Contracts are the lifeblood of the company. They spell out everything from when an organization gets paid to what they must deliver, how, and when. In fact, as MGI Research notes, more than 25 percent of the business is involved in the contract management process.
Historically, however, contracts were often treated like old socks – stuffed into drawers or folders and forgotten about until something went wrong. The people who created these agreements were either experts using “legalese,” or regular folks who just signed whatever was handed to them. Simply put, the contracts of yesterday were not easy to understand or use.
But times have changed. Now, contracts are not just papers or files in a file cabinet somewhere. They are incredible sources of valuable contract data that can be extracted and used for different purposes. For example, if a company wants to know how many of its contracts have a clause that lets the vendor cancel with a 30-day notice, instead of the standard 90 days, they don’t have to dig up all the contracts and read them one by one. They can just do a quick search with their contract lifecycle management solution (CLM) and get the answer right away.
This is possible thanks to new technologies, like secure SaaS platforms and artificial intelligence, that make data more accessible and usable for the entire organization.
Data is the key to success in the contracting world, as in any other field. The more you know about your contracts, the better you can manage your business.
But what kind of data can you extract from your contracts, what is a truly “data-first” approach to CLM, and how will it make a difference in your business?
What is a ‘data-first’ approach to contract management?
When many companies first started using contract management software 20+ years ago, they were not thinking about data. They were thinking about one of two things:
- Process: How to make sure that everyone involved in making contracts, from buyers to sellers to finance to legal and more, is on the same page and a part of the same process
- Storage: How to get rid of the old-fashioned way of keeping contracts in drawers or drives, where only lawyers could find and share them, and make them available to anyone who needed them
But there were other problems that they did not see or prioritize, like:
- Losing track of contracts once they started, due to too many approvals and steps, and not knowing where they were or what they said
- Skipping the proper process, because it was too complicated or slow, and just using standard forms like NDAs that were not tailored to the situation
- Missing important details because they could not see the latest version of the contract or what the other party had changed or agreed to
The solution? We need to change the way we think about contracts and data and adopt a “data-first” approach.
How to create a data-first contract
Instead of making a contract first and then getting the data out of it, we start with the data we need and then make a contract based on it. That way, we can use the data for other things, too. By doing this, we can get more out of our contracts and use the data in more ways.
What are the two types of contract data?
Like any other part of any business, the contracting team needs to be able to do two key things:
- Report what is happening
- Provide insights on whether the health of the contract management operation is good or bad and propose course corrections where necessary
Broadly speaking, these two goals can be achieved with two types of data: Descriptive data and Dynamic data, which are defined as follows:
- Descriptive data is what allows us to create reports that reflect reality. It answers questions like how many contracts are in process, how many suppliers do we have in Canada, or when does the contract with Acme, Inc. expire.
- Dynamic data is what allows us to create dashboards that highlight what is working, and what is not. It answers questions like: “Are we moving contracts through the process fast enough? Are we over-invested in Canadian suppliers? Or, do we do better with two-year or three-year term contracts?
10 characteristics of a “data-first” CLM solution
The 10 characteristics of a data-first CLM solution, according to MGI Research, are as follows:
- Emphasizes a “Data-First, Contract-Second” approach to CLM. Can capture, expose, and synchronize contract data with other enterprise systems.
- Has a clear focus on CLM as a real-time system of record. Ensures that each data item is programmatically accessible by other enterprise applications (i.e., every contract data element has an IP address).
- Provides a robust extraction capability that bridges legacy and third-party contracts.
- Provides an extensible data architecture supported by tools that can be used by non-IT professionals in an agile fashion.
- Emphasizes a shift from personal/professional productivity applications to a real-time, persistent system of record. This orientation views CLM and contract data as a continuous process rather than a set of snapshots in time.
- Supports core maturity model capabilities. These capabilities include workflow automation, authoring automation, contract intelligence, data extraction, and sample reference apps for obligations and entitlement analysis.
- Is truly no-code. The average user requires virtually no training and admins do not need IT experience.
- Easily integrates both external and home-grown AI platforms and approaches.
- A proven track record of successful (rapid and cost -effective) implementations across a diverse set of functional units and process flows. This includes legal, procurement, sales, compliance, supply chain, finance, and beyond.
- Has a documented set of best practices for adopting CLM with a proven set of use cases and customer references.
Conclusion
In these uncertain times, companies are looking for smart ways to build strong and unique businesses that can last.
CLM is one thing that can help do that. It’s a great tech investment that can pay off big time. But to get the most out of their CLM of choice, organizations will need to change how they use CLM, from just a handy tool for lawyers to a company-wide, real-time, data-centered system of record.
Learn more about “data-first” contracting in Agiloft’s upcoming Tech Tuesday demo on November 19 . Click here to register now.
Published November 14, 2024.
