What is CLM? Do we need to have legal knowledge to select and implement it?
What is CLM? Navigating the Challenges of Contract Management in Large-Scale Organizations
The number of contracts and their complexities largely depend upon the size of an organization. Understanding what CLM is is crucial, and managing contracts in small-scale or medium-scale organizations is comparatively easier than in large-scale organizations. In large-scale organizations, the number of employees, suppliers, and customers is quite high and hence there are a massive number of contracts. Managing such a volume of contracts effectively comes with several challenges. A few of them are:
1 . Contract non-compliance and regulatory compliance issues: Large organizations, especially those operating in foreign locations, face difficulties in ensuring that all the regulations and protocols are followed, as different countries have different rules and regulations.
2. Inefficient supply chain management: In large organizations, as the number of supply chains increases, the challenges associated with it are also more. For example, the cost of raw materials used in manufacturing constantly fluctuates, affecting the cost of doing business and the revenue and profit margin.
3. Disorganized management of expiry and renewal: The other crucial challenge organizations face is not staying up to date with the expiry and renewal dates. Any missed date of expiry causes the loss of payment for the work done, and any missed date of renewal causes a missed business opportunity. To overcome several such challenges, organizations across sectors adopt CLM.
What is CLM?
Organizations can adopt contract lifecycle management (CLM) to address many challenges. CLM is tracking and managing every aspect of a contract for its performance, compliance, and other success factors through every stage of the document’s lifecycle, i.e., from execution to renewal/expiry.Â
Stages in contract lifecycle management (CLM)
Contract Lifecycle management is crucial for efficient and proactive contract management, but each stage of CLM must be executed on time. There are nine stages in the process of CLM, namely:
- Request: To propose a particular purpose to another party, which is critical to negotiating the contract terms.
- Negotiation: It’s one of the most critical stages of a contract’s lifecycle. For productive and efficient negotiation, good preparation in terms of positions, documents, and the intended outcome must be in place.
- Approval: Contracts must include opportunities for review and approval.
- Execution: Once a contract is approved, it’s ready to get executed, but before that, it has to get signed. And getting it signed is not as simple as it seems, as more and more companies are relying on e-signature.
- Storage: Once the contract has been signed and executed, it has to be stored safely for easy reference.
- Management: To avoid common mistakes like deletion or incorrect modification, the storage of your contracts must be secure, reliable, and backed up to local or off-site servers. Moreover, key events should be set for automatic reminders for relevant parties to make the process as smooth as possible.
- Retrieval: The contracts should be easily accessible whenever required for solid business relationships.
- Reporting: Whenever there is any change in the contracts by anyone, key staff members like the general counsel should get reports about that.
- Renewal/deposition: Once the contract approaches the end date, the general counsel must decide whether to renew or dispose of it. A lawyer generally takes this decision and depends upon many factors like completion of obligation, adequacy of deliverables, receipt of competitive price, etc.
Why should your business use a contract lifecycle management (CLM) solution?
Thus each stage of contract lifecycle management (CLM) is vital for its successful implementation, but it’s challenging to manage all these stages manually. As per Gartner’s report, procurement, sales, and legal teams are constantly pressured by businesses to speed up contract development and execution. There come CLM solutions in the picture, without which the contract negotiators struggle to execute contracts within the expectations of the business.
What is CLM and its Benefits?
A good CLM solution makes a huge difference in the day-to-day workload of a company’s legal department. Some of the essential benefits that a CLM offers are:
- Improved contract compliance
- Reduced risk
- Better Document management
- Increased contract visibility
- Shorter approval times
- Financial optimization
- Increased productivity
Do you need a full-time legal member to take care of CLM?
Contract lifecycle management (CLM) is not only about the technology but also the legal terms that need to be taken care of while implementing any CLM solution. But what is CLM? CLM is not just a product, it’s a process. Implementation of CLM is not as easy as it looks. For example, creating numerous templates.
In a big organization, creating templates involves many documents that need to be fed. In this process, there would be many cases of legal issues that only a legal person can solve. If you ignore legal issues connected to CLM, no matter how expensive software you have bought, it will not be of any use. Understanding what CLM is and the difference between master and subsidiary contracts, as well as the broader legal and compliance framework and critical clauses that the company will rely upon to update the templates, is essential. Therefore, you will require a full-time legal person.
Do you need to have the legal knowledge to select and implement CLM?
Various stakeholders are involved in different stages of contract lifecycle management. In addition, each stakeholder, including sales, legal, finance, and supplier, has priorities in contract lifecycle management. Therefore, a collaborative approach is essential in selecting and implementing a robust CLM solution.
Implementing a contract lifecycle management (CLM) solution
You will need a brilliant, well-executed implementation plan to ensure you get the full value of a CLM (contract lifecycle management) solution faster. In addition, you need to overcome challenges while implementing a CLM solution like missing functionality, lack of buy-in and adoption, unforeseen shifts in priorities or process, etc. To overcome these changes, you can take the help of professional CLM consulting services.
Professional CLM consulting services can help you design solutions for fast deployments, quick iteration, and high adoption rates, providing hands-on, highly experienced implementation support and user training, plus ongoing, high-touch success management, ensuring that what is CLM is effectively integrated into your organization’s processes.
Conclusion
According to Custom Market Insights (CMI), the Contract Lifecycle Management (CLM) market was valued at USD 1.11 billion in 2022 and is projected to reach approximately USD 3.69 billion by 2032, reflecting a compound annual growth rate (CAGR) of 12.33% from 2023 to 2032. This significant growth highlights the increasing importance of effective contract management in today’s business landscape.
Contract lifecycle management (CLM) solutions are game changers for the organization’s contract management. However, the benefits of CLM will be realized best if all the issues raised through the implementation process are addressed in time. Relevant stakeholders, legal members, and a CLM consulting professional must go hand in hand to select and implement such solutions successfully.
For CLM-related services, write to us at contactus@proen.co.in.