Contract management: the case for digitization

In a recent blog, I highlighted the importance of a proactive approach to contract and commercial digitization. Many still hesitate – they want to know what benefits it will bring, they say they can’t obtain funding, they even ask ‘what is digitization?’. So I promised a series of case studies and this is the second of them. The core message: if you hesitate, you will have been left behind.

Case study #2: Contract Digitization 

This project, undertaken by the legal and contracts team in a $25bn services corporation, gathered over 10,000 contracts from North America and Europe. It undertook a process of digitization covering agreements in multiple languages. This initiation activity took several months to complete, but once consolidated into a central repository, immediate benefits started to flow. These were not only in the management of each existing agreement, but also in the creation of new contracts.

A combination of digitization, automation and enhanced reporting capabilities generated a wide range of business improvements. The global contracting process was truly harmonized for the first time and many previously manual activities were eliminated, leading to cycle time reductions that are on average greater than 25% (for example, typically representing a 4.5 week improvement in time to signature). The freeing up of commercial resource, together with the alerts generated from within a single repository, has created a much closer and more strategic relationship with other functions – for example, working with Sales and account management on improved planning and management of renewals and opportunities for consolidation and – most important – regular reporting to executives on key business and commercial indicators and trends. These reports are starting to impact much wider business decisions and are being seen as critical sources of management information.

The benefits of analysis

Until organizations actually have an ability to undertake large scale analysis, they typically do not appreciate all the valuable insights they can gain. For example, at a customer level it is now possible to start observing the variations across contracts and to propose ways that they might be harmonized or optimized. Within industries, sectors or jurisdictions, patterns can be sought, enabling better anticipation of issues and term and condition requirements, resulting in far less need for negotiations. Similarly, comparisons across market sectors or geographies, or across service types, offer insight to levels of risk or comparative margins. Business information at this level rapidly shifts the role of contracting from being an artisan skill, based on experience and opinion, to the status of a fact-based science.

Nice to have or must have?

The benefits above will appeal to many, but the skeptics may suggest the benefits are too nebulous, that other projects should take priority. So for those who don’t think it’s important to invest in the quality of customer and market relationships, there is also hard data.

Through contract intelligence, this organization generated more than $18m of financial gains in the first 6 months of operation of the new system. Not counting the benefits of shorter cycle time or workload reduction (which largely impacted the use of contract labor), the digital initiative has been especially effective in areas such as obligation management, avoidance of scoping issues, reduction in liquidated damages, service credits and ‘goodwill’ write-offs. It has also supported identification of contract growth opportunities and capture of earn-backs or gain share. Finally, the flow-through is also being seen in procurement and sub-contracting, through greater control of business unit spend decisions.

It is early days and still the long term implications are being discovered. A recent example is the extent to which there is now greater standardization of contract drafting, plus a new initiative to simplify contract design, to support greater ease of use and understanding.

The decision remains optional

In IACCM’s current benchmark survey, more than 60% of participants highlight that automation initiatives are now a priority. For some, this is a new direction; for others, it is enhancing or replacing what they have. But many, while recognizing a need, will still struggle to gain buy-in, or find themselves on a long and tortuous journey to identifying a solution. These case studies should act as an inspiration – and if that’s not enough, contact IACCM for help! Keeping pace with the digital age truly isn’t optional; it’s a matter of survival.