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The contract lifecycle management (CLM) market is exploding. Global Contract Lifecycle Management (CLM) Market 2024–2033 research predicts a CAGR of 12.33 percent from 2023 – 2032, with an estimated valuation of USD 3.69 billion. There’s clearly a business need for this capability. In corporates, according to EY there’s a growing acknowledgment that inefficient contracting processes lead to revenue leakages. CLM systems help to streamline and automate the CLM process, while also providing transparency and visibility.
However, despite all manner of CLM solutions available on the market, a Gartner report suggests 50 percent of first-time contract lifecycle management (CLM) fail to deliver against expectations.
Why is CLM software adoption challenging in Financial Services?
Foremost, CLM means different things to different types of financial organisations, depending on their needs. Some consider CLM to be legal matter management, others think of it as contract drafting and document automation – and to some, it can also mean a process for contract amendments, review, approvals, and signatures. The definition of CLM can vary based on individual departments' requirements too. For instance, procurement departments in financial services can see CLM as the ability to have contracts in a central, searchable repository, alongside reporting capability. So, aligning everyone’s needs and achieving a common understanding of this capability is often tricky.
CLM software adoption and implementation are also technically difficult. Corporate departments use a variety of function-specific software systems, and therefore integration of solutions across the various components and stages of CLM can be complex and extremely time-intensive.
Finally, a CLM project needs a business owner to drive the project and secure a reasonable budget. Very often, organisations aren’t able to allocate a budget commensurate with the full scope of CLM, because as highlighted above, definitions and understanding of this capability vary. It’s a vicious circle.
End-to-end contract lifecycle
The reality, however, is that CLM – in the truest sense – is an end-to-end process that encompasses everything in the contract lifecycle; from request, approval, and execution to records management, audit, reporting, renewal, and disposal.
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Functionality must drive CLM solution selection
The application of CLM in Financial Services is vast, and there is no dearth of tools available on the market. Before reaching out to any CLM vendor, based on the nature of business, analyse current internal CLM-related processes, identify where they fall short or where the bottlenecks lie, to then determine what functionality is needed that will make a material difference to the organisation.
This internal investigation helps to shortlist the right solutions to explore in depth. For example, which departments have the most need for the CLM system – is it legal, procurement, or both? Often in corporates, an agreement might be finalised by the legal department, but the procurement team has no idea of the contract because they have different storage systems. Here, perhaps before even exploring a CLM solution, the first action is potentially to implement a document management system such as iManage, so that there’s a central repository for contracts, for visibility. Then again, if the majority of agreements are generated or renewed by procurement via self-service processes, a system such as Lawcadia could do the trick.
Likewise, if the organisation receives many external contracts, evaluating solutions that include AI functionality, such as LawVu, has merit. The alternative – i.e., legal professionals managing contracts manually is extremely laborious, expensive, and inefficient. However, if most of the contracts are generated in-house then a solution offering advanced document automation functionality, such as Kim Documents, is likely to deliver significant value.
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On the other hand, an organisation may need a single CLM solution for the entire business, not just specific departments like legal or procurement. In this scenario, an out-of-the-box contract management system will likely fall short, because the organisation needs to create and embed its unique workflows, including document automation. Here Sysero could be a good fit.
Accurately identifying the functionality requirements also helps to evaluate and identify which other business systems the contract management or CLM solution needs to be integrated with. For instance, if legal request triaging is a much-needed capability, then potentially either the solution must integrate with the existing matter management system or serve as both a matter management and a legal request management system, such as Co-Flow.
The right contract management capability, not nomenclature
It’s all about choosing the right capability set so that it meets business requirements. This understanding enables the development of a strong business case, which in turn is often essential to the organisation’s or department’s ability to secure the right amount of funding. A well-informed business case is typically supported by return-on-investment expectations, making buy-in from leadership a lot easier.
Starting a solution search by seeing product demos of systems purporting the nomenclature ‘CLM’ or ‘contract management’ – without a good idea of the business requirement or approved budget – is not only time-consuming but also confusing. The benefits and values of different technology systems vary, and it is easy to get swayed by the ‘nice to haves’ – and deploy the wrong solution – if the organisation isn’t clear on the capabilities sought. This is perhaps among one of the top reasons why CLM projects fall short of expectations in corporates.
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FAQs
What is a contract?
A contract is a promise or set of legally enforceable promises and, if violated, allows the injured party access to legal remedies. To be legally binding, a contract must include four key elements: an offer, acceptance, consideration, and an intention to create legal relations.
What is contract management?
Contract management is the process of managing contracts, deliverables, deadlines, contract terms, and conditions while ensuring customer satisfaction.
What is the difference between contract management and contract lifecycle management (CLM)?
These two terms are often used interchangeably. However, contract management is typically a manual process of managing spreadsheets, emails, and documents that constitute the contract for business. CLM is a continuous, end-to-end methodology that encompasses technology, people, and processes to help reduce revenue leakage, improve profitability, and ensure security and compliance.
What are the 5 phases of the contract lifecycle?
There are five phases in CLM – request; contract creation, negotiation, and approval; execution; capture obligations, manage and comply; reporting and audit; and finally, renewal or closeout.
