Contract lifecycle management (CLM) is the automated and disciplined process of overseeing every aspect of a contract, from initiation to renewal or expiration. It ensures efficient tracking, management, and compliance, mitigating risks and enhancing the performance of crucial agreements.
Regardless of industry or audience, when you peel away everything else about business, it all comes down to interactions between people. Often, these interactions are complex, covering multiple stages and outlining reciprocal obligations. The legally binding contracts that help formalize these agreements and clearly specify what each party can expect to receive (and be expected to do) are central to establishing the framework for organizational operations. Of course, as companies navigate an increasingly complex legal and regulatory landscape, effectively managing and maintaining contracts becomes increasingly difficult.
Contract lifecycle management (CLM) exists to streamline these processes, guiding essential contracts through the entire lifecycle—from conception and negotiation to execution, ongoing compliance, and eventual renewal or conclusion.
To understand the importance of contract lifecycle management, it is worth taking a closer look at the processes that define how contracts are developed, executed, and followed up on. Each of the following stages represent a crucial step in the contract's journey—from conception to conclusion:
The process starts with a business need for a transaction with another party. This could be to purchase goods or services, close a sale, formalize a partnership, or other transactions. The request can be submitted by any employee in an organization. Requests can be for a new contract or review of the third-party contract. For a new contract the request would include the purpose of the contract, the type of party (customer, partner, vendor), name of parties and other information required for the specific contract type. A third-party contract review request would include the contract such as a MSA (master service agreement) and any supporting documents such as a NDA (non-disclosure agreement) or SOW (statement of work).
The process details the contract's basic terms, conditions, and obligations. This stage sets the groundwork for a clear and unambiguous agreement, establishing expectations for all involved parties. Contracts, by definition, include more than just a single party. Negotiation allows decision makers on both sides of the table to refine the contract terms, ensuring mutual agreement and satisfaction. Effective negotiation brings together and smooths out conflicting interests and paves the way for a mutually beneficial solution. Review by legal staff and relevant stakeholders helps identify (and resolve) any potential pitfalls in the contract. In medium and enterprise businesses, multiple departments may be called upon to review specific sections. This ensures that the contract aligns with legal requirements and organizational policies, providing a comprehensive evaluation before moving forward.
The formal signing and activation of the contract bring it to life. This stage involves obtaining signatures from all involved parties, signaling commitment, and initiating the contractual obligations. eSignatures technologies are most used although sometimes a wet signature is required.
Signed contracts must remain available and retrievable so that they may be referenced at any time. A centralized repository ensures accessibility, facilitating compliance monitoring and quick responses to queries or disputes. This may be on premise or using a third-party cloud storage system.
Contracts do not stop once they are stored. Organizations need to manage ongoing obligation, track key milestones, and expiration dates. Workflows may be used to comply with obligations.
Employing analytics allows organizations to derive insights into contract efficacy and other areas for improvement, providing a foundation for data-driven decision-making. Monitoring compliance, performance, and risks over the contract's lifespan allows for greater control in managing and optimizing contractual relationships.
Each of the stages described above represents areas of potential risk where a single mistake or overlooked responsibility can quickly spiral out of control, disrupting the contracts that define business interactions. A well-defined CLM framework streamlines this entire process, delivering a range of advantages:
Transparency serves as the soil of fruitful business relationships. With CLM, stakeholders can access, understand, and act on contract data quickly, promoting clear and direct communication. This transparency extends to tracking and reporting performance as well, ensuring all parties involved are well-informed and collaborating to create an environment conducive to working relationships.
CLM offers enhanced capabilities for monitoring and managing risks associated with interacting with other parties. By providing quick access to data and facilitating regular audits, CLM safeguards against potentially costly errors while ensuring adherence to compliance policies and regulatory rules.
If efficiency is the currency of modern business, CLM is a veritable money-printing machine. Established workflows and administrative control within CLM systems identify and address issues promptly, accelerating processes and optimizing the time and value of each contract. The result is a more agile and productive business environment.
The streamlined contract management process does more than mitigate the risk of revenue loss; through the improved efficiency mentioned above it also contributes to cost reduction. With transparency, data-driven decision-making, and optimized contract lifecycle values, CLM can be instrumental in enhancing overall revenue and ensuring the financial success of the organization.
In addition to the advantages identified in the previous section, contract lifecycle management further supports organizations by providing:
Faster contract lifecycles
CLM expedites the entire contract process—creation to execution and beyond. Automated workflows and streamlined processes significantly reduce the time it takes to bring a contract from inception to completion.
Easier contract authoring
Standardized templates, clear language, and collaborative tools are all central to most CLM solutions. These represent opportunities to simplify the contract authoring process while keeping everything consistent and accurate.
Clear contract negotiation
Through collaborative CLM tools, all stakeholders can participate in real-time discussions, track changes, and reach consensus quickly, leading to clearer and more satisfactory contractual terms.
Simple signature processes
Integrated eSignature capabilities have the capacity to speed contract execution while also reducing the need for difficult-to-track paperwork.
