How effective would a law school be in cultivating great lawyers if it decides to not measure student learning outcomes – that means no exams or tests. Worse yet, how many students will even be able to pass the bar exam and become lawyers?
On the opposite end of the spectrum, there’s a school that has excellently optimized its framework to measure the learning outcomes of students. That means teachers have a dashboard backed by the latest data about student performance that reflects the areas that their students lag behind in, which enables them to take the right actions to improve outcomes. It’s easy to say that the second law school will be able to cultivate better lawyers.
The same goes for business. If you don’t measure, then how do you evaluate how you are doing?
“If you can’t measure it, you can’t manage it” is a quote that has won its place in major business books because measurement has long been a religion for leaders in the business world.
But despite the decades-long love affair of business leaders and data, one aspect of business still remains relatively less measured – contracts, the lifeblood of business. If you are here, you already acknowledge how important these documents are. Contracts need to be signed, negotiated, and executed for a company to exist. But they are still often overlooked as an “operational function” with inadequate efforts going into measuring and analyzing related data. Let’s take a look at how it can make or break your business in today’s world.
Prevent revenue leakage
To understand it better, let’s take an example of a company that sells online services. It creates, negotiates, and executes a contract for each deal. Many a time, the company agrees to a vendor contract without clear specifications about the performance of their product due to tight deadlines. Then comes a situation where the product fails to meet ‘misinterpreted’ expectations that are important to its client, leading to the company investing time and resources to avoid dispute, which eats up their profits.
This is just one instance of revenue leakage that happens due to improper contract management being done without visible insights into contracts. There can be hundreds of other scenarios which lead to contracts failing to deliver their full potential and might even lose value over the lifespan of a business agreement.
World Commerce and Contracting estimate that companies can lose as much as 9% of annual revenue due to poor contract management. And all the major areas that are leading to leakage can be solved with robust data and insights into contracts.
Apart from preventing unplanned expenditure, contract management can also help identify opportunities. For instance, suppliers often offer price reductions for volume growth in a contract but companies may fail to realize this benefit even if volume increases to specified levels because of a lack of insights, process, and workflow gaps between the contracting and the implementation teams.
Similarly, the online services provider company in the previous example might often offer free workshops, access to intellectual property, or similar benefits in return for becoming a preferred supplier. This is included in the contract. But how often and how well do companies take advantage of these after the contract is executed? You already know the answer to this.
I don’t even need to make a business case here; it is already well-established that organizations that make data-driven decisions position themselves for long-term success. Their culture and tools make it easy to collect quality data and analyze it quickly and accurately to make informed business decisions.
For instance, legal and contract management professionals found themselves baffled when COVID-19 hit but not only because of safety concerns. They needed to go through thousands of contracts to find where force majeure clauses are located to determine whether they can legally suspend contractual duties.
Data-backed contract management would have helped. Easy access to this data could have saved countless hours for these professionals and helped them make informed decisions at the right time.
Streamline contracting process
Do you know how long each stage of contracting workflow takes to be completed in your organization? Easier yet, how easily can you find out where a contract is in its workflow in your organization? Or what steps have been completed?
Organizations that have data to answer such questions can easily identify and address bottlenecks in their contracting process, instead of having their workforce engaged in endless email threads and reminders even when the problem is with something out of their control.
Besides, contract storage will also need to get organized to be able to deliver quality data at the fingertips of your employees. If you need to look through cabinets or your email inbox to find a contract, you will probably not be able to realize the benefits mentioned above.
How CLM can help
Business leaders already acknowledge the value that lies in their contracts and the need for better data and insights to be able to realize that value. A recent EY survey revealed that as much as 94% of business development teams report they face challenges with their contracting process.
Leaders have looked the other way until now because it has traditionally been tough to collect high-quality contracting data. And more often than not, their teams have better use for their time than reading between the lines of a 142-page contract.
Lack of visibility, transparency, automation, and accountability are often the root cause of challenges that have a financial impact on the organization. CLM solutions are best-positioned to help companies address these challenges.
These solutions can quickly give you specific data about your contract cycle and help you identify what’s broken with your contracting process by just clicking a few buttons.
Remember that online services company that had to lose money because of misinterpreted expectations? An advanced CLM like smartContract could have helped prevent that by pointing out if a non-standard clause was used to specify product performance.
Finding force majeure clauses in your contracts and their legal validity in the context of a pandemic would also have been a piece of cake with CLM technology. Advanced CLM tools like smartContract are equipped with a powerful and central contract repository that streamlines contract storage and serves as a single source of truth. The online and searchable repository provides direct and easy access to contracts.
There are dozens of other features in smartContract CLM that can enable massive cost savings and immense benefits for your organization. It can be an effective tool for every department especially legal to unlock maximum potential and value from the contracts.
There’s a lot more. If you are interested in discovering more about CLM technology and the benefits it offers, please connect with a smartContract consultant today.