3 Reasons Digital Transformation Should Begin with Contract Management
by Dermot Whittaker on November 27, 2018
As technology evolves, companies must update their processes and software to remain competitive. This process of “digital transformation” can be applied very effectively to contract management, where the return on investment can be realized in the short-term, with potential for ongoing savings as more contract types and business units are included.
Digital transformation looks different depending on a company’s needs and current processes. No matter how you use technology now, your organization will eventually need to make changes to operate successfully with your clients and vendors – and alongside competitors.
By putting contract management at the forefront of your digital transformation – that is, by adopting contract management automation – your company will benefit in at least three ways. Once you know more about the role that contract management automation plays in your company’s success, you’ll understand the importance of putting it first in your digital transformation plan.
Digital Contract Management Leads to Improved Negotiations
Contracts sometimes require several rounds of negotiations. With each step, the parties involved come closer to an agreement that benefits all sides. With each round, however, routine processing adds time. Routine processing includes
- Comparison of contract versions to ensure that all the counterparty’s changes are recognized
- Review of key changes by stakeholders at your company, particularly by the legal team
- Confirmation that a contract version has been reviewed and approved and now is ready for signature or for another round of negotiation
Time is your enemy when trying to finalize a contract. As more time passes, people re-examine what they’ve already agreed to or start to question whether they want to proceed. The value that the contract represents is delayed until it is finally executed.
Digital transformation reduces time and effort in contract negotiations.
- Automated version comparison lets you see any change made to a contract, regardless of whether a “track changes” feature was employed by the counterparty while editing. This lets you focus on the substance and implications of the changes themselves.
- Review and approval of changes can be managed by a workflow that directs each stakeholder to the draft contract in a common repository. Once a version is returned by the counterparty, the contract management system alerts the lawyers, business users, and executives to their tasks of review and approval either concurrently or in a prescribed order.
- Once all stakeholders have reviewed and responded to the changes offered by the counterparty, the point person in the negotiation can see that all reviews are complete and can take the new version of the contract as the one to send to the counterparty.
Contract management automation also benefits you when you renew agreements with clients and vendors. Contracts in the system can be linked to reporting on spend and savings under contract – in other words, how well the contract has performed for your company. Being certain of that value allows you to renew or renegotiate the terms of the contract with confidence.
If you only have access to isolated electronic documents or signed paper contracts, you will find it harder to notice trends. Digital transformation of your contract management process means that contracts are always easy to access and track.
Increase Contract Compliance with Digital Contract Management
Reaching an agreement only benefits your business when all parties involved fulfill their obligations. When clients and vendors don’t follow through, you miss out on the payments and services that you needed to make the agreement worthwhile.
Without digital transformation, the following problems can occur
- Contract obligations remain hidden within the executed contract once it has been filed – whether on a shared drive or in a file cabinet.
- Contract obligations are never checked because they lack owners and due dates.
- Obligations are fulfilled late for lack of alerts and reporting.
By putting automated contract management at the front of your digital transformation, you can emphasize the reporting and fulfillment of contractual obligations.
- A contract management system can associate distinct obligations with the contract itself, drawing on the precise language in the contract or breaking an obligation down into milestones that show partial completion.
- Obligations in a contract management system include additional information such as due dates and owners – persons within your organization responsible for confirming that payments are made or that work is completed. This metadata can be used to drive workflows that keep the obligation owners informed and up to date.
- Obligations that are approaching their due dates or at risk can be clearly seen in auto-generated reports. These reports show system users the status of obligations based on contract, counterparty, or owner. Obligations that are at risk can generate auto-alerts before the due date or provide escalation notices to managers of obligations that are uncompleted.
- Where contract language addresses remediation for late or incomplete obligation fulfillment, a contract management system can point contract managers to those clauses, allowing for quick responses by your company’s team.
Digital transformation provides value as well as efficiency. Without software to help you monitor contract compliance, you may not get the deal that you thought you would.
Digital Contract Management Improves the Efficiency of Sales Teams
Sales teams spend valuable time finding the right contract and getting it to the customer. If you don’t use contract management software, members of your sales team may be guessing what to send. They may choose contracts based on a review of previous contracts and trust to similar agreements when they start negotiating new deals. In addition to the risk that creates, the sales team’s time is better spent following leads, talking to potential clients, and forming relationships with other businesses.
Without digital transformation, sales contracts can become a problem.
- The right contracts for particular deal types may be hard to locate without a dedicated repository for contract templates.
- The language can undergo changes when multiple sales team members save and reuse their own versions of contracts
- Legal input can come late in the process, delaying or even derailing a deal because an out-of-date or inadequate contract was used as a starting point.
With a contract management system, you can automate many tasks to give your sales team more time for productive work. You can also keep the agreements that sales uses uniform and protective of the company’s interests.
- Contract automation systems allow for self-service contracts -- up-to-date contracts available to the sales team with language that legal has approved for certain types of sales.
- Contracts can only be requested by sales and approved by legal within the contract management system, so unapproved versions living on hard drives can no longer put the company at risk.
- More complicated agreements can be initiated by sales but reviewed by legal in a required workflow that allows for negotiation and flexibility but still maintains a disciplined process.
Digital transformation of your contract management process allows for workflow automation, making it possible for all parties involved to track a contract’s progress from beginning to end. With workflow automation, everyone gets alerted when a party signs the contract or requests a change to the deal. The more complex your contracts are, the more helpful task and workflow automation become.
The longer you wait to upgrade from person-to-person contract processes, the more opportunities you lose. Put contract management at the beginning of your digital transformation so you can improve your negotiations, contract compliance, and sales profits.