As we round out my first year at Deloitte Legal, I wanted to take this as an opportunity to share some thoughts on the last 12 months and what we’ve seen in the contracts and contract lifecycle management technology markets as well as some trends that will likely continue to build as we go further into this brave new world. Thomas Friedman’s The World is Flat and the existence of a $200 Billion global BPO market should have told us that all work doesn’t need to happen in the same room or country already, so this isn’t really that new of an idea. The pandemic and lockdowns just made a finer point of it. What I want to focus on is what changed beyond remote working and an appreciation of streaming services, and more specifically what changed in my favourite area of conversation – contracts.
I have worked in law firms, corporates, at a law company and now at Deloitte Legal in a group which, in my humble opinion, brings the best bits of the previous experiences all under one roof. And I can tell you this with absolute certainty – contracts, contract tech and contract management have never been hotter in the market. When I first started, I used to hear “we manage relationships and think the contract gets in the way”, “the best contract is one you sign and put in a drawer”, or “contracts are for lawyers, we don’t look at them.” But the market has changed. Nowadays, there are three different billion dollar or larger valued CLM tools, countless blogs and webinars on “mining value” from your contracts, and a constant flow of investment into this space. A lot of this has happened recently and here is what I think we’ve seen over the last year or so:
The Business is the Driver
The events of 2020 really shook the whole world, but despite all the limitations, new ways of working, and restrictions, guess what did not stop – contracts. If there was ever unqualified proof that contracts are the lifeblood of the modern enterprise, the last 18 months would be exhibit A. Companies need contracts to do business and because of this, to paraphrase Dr Ian Malcolm, even in 2020 business found a way. But beyond just getting contracts done, what else did the business ask for? I would argue that the big trends on self-service, simplification, visualization are business needs. This is not to say that there aren’t some really forward thinking lawyers out there, but rather to acknowledge that the core “ask” in all these trends is a need or acknowledgement that sales, commercial, procurement or the business need to get contracts done and want to do it with the lightest legal touch possible. And as such, they invested in it over the last 18 months with technology, consultants and their own internal change agents to find ways do contracting not just remotely, but with a reduced need for legal or lawyer involvement. Contracts may be touched by everyone and owned by no one, but the investment to improve them has certainly come from outside of legal.
Legal can lead, but with others
Given the previous point, this is not to say that lawyers are side-lined when it comes to innovation in this space. Rather, what we saw was that there were many forward-thinking legal departments who abandoned the ivory tower stereotype and embraced the business. The market has seen many collaborations between legal and procurement, sales, commercial or shared services functions partner to solve the enterprise-wide issues relating to contracting speed, approach and enablement. This “legal plus” model of innovation is really effective because it gets past – for the most part – the turf battles, lack of funding or silo’ing that has limited transformation in companies before. Transforming contracting or contract management by only working on one function in a company is a lot like just doing 1 armed push-ups. Yes – it will make the 1 arm stronger, but it really doesn’t help anything else. Contracts effect the whole enterprise, so it was certainly a great trend that more of the enterprise worked together to sort it.
Technology is not enough
CLM technology has never been better and the market just keeps growing. A little as ten years ago, many of the tools functioned not too differently than a spreadsheet with a good set of macros on top and now there is a company planning an IPO next year and a valuation over $6 Billion. That’s good progress! What has been interesting the last year or so is the probably a real maturation of the market. There are still too many tools in the market. Last count there were 400 tools in the market, however that may be dwindling as most companies prefer to buy an integrated AI/platform solution as opposed to a spot AI tool like a few years ago. This is resulting in some consolidation.
What is interesting, however, is how companies are approaching CLM purchases. Maybe all those blogs and webinars started to stick, but companies have learned a few key things, namely:
- Adoption risks are real, so many companies are buying MVPs or expanded POCs of a tool to try it out first before going global;
- Business cases are important, so a “phase 0” before implementation to really understand the value and the reasons for a CLM are more common; and, perhaps most importantly,
- Technology without a change management or transformation program around it will tend to fail.
The last piece is really the big one. You still see some tools or their partners, just implement a tool and not much more. But more and more companies are realizing that in order to unlock the business case for CLM you need things like template harmonization, process improvement, outsourcing or offshoring and change management. I think this is all related to the previous two trends and the business pushing the agenda more. The functions outside of legal having been buying tech or going through transformations for years – whether its ERP, CRM or P2P – and understand how those programs work. Now one just drops in an ERP system in 3 months and then says, “check out our website for tips and tricks”. CLM implementations are growing up – thank goodness.
Now that we have looked back a little, let’s take a stab about what’s to come. I ask you to please only remember the ones where I am right.
Everyone will (knowingly) get a CLM tool
Ten years ago, you would find companies that only had email, a cabinet and perhaps a named resource who functions as their document management “system”. Now, lots of companies have a tool or tools that are doing some CLM functions. I recently just saw a company that had four different authoring tools, three repositories, two analytics and a partridge in a pear tree. May have made the last piece up, but hopefully the point was made. I’ve also had a company tell me they really needed a CLM because they couldn’t find their contracts, despite the fact that they had a good CRM system that stores contracts and a few classic office tools that do the same. As CLM hits ubiquity, the market continues to mature and people move more and more between companies there are more and more people in leadership positions in legal, commercial, procurement or other spots who when confronted with the “mixed” solution to put it nicely, quickly reject it and push their organization to get a proper tool or at least pick the one tool they have to support these activities. And this is a good thing, because the more companies that have CLM, the more competition there will be to get better tools and better user experiences. Everyone wins.
Post-Award Contract Management will shine
As noted in Deloitte’s joint publication with the World Commerce & Contracting, When Technology Meets Humanity, despite the economic challenges of recent times, most companies began a renewed focus on post-award contract management. Who would have thought that the old Force Majeure clause would have been the proverbial “act of God” that converted the folks who used to “just put the contract in a drawer and forget about it” to appreciate the power behind managing their contracts after they are signed. I think this trend will continue because now that companies are getting a taste of the risk mitigation, value preservation and monetary incentives around properly protecting their commercial arrangements they won’t want to leave that money on the table anymore.
Democratization of Contracts will continue
A secret joy I have is whenever I hear a GC or someone from the good old days tell me that upon reflection, they don’t think they needed lawyers to draft contracts or manage them afterwards. This is not an “I told you so” type feeling, but a real joy that somewhere along the line one of the few of us (World Commerce & Contracting was out in front) who looked at this a long time ago and tried to evangelize about a different view of contracts were heard. Lawyers have a very important place in the new world of contracts, but it’s not everywhere. As I said, contracts are touched by every part of a company, but not really owned by any one part. Therefore, the teams that handle their creation, management and commercialization need to draw from more than just lawyers, and often a lawyer is the wrong tool for the job. More and more companies are either outsourcing parts of the tasks to nonlawyers inside or outside their organizations and this trend will continue for sure. But there are still a lot of hearts and minds to change. Quick proof: millions of cars are sold every year just in the UK – with real money at stake. How many of those transactions feature two lawyers negotiating terms? Conversely, how many NDAs – with no money or real risk involved – are being negotiated by lawyers in your company right now? To be clear, my point is not that you should bring a law firm to your next test drive, but that many companies still deploy the wrong resource (or any resource) for the task at hand.
In closing, we’ve come a long way in the last year or so and this won’t stop. I do think the genie is out of the bottle, the toothpaste is out of the tube, etc. But to keep the successful momentum here, we do need to focus on the business reasons for the change and the business value that comes back when these changes are made. Or at least that is how I plan on spending my next decade.