EVALUATING CONTRACT LIFECYCLE MANAGEMENT SOLUTIONS: BEST-IN-CLASS FEATURES

Transcription

1 EVALUATING CONTRACT LIFECYCLE MANAGEMENT SOLUTIONS: BEST-IN-CLASS FEATURES

2 INTRODUCTION INTRODUCTION CONTRACTS FORM THE FOUNDATION OF ALL BUSINESSES AND EVERY BUSINESS RELATIONSHIP. THEY DEFINE EVERY ASPECT OF A BUSINESS S ACTIVITIES PROCUREMENT, SALES, MARKETING, FINANCE, LEGAL, AND HUMAN RESOURCES. THEY SPECIFY PRICING, SERVICE LEVELS, AND ALL THE OTHER RESPONSIBILITIES AND EXPECTATIONS OF A BUSINESS. MANY CORPORATIONS MAINTAIN TENS OF THOUSANDS OF ACTIVE CONTRACTS, AND THE QUANTITY AND COMPLEXITY OF THOSE CONTRACTS ARE INCREASING. Contract management software addresses the needs of today s companies to gain the most value possible from their contracts. It helps to control spending, mitigate risk, enforce compliance, and recognize opportunity. In the form of contract lifecycle management (CLM) solutions, it provides the necessary oversight and control to craft better contracts and verify that contractual obligations are fulfilled. 02

3 CONTENTS CONTENTS The Benefits of CLM Systems... 3 Hallmarks Of A Best-In-Class CLM Solution... 4 Best-In-Class CLM: Smoothly Delivering Positive Business Results... 7

4 THE BENEFITS OF CLM SYSTEMS THE BENEFITS OF CLM SYSTEMS Despite the fundamental nature of contracts to business, and the benefits of managing contracts more proactively, surprisingly few businesses have realized how CLM software can increase the value of all their contracts. Lacking the robust view of opportunity and risk that comes with a CLM solution, those companies expose themselves to increased costs, lost revenue, poor corporate compliance, and the risk of regulatory penalties. According to a study by The Economist, only about ten percent of corporate executives have sufficient access to the information they need to make important business decisions. Another survey showed that more than 50 percent of corporate executives are uneasy about making errant decisions because of a lack of timely and reliable information. A larger proportion of corporate executives, 80 percent, identified access to better information as the key factor in improving business performance. CLM is a tool that can significantly improve the quality and timeliness of this information that means so much to executives. It helps assess and mitigate risk, which, according to the Aberdeen Group, 42 percent of enterprises identify as the top driver for improving contract management. The report also noted that nearly two-thirds of the enterprises using CLM credited the technology with improving their exposure to financial and legal risk. By integrating contract creation, management, and electronic archiving, CLM solutions make all the information in all of a company s contracts available in real time. Executives and managers who need that information to make decisions can find it, understand it in context, and use it to their company s advantage, for example, by gaining insight from contract performance analyses. Facilitating contract access leads to improved terms that a business writes into its contracts. By enabling a deeper and more contextualized understanding of contract risks and obligations, CLM minimizes risk and ensures the best return on the contracts it is used to create. For businesses with considerable compliance requirements health care, government, finance, etc. CLM systems ensure that contracts properly incorporate regulatory obligations, that both parties meet their obligations, and that reporting requirements are properly completed. Because CLM systems automate contract creation, they can reduce a company s legal budget while enhancing contract quality and freeing legal resources to perform more highly valued activities. Integrated with other business systems, such as enterprise resource management (ERM), contract management solutions multiply their value and further enhance a business s competitiveness. The strongest proof of CLM s benefits may be the rising adoption rate that such systems are now experiencing. Some analysts have predicted that the market may approach $6 billion by 2014, and Gartner estimates that the compound annual growth rate will exceed 10 percent. While legal departments and sourcing professionals are driving much of that growth, sales, marketing, and HR 03

5 HALLMARKS OF A BEST-IN- CLASS CLM SOLUTION departments are also catching on quickly. Just as contracts touch every aspect of practically every business, the economic effects of implementing an innovative CLM solution can be evident and measured across the enterprise. HALLMARKS OF A BEST-IN-CLASS CLM SOLUTION With an increasing number of CLM vendors in the market, prospective customers need to know how to evaluate which solution will best serve their needs. Some high-level criteria are: Support for all contract types: buy side (procurement), sell side (sales), and nonmonetary (NDA, non- compete, etc.) Central repository with management tools Compliance management Real-time alerts Advanced security features Easily integrates with customers IT systems Contract Creation Automating contract creation, and introducing flexible and unambiguous workflow for the process, are two of the first ways that a CLM solution can begin providing value to a business. Relying on in-house or outsourced legal expertise to create contracts from scratch will typically be far more costly than using automated contract authoring software. To create new contracts, some systems use question-based wizards and clause libraries to generate most of a contract s text. Your CLM solution should also be able to import existing contracts and extract clauses from them for use in the library. Some solutions also include clause analysis features, which can provide insights into a business s most frequently used templates and clauses. Electronic workflow facilitates collaboration, speeding the creation of new contracts, and improving their quality while eliminating editorial ambiguity and ensuring proper approval. Look for workflow flexibility and the level of workflow complexity a solution supports. The workflow engines of the best-in-class CLM solutions dynamically route contracts to the proper internal approver or reviewer, using a configurable set of contract variables, such as contract type, product or service being exchanged, monetary value, and risk level. The best solutions also allow for collaboration with external parties, which can lead to more win-win contracts and strengthened business relationships. 04

