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Introduction to Contract Lifecycle Management 
(CLM)

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Contract lifecycle management (CLM) refers to the process of managing contracts through their entire lifecycle, from initiation and creation to execution, monitoring, and eventual renewal or termination. 

Contract lifecycle management software manages all aspects of a contract through these various stages of the contract’s lifecycle. CLM systems are used for various types of legal agreements with external parties, including arrangements for outsourcing, procurement, sales, confidentiality, protection of intellectual property, property leases, management of facilities, and more. 

So, what does CLM software do? At its most basic level, a CLM system provides a single digital repository where organizations can store all their legal documents. A robust CLM solution can revolutionize the way your organization handles contracts, from creation and negotiation to approval and renewal, to storage, reporting, and actionable analysis. 

Key components of CLM software

A robust CLM system is essential for any organization looking to streamline its contracting processes.  

Components of a comprehensive CLM system

Here are the key components that make up a comprehensive CLM system: 

  • Contract repository: A centralized, searchable contract repository is the cornerstone of any CLM system. It provides a secure and accessible location for all contract-related documents, ensuring that they are organized and easily retrievable. 
  • Contract creation and authoring: The ability to create and author contracts using customizable templates and clause libraries is a fundamental feature. This component speeds up the drafting process and helps maintain consistency across all contracts. 
  • Workflow automation: Workflow automation facilitates the movement of contracts through different stages, from initiation to approval. It ensures that contracts are reviewed and approved by the right people in a timely manner, reducing bottlenecks and improving efficiency. 
  • Approval and E-Signature integration: Integrating e-signature capabilities within the CLM system allows for seamless contract execution. This feature not only expedites the signing process, but also adds a layer of security and legality to digital documents. 
  • Performance monitoring and analytics: Monitoring contract performance and analyzing data is crucial for informed decision-making. CLM software with analytics capabilities can provide insights into contract effectiveness, financial obligations, and risk exposure. 
  • Renewal and expiration management: Automated reminders and notifications for contract renewals and expirations ensure that no critical dates are missed. This component helps manage the end-of-contract processes efficiently and prevents auto-renewals or lapses in service. 

Advanced features of a CLM

The following are considered more advanced features of a robust CLM: 

  • Integration with other systems: The ability to integrate with other enterprise systems, such as CRM, ERP, and procurement software, allows for a seamless flow of information across different business functions. 
  • Security and access controls: Robust security measures and access controls are non-negotiable in a CLM system. They protect sensitive contract information from unauthorized access and ensure that only designated personnel can view or edit contracts. 
  • User-friendly interface: A user-friendly interface is vital for ensuring high adoption rates among users. The CLM system should be intuitive and easy to navigate, minimizing the learning curve for new users. 
  • Scalability and customization: As businesses grow, their CLM system should be able to scale accordingly. Customization options allow the system to adapt to the unique needs of the organization.  
  • Advanced reporting tools: Advanced flexible reporting tools are essential for extracting valuable insights from contract data. These features enable organizations to generate custom reports for various business needs.  
  • Compliance management: A robust CLM system includes compliance management features that help organizations adhere to internal policies and external regulations. This is achieved through automated alerts and compliance checks throughout the contract lifecycle. 

Vendor-dependent features

Lastly, the following attributes of a CLM system are vendor-dependent and vendor-specific:  

  • Support and training: Comprehensive support and training resources are important for helping users maximize the benefits of the CLM system. This includes access to customer service, documentation, and training modules. 
  • Vendor and stakeholder collaboration: Tools within the CLM system facilitate communication and negotiation with vendors and stakeholders, making it easier to manage contracts that involve multiple parties. 

The history and evolution of contract lifecycle management 

From ancient scrolls to cutting-edge AI, contract management has witnessed remarkable transformations over the centuries, particularly following the advent of CLM software. Now with almost 30 years of technological advancement, CLM is at the forefront of the contracting revolution, and digital transformation of contract management is well underway. The following is a brief overview of the history of CLM software, its rise in the business world, and its prominence today.

