaps and pain points. A cross-functional team should review manual and decentralized contract management structures in place and evaluate their monetary and otherwise impact on business operations. A fit-gap analysis should help you identify whether or not the contractual needs of your company are being profitably met currently.
- Understanding the benefits of CLM software: To gauge whether an automated CLM solution is a good fit for your company, you must be aware of the post-implementation gains. Not only does contract lifecycle management (CLM) software streamline contractual processes from creation and negotiation to approval, but it also enhances contract visibility and accessibility. Plus, authorized employees can easily access contract metadata and manage documents in real-time. Making reports and ensuring compliance becomes easier with automated alerts that work towards mitigating risks.
- Identifying key business drivers: The 2021 EY Law Survey reveals that over 50% of the organizations studied have claimed that inefficiencies in contracting processes have cost them business. In this context, it becomes essential to identify the critical business drivers impacted by outdated contracting systems. Depending upon the size of an organization, you may be managing hundreds of contracts in a week. To see the gains you stand to make from a CLM solution, you must calculate the fiscal impact of contractual mismanagement, missed opportunities, and litigation caused due to compliance issues.
- Assessing contract complexity and risk exposure: An audit of the types of contracts the company enters into should be conducted to classify documents based on their complexity and terms and conditions. Higher risk profile contracts with non-generic compliance requirements must be evaluated for the potential financial and legal liabilities associated with their erroneous management. Based on this, you must contemplate the pros of utilizing a CLM tool with templates, and automated risk assessment features that provide real-time reports on exposure caused due to ambiguous phraseology, non-compliance, and other inconsistencies.
- Considering business growth and scale: As a business embarks upon the trajectory leading to expansion, automated management features become more necessary than a choice. The number of risks associated with contracts is directly proportional to an increase in the number of contractual relationships. Furthermore, changing regulations and the need to protect data demand a flexible CLM system that can be scaled up along with the business. A team of professionals must evaluate the scalability of current systems to determine the immediacy of a need for change.
- Engaging stakeholders and gathering input: An organization must understand its business requirements and use cases. To do so, relevant stakeholders from different fields must be identified and engaged with the help of interviews and interactive surveys; their input is indispensable when making a decision. This reveals existing pain points and the positive/negative impact that a new CLM tool might have.
- Cost-benefit analysis: An extensive cost-benefit analysis will issue estimates of the precise financial impact of inefficient contract management. Revenue leakage through missed contractual commitments and mismanagement is a pitfall for profits. Hence, a governance committee must deliberate on the cost of CLM implementation and the corresponding return on the investment (ROI), as CLM guarantees increased savings by avoiding litigation and operation costs.
- Exploring the right CLM solution: The need for change is also guided by the availability of CLM software tailored to the organization’s needs. The pain points and challenges identified from stakeholders’ inputs must be tackled by the tools the CLM software being explored offers. Thorough research must identify vendors with expertise and easy-to-use software that can integrate with ERP and offer support features, OCR technology, E-signatures, etc.
- Making the call: The last step is to aggregate research findings, stakeholder inputs, use case scenarios, and future projections (based on the cost-benefit analysis conducted and the posited ROI). All of the aforementioned information should be carefully weighed to establish whether or not a CLM change can be feasibly and profitably incorporated into the company’s future.
A contract lifecycle management (CLM) solution is or will soon become virtually indispensable for businesses. Companies must do their due diligence to determine when to shift to contract lifecycle management (CLM) to deal with the onslaught of an ever-evolving landscape. From re-evaluating the ROI of the current contract management processes to stakeholder alignment and growth plans, all must be coupled with an analysis of the right contract lifecycle management (CLM) solution and its potential gains to make an informed decision. With CLM, streamlined contracting processes, reduced costs, and shorter cycle times are all within the grasp of organizations willing to make the change. To know how you can implement and accelerate CLM success, consult our experts.