Effortless obligation management
CLM ensures that contractual obligations are clearly defined, closely tracked, and thoroughly managed. Automated alerts and reminders help organizations stay on top of commitments, reducing the risk of oversight and non-compliance.
Detailed analytics
Able to handle vast volumes of information, CLM solutions provide detailed data analytics, revealing insights into key metrics, risks, and opportunities. This data-driven approach empowers informed decision-making and continuous improvement.
Optimal change management
CLM accommodates changes to contracts seamlessly. Whether it's amendments, renewals, or modifications, the system ensures that changes are documented, communicated, and executed with precision.
Mobile accessibility
Contracts can be extremely time sensitive and won’t always wait for reviewers or signers to settle in at a desktop computer. Mobile accessibility allows stakeholders to access and manage contracts from anywhere. This fosters flexibility, especially in a dynamic business environment where remote collaboration is becoming increasingly vital.
Improved workflow collaboration
Finally, CLM enhances collaboration among team members involved in the contract lifecycle. Centralized access, real-time updates, and collaborative features foster a cohesive workflow, promoting efficiency and reducing communication gaps.
The advantages associated with CLM should not be overlooked. Unfortunately, contract lifecycle management also carries with it several challenges organizations must overcome before they can enjoy the full extent of the benefits it brings to the table. Recognizing and addressing these hurdles is imperative for organizations aiming to maximize the efficacy of their CLM strategies:
Contracts often contain complex legal language, leading to ambiguity and potential misinterpretation. Address this issue by standardizing contract templates with clear, concise language. Involve legal experts to ensure clarity and align contracts with industry standards. Implement training programs to enhance understanding among stakeholders.
Without a standardized set of processes, organizations are likely to experience delays, errors, and inefficiencies in their contract lifecycles. The answer here is to implement a consistent CLM workflow. Clearly define roles and responsibilities and establish approval hierarchies. Automate any simple, repetitive tasks. Regularly review and optimize the process for continuous improvement.
A single contract may be easy to keep track of, but as that number grows so does the complexity of CLM. Managing a high volume of contracts can result in disorganization and accessibility issues. Centralized contract repositories and document management systems help combat problems associated with storage and organization. Use these tools to implement detailed categorization and tagging systems for easy contract retrieval. Regularly audit and archive outdated contracts to declutter the system.
Tracking the status and performance of contracts manually can be time-consuming and error prone. This is a relatively simple issue to address: Implement a CLM system with tracking and reporting capabilities and utilize key performance indicators to monitor contract milestones, deadlines, and compliance. Take things further by leveraging automation to provide real-time updates.
Not everyone who is involved in a contract necessarily has the same ideas about how it should progress, and an absence of alignment among stakeholders can lead to conflicting priorities. To create an environment of collaboration and common objectives among decision makers, establish clear communication channels and conduct regular meetings with the purpose of aligning goals and expectations. Ensure that all relevant parties are involved in the contract creation and approval processes from the beginning.
As always, transparency is fundamental. Without clear visibility into relevant data, goals, and contracts, stakeholders may misunderstand certain specifics or find themselves working at cross purposes. Accessibility reporting mechanisms can enhance transparency, and CLM tools create audit trails and track document changes so that everyone can see where the contract is and where it has been.
Effective contract lifecycle management is built on a proven set of best practices associated with three key areas: planning, implementation, and utilization:
Begin by understanding existing contract processes. Visualize the desired future state, identifying areas for improvement and efficiency gains.
Clearly define success metrics for the CLM implementation, aligning them with organizational goals. This provides a roadmap for measuring the effectiveness of the CLM strategy.
Ease into CLM implementation gradually. Starting with a pilot project allows for iterative improvements and minimizes disruptions to ongoing operations.
Secure executive support and buy-in for CLM initiatives. A commitment at the leadership level fosters organizational alignment and prioritizes the success of the CLM implementation.
Implement a healthy governance structure for CLM. Define roles, responsibilities, and decision-making processes to ensure smooth implementation and ongoing management.
Provide comprehensive training to team members involved in CLM. Empowered and knowledgeable teams contribute to the successful adoption of CLM tools and processes.
Prioritize contracts based on criticality and urgency for migration. A phased approach allows for systematic migration, minimizing disruptions and ensuring data integrity.
Conduct rigorous testing of CLM systems before full-scale deployment. Identify and address any issues, ensuring that the system operates seamlessly while meeting organizational needs.
Opt for a centralized cloud-based repository for tracking and managing contracts. This enhances accessibility and collaboration and ensures real-time updates.
Incorporate eSignatures to streamline approval processes. This accelerates contract execution, reducing delays and enhancing overall efficiency.
Implement automated notifications for key contract milestones and obligations. This ensures timely action and minimizes the risk of oversight.
Perform regular audits to assess contract performance and review compliance. This proactive approach mitigates risks and ensures adherence to contractual obligations.
Prioritize security by leveraging single sign-on (SSO), data encryption, and permissions features. Protect sensitive contract information and restrict access to authorized personnel.
Consistently monitor financial data associated with contracts. This practice facilitates financial planning, risk mitigation, and the identification of opportunities for optimization.
Regularly assess contract trends to identify patterns, opportunities, and potential areas for improvement. Data-driven insights contribute to informed decision-making and continuous improvement.