The advent of CLM software

Traditional contract management prior to the late 1990s was a labor-intensive process fraught with inefficiencies, including manual data entry, paper-based storage, and decentralized access.  

A boon to legal professionals everywhere, CLM software first emerged in the early 2000s, primarily as rudimentary document repositories with basic functionalities like search, template creation, and reporting capabilities. These early solutions were often snapped up by larger companies that recognized the potential to expand their product offerings. This marked the inception of CLM technology, which has since evolved from a niche market to a significant force driving digital transformation on a global scale.

The evolution of CLM technology over the years

Contracts, in decades past, were lost in forgotten filing cabinets somewhere, only accessed when something inevitably went wrong. But that’s not today’s reality. With the evolution of contract lifecycle management solutions, contracts have become incredible sources of valuable contract data that can be extracted and used for different purposes across the organization.  

Below are the three distinct phases of contract lifecycle management development over the years: 

  • First wave (1980s-1990s): During the 1980s and 1990s, the business world witnessed the initial wave of digitization. Contracts, traditionally bound to paper, transitioned into the digital realm. The advent of Optical Character Recognition (OCR) technology enabled organizations to transform physical contracts into digital formats. The objective was clear: to eradicate the excess of paper and enhance the efficiency of document management. While the classic 8.5 by 11-inch document size remained, the medium evolved from tangible paper to digital pixels.
  • Second wave (2000s): Approximately 15 to 20 years ago, the second wave of CLM software took shape. Businesses pursued greater efficiency by embracing automation. This era brought significant advancements such as automated contract drafting, sophisticated approval workflows, and the development of comprehensive clause libraries.
  • Third wave (Recent years): The most recent wave of CLM, emerging in the past five to seven years, is characterized by a shift beyond simple automation to focus on data utilization. Marked by COVID-19 and the increased demand for digitization, this period has introduced functionalities that are reshaping the landscape of contract management, including AI-powered chatbots for immediate assistance, intelligent contract creation tools, and automated contract review systems that ensure accuracy and compliance. 

The impact of COVID-19 on CLM

The onset of the COVID-19 pandemic precipitated a paradigm shift in business operations, compelling a swift transition to remote work. This unprecedented situation accelerated the adoption of legal technologies, particularly those that augment existing CLM systems. 

Prior to the pandemic, the utilization of CLM software was sporadic, with some companies employing it selectively within their contract processes, while others eschewed it entirely in favor of manual operations. The pandemic, however, exposed the vulnerabilities of manual processes, compelling legal leaders to embrace automated CLM solutions to sustain and advance their business operations. Consequently, the pandemic has had a positive effect on the growth trajectory of this “third wave” of the contract lifecycle management solution market. 

The prominence of CLM software today

The popularity of CLM software today is undeniable. With the worldwide CLM market projected to grow 3.5 times between 2020 and 2030, and a compound annual growth rate (CAGR) of 13%, the adoption rate for CLM software is expanding exponentially.  

This surge in popularity is attributed to the software’s ability to significantly reduce the time and effort required to draft, review, and approve contracts, thereby accelerating the contract lifecycle and ensuring consistency and compliance across all contractual documents. As technology continues to advance, we can expect CLM software to become even more integral to business operations, further solidifying its status as a critical tool for success in the digital age. 

Why is contract lifecycle management important? 

Contracts are the bedrock of all commercial dealings. Just about every organization runs on them for their sales, purchases, NDAs, license agreements, and more.

By the numbers

An estimated 60-80% of business transactions are regulated by written agreements, and PriceWaterhouseCoopers (PwC) estimates a typical Fortune 1000 company might juggle between 20,000 to 40,000 active contracts at any given time.  

Contracting is more centralized and is more likely to be undertaken by dedicated professionals than it was five years ago – and for good reason. According to World Commerce and Contracting (WorldCC) research, good contract management can save up to 9% of a company’s annual revenue. For $100M companies, that amounts to $9M a year. 
 
Despite how critical important contracts are to businesses, the significance of these documents often fades post-signature, as they’re relegated to file cabinets and forgotten in storage systems. Without a systematic method to access or evaluate these contracts, they slip into obscurity, potentially leading to significant consequences for businesses, such as financial losses, damaged reputation, non-compliance issues, subpar performance, unintended renewals, overlooked payments, and penalties. CLM software helps with these pain points by managing all aspects of a contract or legal agreement from creation to negotiation all the way through execution.

