The Future of CLM for Procurement
In my previous blog post, I covered how Nokia decreased their contract signature time from one week to minutes with Apttus CLM.
Contract Lifecycle Management is becoming, for many major companies, a concern to be addressed. The main rationale lies in various areas:
•Increased risk level
•Significant penalties for lack of tracking of personal data
To best prepare for a new contract process in the digital economy let’s look at existing companies and the degree of maturity that they might have today and the expected near and medium-term future. To start, different companies need to evaluate their digital maturity level as far as a CLM is concerned.
A few questions to ask to define your company’s maturity would be:
•Do we have an agreed-upon supplier contracting process in place and a clear definition of roles and responsibilities?
•Do we have a contract repository tool in place?
•Do we have a contract authoring tool in place?
•Do we use an electronic signature?
•Do we have an automatic analysis of the contract?
Once you understand your company’s digital maturity, you can then draw the path for the future of your CLM.
Let’s assume we have the basics like a Supplier contracting process and contract repository or even basic contract authoring. We are covering part of our issues, namely compliance and process.
Now, we need to take steps to be more efficient and in the future improve significantly our contracting process for both our procurement and Legal teams.
The clause library is a must-have if we want to be more effective. Basically, you ask your legal team to look at all your contracts and split them into clauses. Clauses should be classified, rationalized and risk level associated. All of that is a bit specific but we can expect software vendors to provide more and more off the shelf examples of clauses.
Next, you need to find alternative clauses that your negotiator can use. The key idea is to avoid using high-cost legal resources and to automate and accelerate the negotiation of contracts when you are using a CLM system. Ideally, the clauses are accessible directly from a clause library in the CLM tool. This leads to increased efficiency, delegation to negotiators of various domains with control in specific cases by legal teams.
The other important topic of creating a clause library is to update all your legal templates in matters of minutes instead of days. Your CLM system needs to be able to dynamically create legal templates from a clause library and track at clause library level the iteration, release and logged rationale of the change. Approval for such changes can also be set up to avoid mistakes ensuring that our clause library is correctly managed. The dynamic creation will result in drastic time reduction for applying new regulations and update the legal templates the procurement team is using.
Wizard Driven Contract
In the procurement world, the legal is very often pushing standard legal and trying to avoid customer templates. It is usually easier than in the commercial space, where there is more balance of power for the customer. That said we have to create the contract and very often legal is asked what template to choose. One method is to propose through a Wizard with a set of Questions and Answers to guide the user to select the correct template. The Wizard is usually built for a specific company to address its business process. The overall idea is to ask as many questions as possible (but not too many) to ensure we create a contract near the expectations of our negotiator while ensuring we enforce our legal terms and protect our company interest.
One complaint is that the legal document is usually signed once and then put in a repository. For procurement, a CLM process is part of a larger process called S2P. S2P means Source to Pay and even if the contract is signed it needs to be implemented. For discounts based on country on indirect categories or components, the discount should be applied on a price after a threshold is reached (eg: 5% discount above 1Million). The traditional method is to set up an operational contract in the P2P system. This is one use case to automate a contract and the basic level of automation consists of the automatic creation of a record in the P2P system once the CLM legal contract has been set up.
Other forward-thinking technologies that will pop up with be smart contracts. How smart they can be is still in question. Although blockchain technology is more widespread, including blockchain as a service, there is still room for improvements for automating a contract in such an environment. That said it is one option to consider for certain procurement areas as an alternative to a traditional P2P system.
Chatbot Driven CLM
Even with a significant effort on change management, we are facing issues of being unable to have the full onboarding of large teams spread across the world as many people are complaining about the various environments and tool landscape they are facing.
The chatbot or digital assistant is now there. By the end of 2020 and beyond this capability should be deployed extensively. Nevertheless, we must realize that such tools need to be trained and therefore efficient gains are not immediate, but they will help in use cases such as: “I want to create a contract for Professional Services in the UK”. Through a series of questions and answers (even using speech recognition) the chatbot will trigger the necessary actions to reduce your search.
Data Science and Contracts
The last topic is probably the furthest away from a classical way of doing business: using Machine Learning or data science to bring value out of your contract. Several options are available such as at the beginning of the process while uploading legacy contracts, during the authoring phase, or at the end of the process to compare your contracts. So it really depends on the use case you have, but facing a large database of contracts available we begin to realize the value of doing such a task automatically. For an M&A practice, looking at the thousands of contracts in the target company was impossible, classifying the risk on a contract level with obligations. We are going to have more and more capabilities in this new domain to classify our contracts and help take the right decisions.
We will also have new cross domains analytics like supplier performance and relation to contract set up, claim management and relation to contract/performance. Machine Learning will also shed some light on this topic helping organizations to track weak signals in a myriad of contracts done in large organizations.
Contract Lifecycle Management is a new practice with the potential for a high-level of basic set up for systems. We have seen the various additional capabilities that will arrive or are currently in place to increase compliance, process efficiency, or hard benefits. The time is now to work with your CLM provider to set up a roadmap of success and to embrace the benefits of managing contracts in the digital economy.
About Pascal Fouquier
Pascal has more than 25 years of experience in software and sales. For the last 15 years, he has had successive sales management positions at Alcatel Lucent before piloting the digital transformation of Sales and Legal activity. At NOKIA, he started by rationalizing tools and business processes before contributing to the setup of S2P digital strategy, covering the Purchasing, Legal and Financial departments. Today, he leads the Source-to-Contract transformation program in close collaboration with the P2P teams. He also creates expert S2P process teams.
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