Four Steps to Begin Contract Management Planning
One of the most tedious and high-stakes tasks in any business is managing contracts. In the past 10 years, we’ve seen a proliferation of tech tools that proclaim to make contracting easier, faster, and automated. By 2022, technology was essential for maintaining the visibility of contracts and their progress along the contract lifecycle. Digitization became much more of a need-to-have. However, all the technology in the world will still fail if you don’t have a solid workflow and adoption plan in place first.
Enter Contract Management Planning (CMP). CMP is a dynamic, multidisciplinary, team-driven framework that empowers you to make your organization’s contracting process logical, transparent, and efficient. The bottom line? CMP helps you manage risk and optimize results.
An essential component of CMP is Contract Lifecycle Management (CLM) technology, which efficiently automates the flow of contracts. HBR reported that entering 2022, 75 percent of corporate legal departments named the law of contracts as one of their three top growth areas, and that 65 percent reported a full CLM system implementation was in place. At the same time, Gartner expects that by 2025 law departments will realize only 30 percent of their CLM systems’ full value.
What Is the Difference Between CMP and CLM?
It is important to understand that CLM and CMP cannot be used interchangeably. CMP includes CLM technology as a component to help organizations negotiate, analyze, manage, and enforce contracts and achieve their desired business outcomes.
- Contract Lifecycle Management (CLM) focuses on the features, benefits, and resultant value of technology in improving the quality of contracts. It is an essential strategic element to making an overall CMP to continually improve the success of contracting processes.
- Contract Management Planning (CMP) is a business-driven discipline in which the organization’s stakeholders learn from each other to the most strategic way to implement technology. CMP takes CLM concepts and elevates them to a more holistic level to help a business understand how contractual processes are handled and how they can be improved.
Four Steps to Begin Your Contract Management Planning Journey
CMP helps you better analyze the how and why of what’s happening, as well as the how and why of achieving better business outcomes moving forward. Armed with a CMP framework, you position yourself as a “legal procurement” leader within the organization. Much of the work involved in CMP is completed before you buy, upgrade, or hire a consultant to re-engineer anything. So, whether you’re selecting your first CLM system, reconfiguring your existing system, or replacing a legacy system, these four steps will serve as a guide to ensure your goals are met.
Step 1: Set CMP’s Goals and Strategies
The first step in a successful CMP is researching how contracts are managed and setting goals within your organization. Ultimately, think of step one as interviewing your company. First, write down your company’s business objectives, organized by priority. From there, seek to answer: Where do your contracting processes and their effect on business objectives stand now? Where do you eventually want those processes to be?
Next, set reasonable short-, intermediate-, and long-term goals. The strategies that will help you reach those goals will arise from your study and analysis of your existing contracting situation and the related workflows and stakeholders.
Be prepared to talk to many people, examine myriad data, and revisit a lot of history. It may be helpful to bring in an outside consultant to identify gaps. A best-practices approach to this research and goal-setting phase is asking who, what, where, when, how, and of course, why.
Step 2: Articulate the Value of CLM Technology
Next, hone your messaging. Your answers from step one will prepare you to start making your case for how technology creates business value to your various stakeholders. Explain it in a way that speaks to the pain points and concerns of each unique stakeholder to earn their trust and gain crucial feedback as you implement solutions.
Two exercises will help you prepare for these conversations:
- Take an inventory of the technologies you use now that you are involved in the contracting process (i.e., the e-billing system, matter management and document management systems, ERP suite, and analytics tool engine). Note how these systems integrate with one another. Once you list the functionalities you have versus the functionalities you need, sketch out your ideal CLM workflow that integrates these systems and incorporates functionality to create optimal efficiencies.
- Diagram your contract lifecycle and visually assign each benefit of a CLM system. Create versions of this diagram to illustrate how specific stakeholders benefit in specific ways. For example, one model might distill contracting into six phases: initiate, review, negotiate, approve, analyze, and manage. But no matter which benefits you focus on, mapping them in this way helps you think clearly and craft your elevator pitch with panache.
Step 3: Assemble Your CMP Team
After the research is done and the project is communicated, assemble your CMP team. Recruit leaders of individual departments, primary negotiators, and contract managers—those with the most familiarity with the specific types of contracts, the workflows, and yes, the frustrations and pain points.
Contracting touches just about every department: HR employee onboarding; procurement purchases; project management office Internal Service Level Agreements; Intellectual Property department licensing; acquisitions led by finance; and vendor management. Due to the number of employees whom contracting affects, you have an opportunity to build a cross-functional team of stakeholders who can help make contracting processes more transparent, more standardized, and more effective.
The ideal team will consist of six to eight members with diverse backgrounds and perspectives who will be champions for the project and provide honest feedback on what works and what doesn’t. Remember, CMP focuses on business outcomes and business opportunities, not just on technology. Be sure they commit to meeting regularly as they will become the arbiters of continuous improvement.
Step 4: Identify CMP’s Key Performance Indicators (KPIs)
Lastly, identify your KPIs. In five years how will you know your efforts have worked? How will you track improvements or regressions and make any needed adjustments? KPIs that measure the success of CLM often fall into three categories: process, compliance, and performance.
- Process metrics regard how well your company drafts, reviews, and negotiates contracts. Example: How much time it takes a counterparty to return its redlines and comments or to approve a contract?
- Compliance metrics answer what contract enforcement issues your company is facing. Example: How many milestones are being missed or how many contracts are expiring?
- Performance metrics measure how your negotiation of contracts and management of risks is ultimately supporting revenue. Example: Annualized Contract Value that compares the average annual value of similar contracts.
It is important to realize that not all KPIs provide immediate statistics. Some can take years to be meaningful, especially when conducting comparative analyses and year-over-year evaluations. That’s why carefully conceiving KPIs and how they will be calculated and presented is crucial.
The potential of CLM, and therefore the necessity of Contract Management Planning, is nearly limitless because legal technology helps attorneys and legal departments save time. Deloitte estimates that “low-value” tasks have traditionally taken up to 80 percent of an in-house attorney’s time. CLM technology carries the potential to shift resources toward more “high-value” work that is both high volume and repetitive.
I hope I have generated excitement about the possibility of making life easier for many people within your organization. These four steps to CMP will improve your ability to gather requirements, put you in a better starting position for CLM system selection and implementation, make the scope of your requirements more focused, and position you as a leader with serious intent and credible expertise. By undergoing CMP, you are choosing to put your employees and the work they do first, while simultaneously helping your business manage risk and optimize results.
Olga Mack is VP at LexisNexis and CEO of Parley Pro.
Mack, Olga V. (2022, December 14). Four Steps to Begin Contract Management Planning. https://www.law.com/corpcounsel/2022/12/14/four-steps-to-begin-contract-management-planning/