The term contract lifecycle management describes the overall process of governing the contract lifecycles. Typically, the tools organizations use to optimize this process take the form of contract lifecycle management software solutions. CLM software is designed to optimize and automate the entire contract workflow within organizations. It encompasses a comprehensive range of functionalities—from the initial stages of contract creation to ongoing tracking and reporting—providing an integrated approach to contract management.
CLM software stands apart from point solutions (such as contract negotiation or reminder software) by offering features that cater to every phase of the contract lifecycle. Rather than focusing on isolated aspects, CLM platforms provide a unified workspace that allows teams to efficiently oversee contracts start to finish. This holistic approach ensures a seamless and consolidated management process, enhancing collaboration and effectiveness across the organization.
Not all CLM software solutions are the same, but the most effective options share many common features. Among the most relevant are:
An integral aspect of effective contract management is the ability to receive alerts and notifications about key milestones. These can include alerts for escalation points, renewal dates, and expiry dates. Proactive alerts enable timely action, reducing the risk of missed deadlines and facilitating effective contract oversight throughout its lifecycle.
Indexed search empowers users to swiftly find specific terms within contracts. This feature enhances efficiency by eliminating the need for manual searching, enabling quick access to critical information. This is particularly valuable in large contract portfolios where rapid retrieval of specific details is essential for timely decision-making.
Contract drafting features in CLM software leverage pre-approved clause libraries, digital signatures, and industry-specific templates. This not only expedites the drafting process but also ensures consistency and compliance with industry standards. The use of digital signatures further accelerates contract execution, reducing reliance on manual processes and paperwork.
A cornerstone feature of CLM software is document management. This entails maintaining a central repository housing current active contracts, templates, and the complete history of contracts. This centralized storage ensures easy accessibility and facilitates version control, minimizing the risk of errors and providing a comprehensive overview of the organization's contractual landscape.
Compliance features encompass version control and an audit trail, ensuring transparency and traceability of all changes made to contracts. This supports internal governance while also aiding in tracking adherence to regulatory and statutory requirements.
The reporting functionality in CLM software goes beyond basic analytics. It allows for the creation of customized reports on supplier performance and contract status. A visual dashboard provides a comprehensive view of critical metrics, empowering stakeholders with actionable insights. These reports contribute to strategic decision-making, performance evaluation, and continuous improvement in contract management practices.
Contracts can take many forms. One distinction worth recognizing in contract lifecycle management is the difference between buy-side and sell-side CLM.
Buy-side CLM involves drafting contracts for the procurement of goods and services from suppliers. It focuses on negotiating the best price, optimizing spend under management, and improving efficiency to meet procurement deadlines.
Sell-side CLM pertains to contracts arranging the sale and delivery of goods and services to a buyer. For sell-side contracts, time-to-sale is a critical metric, and modern CLM solutions are adopted to streamline processes—preventing delays and potential loss of deals. Pricing information in existing contracts aids in devising effective pricing strategies.
Selecting the right CLM software is a strategic decision that requires careful deliberation. Here are key factors to keep in mind when making this crucial choice:
Assess which stages of the contract lifecycle pose the greatest challenges for your business. Evaluate how each CLM platform delivers value at these specific stages and identify any missing core features. Tailoring the software to address your unique workflow pain points is essential for maximizing efficiency.
Consider the complexity of your contracts. Determine whether you handle standard agreements that demand consistency or heavily negotiated contracts with intricate terms. Choose a CLM system that aligns with the complexity of your contracts, ensuring seamless management and adherence to specific requirements.
Understand the budget allocated for a CLM tool, considering potential onboarding fees along with the upfront costs. Evaluate whether user-based pricing aligns with your team's budget and if any additional tools are necessary. Striking a balance between features and affordability is crucial for a sustainable investment.
Identify the business platforms you wish to integrate with your CLM software. Confirm the availability of these integrations in potential tools and assess their effectiveness and affordability. Seamless integration with other business systems enhances overall productivity and collaboration.
Determine the urgency of deriving value from the CLM tool. Assess whether your team has the time and resources for an extensive implementation or if you prefer a quicker, out-of-the-box solution. Aligning the implementation period with your business needs ensures a smooth adoption process.
Your business is built on relationships, and those relationships are defined by contracts. ServiceNow, the leading provider of IT management solutions, is here to help you optimize your approach to contract lifecycle management.
ServiceNow Contract Management Pro (CM Pro) is an agile, cost-effective, workflow-based solution for customers considering a contract lifecycle management (CLM) tool. Built in close collaboration with ServiceNow customers, CM Pro delivers the highest value capabilities of a legacy CLM – but is easy to implement, configure, and use. Legal, Procurement, Sales and IT teams can use CM Pro to drive efficiencies and reduce risk — key capabilities include self-service, templates, repository, audit trail, and obligation management via enterprise grade workflow capabilities. CM Pro also comes integrated out the box with ServiceNow Sourcing and Procurement Operations, allowing procurement teams to tap into the power of the solution to further streamline the procurement process.
Check out the Contract Management Pro Data Sheet for more information.