By Praveen Kulkarni
Legal Technology is witnessing dramatic growth led by a rapidly changing business and regulatory environment coupled with a high demand for data and information centralization. One sub-set of Legal Technology that has a dominant share of this growth is Contract Lifecycle Management (CLM); a solution that is designed to automate, store and streamline the tedious contract process and improve the turnaround times for vetting and signing contracts.
In recent times, many legal teams had undergone changes at multiple ends. A core support system for any business, legal is now becoming a business enabler. Whereas the process of contracting is beginning to evolve from a revenue bottleneck into a revenue generator. Moreover, it has become expensive and ineffective to manage contracts manually in a still recovering hybrid business world, and companies are finding it difficult to bring about a meaningful change as the process and needs of a contract are highly specialized and have a strong dependency on the legal team .
Legal technology has played an important role in ensuring legal teams are able to effectively manage their workload and enforce business rules to contain risks while reducing human efforts and errors. From an organizational perspective, introducing technology for its contracts allows it to automate many elements of its contracting process. Taking a look at companies that have implemented a CLM, it is possible to categorize the various advantages into 2 classes – improvements in the contracts themselves, and improvements in business relationships.
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It has been observed that companies utilizing technologies for contracts tend to see a reduction in their legal requests and overall workload. While systems assist in automation of contract generation, companies layer search systems with unique workflows to enforce the organization’s established SOPs, procedures & policies. Combined, these 2 factors may help companies increase output, reduce errors and avoid risks. Moreover, from an optical standpoint, automation also ensures uniformity of language and structure. In a few instances, technology has helped companies even identify gaps in their current processes which were optimized after introduction of relevant systems.
The potential of technology does not stop there, it may improve and enhance contracts in other ways too. One of the primary concerns many legal teams have today is that they find it difficult to collaborate with other stakeholders. Most contracts go through multiple iterations and changes before getting finalized and legal teams are forced to store all versions manually and track progress on emails. Therefore, many General Counsels try to equip their teams with systems which can undertake these manual activities and relieve the legal professionals, allowing them to focus on productive activities.
Moreover, systems address another important concern of legal teams: Data Visibility. By creating a searchable centralized repository of contracts online, users get a wide visibility into their content, including key obligations. Depending on the companies’ needs, it is possible to integrate multiple systems to enable automated data sharing that not only reduces manual data entry, but also reduces the scope of errors and improves cross-functional collaboration. Additionally, business risks like missed contract deadlines, contract expiration, unfulfilled obligations, etc. are prevented.
Through integrated use of specialized technologies like artificial intelligence (AI/ML), online editors, electronic signatures, optical character recognition (OCR), etc., companies have exponentially increased the benefits they take away from digital contracting. By implementing a CLM, companies are able to churn and review more contracts in a shorter period of time while easing the entire negotiation process which is one of the primary reasons for contractual delays and operational bottlenecks that cost the business dearly.All put together, technology has been successful in significantly reducing contract cycle times, onboarding third parties (clients, suppliers, partners, employees, etc.), expediting transactions, reducing risks, increasing visibility and improving relationships.
The revenue impact of a CLMmay happen in two ways – first is through the reduction of revenue losses due to prevention of penalties arising from compliance-related disputes, stoppage of sales or production due to expired contracts, or standardization of rates from vendors leading to optimised rates etc. It has been seen that this point – expired contracts & obligation management for operational contracts is one of the biggest pain points of organizations.The second way is faster & higher revenue generation – in its own way, a CLM helps in generation of revenue. This is achieved through faster onboarding of customers, speeding up of processes as well as streamlined vendor relations and more.
Furthermore, using AI/ML functionalities one can rapidly extract important information from contracts, create summaries capturing even the implied meaning [depending on different scenarios and training], reviewing documents, leading to lesser cycle times and faster discovery of options. The future holds much more promise – with the coming age of smart contracts whereby the contract can automatically execute the pre-approved payouts / outcomes based on set conditions, leaving humans free to work on performing the conditions and obligations. Once satisfactorily done – these lead to instant completion, ensuring higher and timely receipt of payments (depending on different scenarios) saving time & cost as well as enhancing focus on the business rather than the papers of the business. As a result, we may see an impact on the revenue and or the profit margins.
Modern management considers relationships in business a key deliverable parameter; while a lot admittedly goes into building a successful enriching business relationship – there are three key aspects of this subject that fall into the purview of the CLM. Namely, transparency of processes with ease of operation, accurate and timely completion of business deliverables, and thirdly generation of tangible value from the said relationship. A CLM can simplify business processes, speed them up; this leads to less time and energy of the partners or employees being spent on low value add tedious tasks. Further, a CLM helps in searching contracts and tracking the status of important action items for either side, including performance reviews and contract renewals – ensuring success of the transaction, business continuity resulting in better stronger relationships.
Another area of a business relationship is managing contractual disputes and avoiding expensive litigation. Integrating contract-specific systems with tools designed for tracking matters and disputes also allows users to effectively manage and resolve disputes arising from contracts.The benefits of technology also includes improved relationships with internal stakeholders due to reduction of manual efforts and improvements in overall output. This reduces the employee workload and gives them an opportunity to contribute in other areas of the business.
The impact can be a reduction in manual effort, freeing up of resources for more productive use, smoother, more streamlined faster processes, and superior workload management, all of which goes to enhance the overall productivity of the organization. This increased business productivity and efficiency in an atmosphere of transparency, online ready information flow, and automated paperless flow of processes creates an enhanced relationship based on trust and mutual confidence both internally and externally. This ultimately translates to a positive impact on revenues as well as profits arising from higher revenues at a lower cost.
The learning from all this is that the modern topline CLM solution is now close to reaching the potential to transcend from being a simple add-on solution to becoming a DSS, that is a Decision Support System. Early trend identification, transparency, highlighting upcoming risks etc go a long way in enabling the senior management in making the right decisions. Thus, for the modern VUCA world, the CLM is now a powerful tool in the portfolio of organizational systems that strengthens the bedrock of the organization and lubricates its systems enabling them to perform with increased efficiency.
(The author is co-founder & director, PracticeLeague. Views expressed are personal.)