6 HALLMARKS OF A BEST-IN- CLASS CLM SOLUTION REPOSITORY AND CONTRACT MANAGEMENT A contract repository, part of which is the clause library, is the heart of all CLM solutions. When considering a vendor s offering, your primary considerations should be secure access, version control, audit trails, metadata management and searchability. Access control typically enables search, reading, editing, and approval access to specified persons. It ensures that all authorized users have the access they need while preventing access by all unauthorized persons. By providing users with intuitive search, read, and copy access to previous contracts, a good CLM solution enables focused and contextualized understanding of the agreements a contract is specifying. The best solutions provide for wireless access by authorized devices of many types, such as smart phones and tablets. Version control eliminates the ambiguities that can crop up when several parties are developing a contract. It ensures that, when someone is editing or giving approval to the contract, he or she is working with the proper version. Audit trails are an aspect of version control. They document each time a contract is accessed, edited, and approved, identifying the individual who referred to the contract. A solution s repository and contract management system is only as effective as its filing and search capabilities. Can you customize the solution s filing hierarchies to reflect the organization of your company? How intuitive is its search engine? Can it find every sort of content you need to evaluate? One example of how a repository and management system can save you money is by evaluating evergreen contracts. These agreements automatically renew if you do not provide written notice otherwise before a defined date. In many cases, evergreen contracts include automatic price increases. A robust contract management system will automatically notify the responsible party when the auto-renewal date is approaching. Failing to notice the automatic renewal date can burden your business with suppliers you might rather do without, and increase your cost of doing business. A complementary example also relates to contracts that are coming up for renewal. Upon automatic notification that a contract is due for renewal soon, a manager could then evaluate the contract s performance, and proactively engage with the client to negotiate better terms. Some CLM vendors claim that their solutions can improve revenue on renewed contracts by as much as 30 percent. COMPLIANCE MANAGEMENT Regulatory compliance is critical in many industries. Penalties for noncompliance can reach far beyond fines, and can potentially affect a company s reputation and ability to remain competitive. CLM solutions ensure compliance by confirming that all versions of a contract carry all required clauses, and by verifying the satisfaction of contract commitments. Compliance items the terms or clauses that control the contractual relationship could be related to insurance, credit risk, certifications, and so on. By carrying compliance items to a contract, a CLM solution ensures the inclusion of the corporate policies and procedures that provide the level 05

7 HALLMARKS OF A BEST-IN- CLASS CLM SOLUTION of auditable governance required by such legislation as the Sarbanes-Oxley Act. CLM also involves compliance monitoring, such as helping to verify that a vendor has renewed its annual insurance as required by a contract. When a CLM system is informed of such a requirement, it could automatically notify the contract manager when the required documentation from the vendor is due. Other forms of compliance include a checklist of items to be verified before a contract can be effective, and minimium levels of yearly spend required to maintain discount levels. ALERTS The power of a repository and management system becomes most evident in a solution s alerting capabilities. The best-in-class products include flexible dashboards from which users can call up predefined reports and create custom alerts. Examples of this functionality include calendars of milestones and reporting dates, performance comparisons, and alerts for price noncompliance. These features give new decision-making capability to managers and executives. A superior CLM solution can deliver this information reliably and in real time. Businesses that rely on IT personnel to prepare custom analyses on contract performance, or on staff to retrieve and analyze paper contracts, are losing a competitive edge to businesses that have effective CLM solutions. Such forward-looking companies can react to changing conditions faster, discover opportunities and risks more easily, and continually fine-tune their policies to remain ahead of the game. SECURITY Naturally, you want your CLM solution to provide all the security you have depended on to this point. That means a repository with a hierarchical system of document access. Depending on your industry, access to areas of the repository can be based on organization unit, user role, or at the individual level. The system should recognize users attempting to access documents as not authorized, and authorized for read only, read and edit, and read, edit, and approve. DEPLOYMENT AND INTEGRATION An excellent indicator of how well a vendor s CLM solution will integrate into your information systems generally is the strength of that vendor s solution in the market. The bestin-class solutions will integrate well with Microsoft Word software standard in legal departments and support contracts in multiple languages. One of the great strengths of the best CLM solutions is that they are flexible and robust enough to allow decision-makers to access reports and design analyses on their own, without having to rely on specialized IT expertise. Solutions that rely on IT expertise to change system behavior can delay the delivery of crucial business information, and degrade the quality of the information delivered because of translation issues between the executive suite and the data center. Other issues to consider include whether the vendor offers worldwide support, how well their solution integrates with the systems of your business partners, and the degree of buy-in the solution has enjoyed in other deployments. 06

8 BEST-IN-CLASS CLM: SMOOTHLY DELIVERING POSITIVE BUSINESS RESULTS BEST-IN-CLASS CLM: SMOOTHLY DELIVERING POSITIVE BUSINESS RESULTS A contract lifecycle management system can quickly prove its worth by reducing the costs of paper-based contract management, and increasing revenues through the creation and improvement of CLM-produced contracts. The demonstrable ROI of CLM is the result of: Streamlined contract creation Improved contract monitoring Enhanced corporate, industry, and governmental compliance Facilitated searching and reporting Improved security Backed by a robust repository for contracts, the best CLM solutions reduce the time and cost for contract creation by using templates and online collaboration. Searching and monitoring capabilities identify and prevent overcharges and off-contract spending. Reporting tools ensure that milestones are met and renewals are dealt with wisely. Compliance features reduce the risk of regulatory penalties and enforce corporate policies. And security standards provide all the access necessary to those who need it, and prevent access to those who do not. 07

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