Improvements in Contracting and Contract Management are a must, but let’s focus on why
The last few years have truly been amazing for publicity around contract lifecycle management – both as a set of activities that all companies do (whether they realize it or not) and for providing perspective on technology enablement. Investment money is flowing into CLM tech companies at unprecedented levels, and we may even see an IPO this year in the space. Blog posts, webinars & social media are packed with content espousing tips, tricks, trends and everything in-between on contracts, contract data and contract management. It’s great! The attention is fantastic. I don’t have to spend 30 minutes explaining what I do to people anymore. Thank you all for that.
However, not to be negative, but I do think that perhaps the message of the “why” is getting lost a bit. Doing something faster is great unless it’s not. Other than the joy of making an institution happy, unless there is some contractual discount for it, paying your bank, tax authority or a vendor faster isn’t necessarily a great benefit to you, is it? More data is great too--unless it’s useless data. My eating habits pre- & post- 2020 are certainly interesting to me, but probably not to most people. The same is true with contractual data. Yes – contracts are full of great data. But they are also full of garbage, too. Have you ever really read a notice provision? Data mining a contract is like any mining--you must know what you are looking for when you get in there. There’s a reason why there is gold and fool’s gold.
So, at times like this, when I think people are getting a little lost, I like to introduce them to my BF – Benjamin Franklin in this case. He wrote a lot about pragmatism and referenced a classic proverb quite often – the Nail. For those of you not familiar with it, here is a common version:
For want of a nail the shoe was lost.
For want of a shoe the horse was lost.
For want of a horse the battle was lost.
For the failure of battle the kingdom was lost —
All for the want of a horse-shoe nail.
I like this one. I think we can call relate to it. Who hasn’t thought, “if X had just happened, then I have won the deal/gotten that promotion/the New York Jets would have gotten that draft pick which allowed them to be a good football team.” But more germane to this discussion, I would like to think of the “nail” as the reason for doing something. Yes – innovation and digital transformation are necessary and needed in contract lifecycle management and contracting in general. But why? As postulated above, faster for faster’s sake and icebergs of data are not intrinsically interesting. So, what is the why? Glad you asked. Let’s look at a couple of areas and investigate.
Since 2020 this must be the most common ask, push, request of CLM technology and CLM processes/teams. Companies that have mastered self-service typically use a mix of technology, contract (re)design and simplification of process/approvals. Besides making the “business” teams happy and taking away lawyer time, why is this important? From a financial business case perspective, it’s a tale of 2 sides really. For sell side contracting the reason for doing this is speed. Less time in the Rube Goldberg-esque approval matrix prisons that many companies impose on themselves means faster time to contract, faster time to sell, faster time to bill, faster time to cash. For buy side contracting, self-service is important as well, but often it gets expressed as shifting work from the legal team to a procurement team, which has the benefit of less legal time and lawyers tend to be more expensive resources than procurement resources, so there is a benefit there.
But let’s dig a little deeper and find that nail. Self-service isn’t just about moving an activity from one group to another. That’s a very 1990s outsourcing mentality and we can do better. As I alluded to before, mastery of self-service requires some real simplification, analysis and re-design. Just look at the World Commerce & Contracting surveys on where companies spend time negotiating vs where companies see risk. Very rarely do companies lose money on the 3rd limitation of liability carveout regarding gross negligence and wilful misconduct but daily companies are fighting with each other and losing money over scope and how to handle changes around that. With that in mind, companies that see the real benefit of self-service on the buy side, make their contracts easier to read, more focused on the points that effect a business relationship and move the “legal” items to more generally accepted terms. This way when the procurement or other “business” person uses the contract they can have a sensible discussion on handle those things that truly matter.
To hammer this home (see what I did there). Self-service is a great hashtag and intuitively it makes sense. But if you are not focused on the why, the real reason to do this, you may not get the real benefits economically or relationship wise. I have seen companies try and take the same clunky contracts that lead to lots of cycle time, lawyer ping-ponging and debates about version control and try and plug those into a state-of-the-art self-service tool. They will often turn around and say things like “we tried self-service and it doesn’t work for us.” To me this is like saying, “eating healthy doesn’t work for me,” when the “plan” you are living by is sensible dining Monday through Thursday and then eat and drink what you like Friday through Sunday. You may want to consider a pivot on that one.
Post-signature contract & commercial management
This is (still) the spot where most companies are missing the nail. To be fair, as I have written before, this is a lift, an effort and a change in mindset and organization. But it is also the area where the most benefit – economically and beyond – can be found and particularly on the buy side of contracting. Many companies don’t do much beyond perhaps contract repository, but 10 years ago not many even did that, so the wheels of progress can be slow. Some companies to their credit are taking this very seriously and have teams. More and more I am seeing pockets of success with global contracting offices, vendor management offices or the apex of contract maturity – the contract and commercial management team.
But perhaps because CLM tools (mostly) all come with an obligation management or reminder function now, companies are being lulled into a false sense of security. Don’t get me wrong – those are key functions and must haves, but companies sometimes forget the people and process parts of the holy trinity and just think technology is enough here. This then leads to the inevitable comments in surveys like, “we have an obligation management tool, but we’re not really seeing the benefits of it,” or “the reminder system just created a lot of noise, so we shut it off.” I am not even kidding. I’ve heard that last one way too much. And again, these are examples where I don’t think smart people are being informed enough about the why or what for these functionalities are there for and how to really use them. Imagine if the tax authority sent you a note saying that you didn’t pay your taxes and left it at that. Or if the police camera showed you speeding or perhaps parking not perfectly in Reading over the holidays (honest mistake – won’t do it again) and didn’t give a consequence for that. What would happen? I know that’s absurd, but that is how many companies are using these tools. They get the report showing vendor non-compliance, but no one owns it. Legal is too busy and its not their remit, procurement is often stretched too and dealing with next deal and the “business” isn’t trained to do this and more focused on the project they have to complete.
This is the same with reminders. See my points above. Not everything in a contract is important. Getting that report in from your supply chain so that you don’t fail internal or external audit – important. Applying discounts for volume purchasing – important. Invoice sent on 15th of the month – important to the vendor, but you probably don’t need a reminder for it. This is a not a knock on any tool or functionality, but more of a call for everyone to understand that if you want to hit that nail, get those benefits, then the tech piece is a 3rd of the story. Without process and people to follow through and do the “management” piece of obligation management, we’re missing the mark.
To sum up here, the nail, the why of all this contract transformation really has to be about business outcomes. And to put a finer point on it, economic benefit. We’ll be writing about this more all year (stay tuned). But imagine all the losses avoided, the gains that could be had when you do contract lifecycle management right. But it would be a terrible shame to lose those or miss those opportunities all for the want of a nail.