What are the benefits of a CLM system?

At the end of the day, the two biggest reasons companies buy a CLM system are to improve efficiency and reduce risk. In fact, 81% of customers surveyed in the Gartner 2020 Magic Quadrant for Contract Life Cycle Management said they bought CLM to create operational efficiencies, while 73% cited compliance and risk management. But the benefits of CLM software extend far beyond these two uses.  

Below are the top benefits enterprises experience when they implement a CLM: 

Streamlined approval workflows 

In the absence of automated approval workflows, contract processing can become protracted, jeopardizing the completion of deals. Contracts often include time-sensitive clauses that, if not executed promptly, can nullify the agreement. The remedy lies in a robust system that mitigates human error by automating the routing and escalation of contract approvals. 

Enhanced compliance

Non-compliance poses significant risks to businesses, potentially resulting in missed opportunities, regulatory penalties, and even the revocation of business licenses in severe cases. Fines alone can cost hundreds of millions of dollars, and even eclipse the billion-dollar mark in worst-case scenarios. Rule-based contract management software is instrumental in reducing compliance issues and maintaining adherence to critical, ever-evolving regulations. 

Improved reporting capabilities

Traditional contract management systems that serve solely as repositories lack the capability to convert complex data into actionable insights. In contrast, a comprehensive CLM system employs metadata extraction, context-driven search, and adaptable reporting to equip leaders with targeted reports for preemptive risk identification. Such systems also offer real-time reporting throughout the contract lifecycle, facilitating timely project completion and resource optimization. 

Revenue gains via cost savings

In an era where businesses are seeking to maximize revenue and minimize costs, the untapped potential of contract data represents a significant opportunity. Properly harnessed, this data can lead to reduced administrative expenses, shorter sales cycles, improved compliance, and better management of renewals and expirations. PwC analysts indicate that utilizing CLM can result in up to a 2% reduction in annual costs and a 75-90% decrease in erroneous payments. 

In addition, CLM programs drive more revenue toward a business by reducing costs associated with contract management. By analyzing the internal workflows of a contract’s lifecycle, all departments can benefit from shorter turn-around times, better negotiations, and less risk. 

Obligation monitoring

Overlooking contract expirations and renewals can expose businesses to legal risks. For instance, unauthorized use of intellectual property beyond the agreed duration can lead to litigation. Conversely, licensors may suffer revenue loss due to missed expiration dates. Quality contract management software with alert functionalities can prevent such oversights, ensuring timely action on expirations and renewals and averting unnecessary expenditure due to auto-renewal clauses. 

Controlled access

In today’s digital landscape, safeguarding sensitive information is paramount. Unrestricted access to systems can result in the unintended dissemination of confidential data or, worse, exploitation by malicious entities. Implementing multi-layered access controls that cater to the specific needs of various departments, divisions, and employee levels is essential to ensure data security. 

Positive NPS scores

Net Promoter Scores (NPS) are a critical metric in business, influencing customer engagement and investment decisions. Cumbersome and manual contracting processes can significantly detract from a company’s NPS, underscoring the importance of efficient contract management practices. 

Adaptability

The business world is constantly changing. From new laws to new markets or new competitors, there are always new challenges emerging across the business landscape. To get ahead in today’s uncertain times, your legal team must keep up with these changes and ensure your contracts are always up to date and compliant. 

The ability to swiftly adapt to dynamic market conditions, such as those caused by COVID-19, geopolitical conflicts, and economic fluctuations, is crucial for businesses. Market landscapes can shift rapidly, often in response to a single social media post, necessitating agility and responsiveness in corporate strategy. 

Liberated contract data

A well-implemented CLM system not only prevents revenue loss but also unlocks valuable business intelligence. While a small fraction of contract language pertains to deliverables, the majority contains untapped analytical potential. CLM enables businesses to access this wealth of information, providing critical insights for strategic decision-making.