What’s Wrong with Contract Management Software?
With time, CM software vendors will grow to match the breadth of the existing opportunity.
In a recent poston his blog, Commitment Matters, Tim Cummins of IACCM observes that, while the usage of contract management (CM) software has increased substantially in recent years, it hasn’t quite lived up to the original hype. As a CM software company, we agree that many vendors and companies alike have been slow to recognize the full range of potential benefits from CM. Instead, vendors have specialized on one or two dimensions of CM – such as centralized storage or speedy drafting – while neglecting other parts of the contract lifecycle. The degree of customization thought necessary to meet individual corporation’s unique needs has often led to a cumbersome end-user experience, which discourages use, thus undercutting the inherent value of the solution.
But before you resign yourself to an eternity of contract blindness, there is hope. Many companies actually do get many things right. Tim mentions some areas – here in quotation – that he claims could jumpstart adoption, namely:
Data: “Contracts are a great untapped bastion of data.”
This is the crux of what so many CM vendors have been missing. Companies seeking a CM solution could do so much more than simply organize and structure their contract portfolio. Why would they settle for mere organization and efficiency when they could use CM software to gain access to the wealth of data imbedded in their contract terms in order to achieve better insight into all areas of the enterprise, from sales to HR? As we’ve written about this topic before, we won’t go in depth here, but feel free to check our previous post about how contract data adds value across the business. In short, a company’s contracts contain virtually every piece of important information about an enterprise and its clients, interactions, vendors, employees, assets, obligations, and sales; putting that information to work by analyzing this embedded data means unprecedented insight, which means more power and less risk.
Relationships: “Contracts are related to relationships.”
Historically, CM solutions have neglected to appreciate the legal complexity inherent in contract management. A vendor may have assumed, for example, that a contract is simply a transaction between two parties, while failing to recognize multilateral contracts, the legal distinction between parties and third parties, the concept of principal and agent, and the fact that one document can spawn multiple contracts. But just because recognizing the relational nature of contracts isn’t the norm doesn’t preclude some of the best vendors from appreciating that contracts are not static and separate from the context in which they operate.
Complexity: “Contracts are interdependent.”
This is part of the bigger point that contracts are messy, complex, and inter-reliant. Understanding contracts depends on understanding the way documents such as amendments, master agreements, statements of work and purchase orders interact with them. It depends on understanding renewals, assignment and novation. But most of all, it depends on recognizing that, contrary to what many people might naturally assume, contracts follow very few rules and are indeed a tool for bending and shaping rules, which means that only the best vendors are able to model them as structured data.
One thing that Tim did not mention in his post, but that we think is worth mentioning, was the failure of many CM vendors to adequately automate the creation and negotiation processes. When these are improved on sell-side contracts, the perception of CM can shift from a cost-reducer to a real revenue generator. When, for example, CM software can signal certain contracts for preapproval, salespeople are equipped to push through those urgent, hard sales without wasting time – and potentially losing an opportunity – by handing the contract over to legal to be drawn up, reviewed and/or approved. Often being the first to present a great contract means the difference between walking away empty handed and walking away with a sale.
We have always appreciated that the true value in CM was more than merely in organizing clutter and speeding up burdensome processes – the key is helping companies deal with the multilayered complexities of their entire contract portfolio and lifecycle while gaining unlimited visibility into contract data. While, as Tim mentions, much of the industry is still too narrowly focused on meeting customer demand rather than shaping demand based on innovation, it is still early days. As he points out, there is still “a massive market opportunity;” big steps are being made all the time, and we remain excited about the places we’ll go.