Gone are the days of cumbersome paper-based agreements and manual processes. In today’s fast-paced digital world, the way businesses operate is constantly evolving. From marketing and sales to operations and finance, technology has permeated every aspect of the modern enterprise. This shift towards digital is driven by the need for greater efficiency, reduced risk, enhanced compliance, and improved overall business agility. One area that has seen a significant transformation is contract management.
At their core, businesses are driven by contracts. As organizations mature and their operations scale, the volume of contractual obligations expands significantly. However, for businesses, managing contracts presents a multifaceted and often demanding task. Even seemingly straightforward requests, such as checking a contract’s expiry date or locating the most recent version, can consume significant time and introduce unwelcome delays in crucial business activities. Research indicates that the absence of effective contract management processes can lead to a staggering 9% loss of annual revenue.
Given increasing complexity, time, and effort, contract management necessitates a strategic framework for managing these crucial documents.
Digital contracts are part of a larger contract management strategy
Digital contracts are electronic agreements that are created, negotiated, signed, and managed electronically. They offer a multitude of benefits that directly contribute to a more efficient and effective contract management processes, from reducing administrative costs, streamlining contract creation and negotiation, and efficiently executing and storing contracts to enhancing compliance.
Today, digitizing contracts is not just a convenient alternative, but an integral and indispensable component of efficient and effective contract lifecycle management, which encompasses the entire journey of a contract, from its initial creation and negotiation to its execution, management, renewal, and eventual termination.
Digital contracts serve as the essential key to organizing and governing a company’s contracts and related materials, storing, tracking, and analyzing contracts to both reduce financial exposure and enhance operational and financial outcomes—and often leveraging advanced analytics and AI tools.
The journey towards creating a digital contract system
Align on clear objectives and strategy. According to Gartner, nearly 50% of initial contract management implementation fall short of expectations. Involve key stakeholders from the legal department and business units from the start to set objectives—for example, answering questions such as what inefficiencies and pain points will a contract management system address? For which cross-functional teams? What does success look like? How will it functional at an optimal level? Is pre-signature a priority, post-signature, or both? How will it be funded? By digging into these details, the team will set itself up to succeed from the start.
Ensure successful implementation with the right resources. A frequent struggle for legal departments is securing the resources and expertise for a successful, scalable contract system implementation. Legal business partners with experience and expertise can help make implementation a success, guiding the internal teams, managing the project, and taking on the data and technical work, such as getting data AI-ready, customizing the system, and integrating it with other enterprise tools.
Get data AI-ready. The effectiveness of digital contract tools hinges on the quality of the contract data. For AI to work effectively, the data must be “AI-ready.” The unstructured nature of most contracts today, due to complex and varied legal language, poses a significant challenge for accurate machine extraction and interpretation. For instance, a “severability clause” can vary widely in wording across different contract types, making it difficult for AI to consistently identify key concepts across numerous agreements.
To overcome this, transforming unstructured contracts into structured data is crucial. Many organizations rely on experts to extract and format contract data consistently, avoiding the need for extensive manual review. This includes standardizing party names, dates, auto-renew details, and custom fields for key clause data.
Cleanse the data. It’s crucial to understand that contract management tools don’t inherently solve data quality issues or validate AI extractions. Organizations need a data quality strategy and team before implementation. The process involves extracting and consistently storing correct data, followed by creating concise governing summaries that track all contract modifications. This eliminates the need for manual amendment tracking.
Develop a system customized to the needs of the enterprise. Digital platforms provide a secure and centralized repository for storing all contracts, making them easily accessible to users. This improves organization and reduces the risk of lost or misplaced documents. Tailored contract repositories offer organizations a significant advantage by ensuring accurate extractions and precise analysis aligned with their specific requirements. Custom-built systems enable portfolio-wide searches for specific clauses, the generation of contract risk scores, and the operationalization of contract data for in-depth risk analysis.
The most effective digital contract systems leverage industry-leading contract data models with thousands of pre-structured contract terms, applied to both new and existing agreements. This AI-powered review is then enhanced by expert human oversight.
Ultimately, these data models empower legal departments to transform their contracts into actionable insights, which can be stored within their preferred contract management system, thereby enhancing its capabilities with customized AI intelligence.
Integrate with enterprise systems. Contract insights are not just for legal teams; they are valuable asset that all business leaders should leverage across their organizations. Once contract data is extracted and organized, it can be integrated with other enterprise systems, providing business users with the data they need to make more informed decisions.
For instance, sales teams can analyze contract terms to understand pricing dynamics, pinpoint profitable opportunities, and refine revenue strategies. Procurement can utilize these insights to monitor supplier performance against contractual obligations (like delivery timelines) and identify cost-saving avenues, such as volume discounts. Finance departments can leverage contract insights for accurate revenue recognition based on contract terms and performance, predict future cash flows, and ensure compliance with financial regulations.
Develop a rollout plan. Ensure a smooth rollout by communicating a clear plan throughout your organization. Manage expectations from the start to retain champions even if early searches aren’t flawless. Continuously improve the rollout process by incorporating lessons learned from each area.
Create a model for continuous improvements. To ensure long-term digital contract management success after the initial implementation, develop a sustainable, iterative approach for organization-wide deployment. Continuous improvement is vital for scalability. Employ a “sum in, sum out” methodology, balancing overall priorities with individual business unit specifics. Start by engaging a single business unit, understanding their needs from the outset. Monitor their experience and build upon that foundation.`.
Plan early, assess often
Digital contracts are the present and the future of effective contract management. By embracing digital technologies, organizations can streamline their contract processes, improve efficiency, reduce costs, enhance compliance, and ultimately drive better business outcomes. Integrating digital contracts into your CLM strategy is a crucial step towards achieving greater agility, reducing risk, and unlocking the full potential of your agreements. It’s time to move beyond paper and embrace the power of digital for a more efficient and effective contract management journey.
For more on getting the most from any contract management investment, read Contract Lifecycle Management: Making Magic with Your CLM. If you’re seeking to purchase a CLM system or simply want to make the most of your current CLM, contact UnitedLex today for a free assessment.
