Contract Life-Cycle Management as a Cornerstone of Legal Department Transformation

Organisations face intense pressures to stay competitive and efficient across all their functions, including legal and compliance, which has to deal with complex and changing regulations that often add to their legal workload. In this context, they cannot simply cut costs by reducing legal staff, but need to embrace innovation and find new ways to optimise their legal function. Legal, like any other function, such as procurement, marketing or sales, has to demonstrate its value to business, efficiency and justify its costs of operation.

It is imperative to understand the technology available today and how it can be smartly embedded into the existing legal process and technology framework. Case in point: some tasks, especially those that involve repetitive work with large volumes of data, can be efficiently supported by LegalTech. At the same time, workflow capabilities enable the tracking of the work status, ensuring that focus is on priorities and efficiency, while also allowing the measurement of the actual workload in a more quantifiable way (eg, ticketing and triaging tools).

Implementation of LegalTech is not the end of the process or the guarantee of benefits. In fact, it should only be the beginning of a journey, as companies need to choose the right tools so that they meet the specific business needs, and, ultimately, justify the implementation from the cost-benefit perspective. The choice of the solution must reflect the tasks, the composition of the legal department and the IT infrastructure of the organisation as a whole. For this reason, the selection of the right product often requires advice from professionals with relevant experience in law, and understanding of the client business, industry and IT implementation. It needs to be understood that the authors are talking about transformation and many of these projects fail. Therefore, change management must be thought about from the very beginning and is a key success factor.

Consider that every euro that goes in the organisation as revenue and every euro that leaves as procurement expenditure is governed by a contract. Hence, contracts are a focal point of commercial value realisation. Modern CLM systems enable the management of any contract (ie, sales, procurement, legal, IT, finance or even HR contracts with employees). This is why CLM is so essential and is referred to as the fifth system of record (next to: ERP – Enterprise Resource Planning; CRM – Customer Relationship Management; HCM – Human Capital Management; and procurement suites). CLM enables organisations to have a clear and comprehensive view of their contractual obligations and rights, risks and opportunities residing in them and to manage them effectively and efficiently.

Legal departments usually play a crucial role in implementing and overseeing CLM processes. Effective CLM management helps legal departments, on the one hand, internally – assuring compliance with legal standards (templates, and T&Cs); and on the other hand – compliance with regulatory requirements. By using dedicated IT solutions, legal teams can save time and costs, automate and streamline various aspects of CLM and enhance control over their contract portfolio. The vision is that contracts become digital artifacts that grow with the changing internal (eg, new products and services offerings) and external conditions (eg, shifting regulations).

The adoption of CLM tools is revolutionising the way professionals in different departments approach their responsibilities, introducing a new paradigm of streamlined operations and increased productivity. These tools provide invaluable real-time visibility into the entire contract life cycle by creating a “single source of truth” – a fully searchable, Google-like single repository, empowering decision makers with structured, data-driven insights in minutes and hours and not in weeks and months across the entire portfolio of thousands and thousands of contracts.

A key benefit of CLM tools is their automation and self-service capabilities, which significantly reduce the workload on human resources. This does not only free up valuable time, but also allows professionals to focus on higher-value tasks, ultimately increasing overall productivity within the organisation. By promoting standardisation and automation, CLM tools help to reduce the number of contract errors, amendments and re-negotiations. The resulting acceleration in contract processing not only facilitates faster delivery of goods and services (time-to-market), but also minimises administrative costs, making operations more cost-effective.

CLM tools play a pivotal role in proactively managing risk and contract performance, introducing a comprehensive framework that ensures compliance, protects the organisation’s interests, preserves its reputation and even enables margin increase (eg, through internal contractual terms, benchmarking or back-to-back agreements). This proactive approach reduces the likelihood of non-compliance and subsequent penalties.

CLM tools also enforce essential approvals and reviews, creating a structured framework that improves control and compliance, promotes a culture of accountability and reduces the likelihood of non-compliance and associated legal consequences. Not infrequently, a well implemented CLM solution guarantees 100% adherence to company policies; eg, POA – power of attorney. Efficient management of contract terms through CLM tools results in a significant reduction in deviations from standard terms and conditions, streamlines negotiations and contributes to the overall risk mitigation strategy by reducing legal costs associated with disputes.

Beyond the operational and financial benefits, the deployment of a CLM tool at a strategic level aligns the contract process with the broader organisational strategy, contributing directly to the company’s overall objectives, often aimed at reducing costs (bottom line) and increasing margins (top line contribution).

Accelerated contract processes facilitated by CLM tools lead to faster time-to-revenue and improve the speed of delivery of contracted goods or services, providing a competitive advantage in the marketplace. CLM analytics and reporting enable organisations to negotiate better contract terms, resulting in improved margins. These tools also promote streamlined collaboration between the various departments and stakeholders involved in the contract life cycle, strengthening internal and external relationships and ensuring a cohesive approach to achieving organisational goals. In summary, from operational efficiency and risk mitigation to revenue optimisation and strategic alignment, CLM tools provide a holistic solution to the complex challenges faced by organisations.

In conclusion, CLM is not just “nice to have”, but a must-have for businesses that want to stay competitive in the current market environment. While the authors estimate 80%+ of companies worldwide not having the CLM capability yet, the authors expect all of them to “do something” about CLM in the next 1–2 years. For now, it can be a source of competitive advantage reducing value leakage by 2–4%, but soon it will be a condition to remain relevant.